The Ins and Outs of NAICS Code Appeals

September 24, 2014

By Kathryn V. Flood



In this time of heightened competition on all federal procurements, it is critically important that small business contractors use the tools at their disposal to help them stay competitive and secure work.

While agencies are able to “set-aside” work for small businesses, a fundamental aspect of these set-asides ends up being the North American Industry Classification System (NAICS) codes and the corresponding size standards which must be assigned. The NAICS code determines the industry which “best describes” the work to be performed under the procurement, and the size standard regulates the size of the contractors allowed to submit bids in response to the solicitation.

Even though the NAICS code assigned to the solicitation effectively sets the competitive playing field, contracting officers (“COs”) do not always get it right. This can make all the difference when a $7 million company is submitting a bid against a $35 million company, or a $10 million company is not allowed to bid on a procurement assigned a NAICS code with a $7 million size standard.

If you think an agency has assigned the wrong NAICS code to a set-aside contract, you may be able to file a NAICS code appeal to the U.S. Small Business Administration’s (“SBA”) Office of Hearings and Appeals (“OHA”). In the appeal, you are allowed to submit evidence to OHA detailing why the chosen NAICS code does not best suit the work, and that a different NAICS code is more appropriate. It is not enough to simply argue the equity of the matter–you must present specific evidence that the CO’s NAICS code designation is based on a clear error of law or fact, for example, the greatest percentage of the work to be performed falls under a different industry.

While OHA recognizes that COs do not need to select the “perfect NAICS code,” they are required to select the code that best describes the principal purpose of the product or service being acquired in light of the industry descriptions in the NAICS Manual (a compendium of the various industries published by the Office of Management and Budget), the description of the solicitation, and the relative weight of each element in the solicitation.

In addition to providing specific evidence of the appropriateness of the NAICS code in question, potential appeals must also adhere to strict timeliness requirements. A NAICS code appeal must be filed with OHA within 10 calendar days after the solicitation is issued. Additionally, the appellant must also demonstrate that it would be prejudiced if the solicitation was allowed to proceed with the assigned NAICS code. Prejudice is clear when a firm is not small under the size standard selected. However, a firm can also be prejudiced when a larger size standard has been chosen, since a smaller firm would be adversely affected by having to compete with larger firms.

One of the benefits of filing a NAICS code appeal is that OHA must perform its analysis fast–the judge is directed to issue his decision “as soon as practicable.” If OHA agrees with your argument, the agency will be directed to assign the proper NAICS code to the solicitation.

If you believe that an agency has assigned the wrong size standard to a solicitation, it’s important to act fast in order to ensure that your firm remains competitive in the source selection process.  A NAICS code appeal is one way to ensure that the agency “gets it right” from the beginning.

About the Author:  Katie Flood is an associate with PilieroMazza in the Government Contracts Group. She may be reached at kflood@pilieromazza.com.

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