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Small Business Contracting Strategy: NAICS Code Protests Can Help Your Business Grow

Every year, the United States government sets aside a substantial amount of money to fund contracts for which only “small” businesses can compete.  Whether a business is considered “small” for purposes of competing on a given contract depends on the size standard stated in the procurement.  The applicable size standard is contained within the North American Industrial Classification Standard (“NAICS”) code the agency’s contracting officer assigned to that contract.  The size standard might classify a business as “small” based on the  business’ revenue or number of employees.  The agency must assign a single NAICS code with its corresponding size standard to every procurement, and must do so before the contract is awarded so that potential bidders will know whether they can represent themselves as “small” businesses that qualify to submit a proposal.

Challenging a procurement’s NAICS code designation can be a strong strategic move for companies unable to represent themselves as “small” businesses under the procurement’s current size standard or for contractors looking to narrow the competition for an award.  Successfully challenging the agency’s selection of a particular NAICS code can allow the company to compete for a contract it otherwise couldn’t.  It also can allow contractors to “level the playing field” on procurements structured in a way that favors a particular competitor.

So what’s the best way to change the agency’s NAICS code selection for any given procurement?  Some contractors may take the issue up directly with the contracting officer of the agency issuing the procurement.  However, such attempts to convince the contracting officer a mistake was made in selecting that NAICS code often do not succeed and may result in other changes to a procurement that leave the contractor no better than where it started.

Does this work?  Perhaps.  But there is a better way.  Businesses can file a NAICS code protest with their local SBA Government Contracting Area Office.  Federal regulations task the Area Office with independent size determinations for concerns whose size is protested by other contractors in a solicitation, and so has familiarity with size standards and relevant NAICS codes.  This is an inexpensive and relatively informal process and discussions with the SBA have the added advantage of third party review.  Thus, instead of engaging the procuring agency and before hewing the path toward a NAICS code appeal with OHA, contractors should discuss the agency’s basis for choosing a particular NAICS code with the SBA first.

Understanding which NAICS code and corresponding size standard should apply to a particular procurement can open the door to work a contractor might otherwise not have been eligible to bid while also streamlining competition under other circumstances.  Given the possibilities, contractors who remain familiar with the size standards under various NAICS codes have a strategic advantage when competing for an award.

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