Yes, An Agency Can Change the NAICS Code from One Iteration of a Contract to the Next

As the incumbent contractor, you’re excited to bid on the successor contract. The day it’s posted, you dash to, pull up the solicitation, and breathe a sigh of relief: the contract is still exclusively a small business set-aside. But wait! Under the assigned NAICS code your business doesn’t fall below the size standard.

Can the agency change the NAICS code from one iteration of the contract to another? Sure, so long as the selected NAICS code meets the regulatory standard.

In NAICS Appeal of STG, Inc., SBA No. NAICS-5936 (2018), OHA considered a solicitation, issued by the Department of the Army, for “[n]on-personal information technology (IT) services and support requirements.” The contracting officer assigned the procurement NAICS code 541513, Computer Facilities Management Services, which carries a $27.5 million size standard. STG, the incumbent contractor, disagreed with that selection. It contended that the NAICS code, assigned to the existing contract, was the correct one, namely NAICS code, 517110 (now NAICS code 517311), Wired Telecommunications Carriers, with a 1,500-employee size standard.

STG’s arguments largely took the if-it-ain’t-broke-don’t-fix-it line. It asserted that the contemplated contract contained requirements substantively identical to its contract. And, in an appeal to history, STG noted that the agency had used NAICS code 517311 on predecessor contracts for more than a decade. Further, it argued that NAICS code 517311 focuses on telecommunications and networks—the procurement’s essence—not the computer management field covered by NAICS code 541513.

But STG’s cries did not move OHA, which sided with the contracting officer. Two points from OHA’s analysis are worth mentioning here.

First, OHA isn’t persuaded by a prior contract’s NAICS code designation—unless OHA previously reviewed or affirmed it. OHA explained the principle this way:

Here, Appellant argues that the CO’s designation of the instant procurement under NAICS code 541513 is erroneous because the predecessor contract, upon which Appellant was the awardee, was designated under NAICS code 517311. However, OHA never reviewed or affirmed the NAICS code designation for the prior procurement, and therefor it is not probative of the correct designation for this procurement, nor is it binding for this proceeding.

In other words, a NAICS code designation for a prior procurement is not probative of the correct designation, in a subsequent contract, unless OHA weighed in on the earlier-assigned NAICS code.

Second, a NAICS code appellant can’t lose sight of its burden. In an NAICS code appeal, the appellant must prove that the contracting officer erred in designating the procurement under a certain NAICS code. To do that, the appellant must show that the “code designation is clearly incorrect and not that another code is correct.” OHA is not in the business of second-guessing the contracting officer. Unless, the contracting officer clearly got the NAICS code wrong, then OHA will not disturb the decision. Put differently, the fact that OHA would have chosen another NAICS code, standing in the contracting officer’s shoes, isn’t enough for the appellant to win.

In the end, OHA’s analysis wasn’t particularly extensive. It simply pointed out that the “types of services NAICS code 541513, Computer Facilities Management Services, are aligned with the work required by the instant procurement.” And it noted that the procurement’s central focus was gaining quality, highly trained contractor personnel, and NAICS code 541513 “requires a high degreed of expertise and training.”

The salient take-away, for any incumbent contractor, is this: don’t be lulled into the tantalizingly deceptive notion that a NAICS code is chiseled in stone from one iteration of the contract to another. It can change. And OHA won’t provide any relief unless a contractor can show that the contracting officer, in assigning the NAICS code, clearly got it wrong.

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