Recent Decision Reiterates Rule: Only One NAICS Code Per Set-Aside
September 20, 2012
By: Eric Whytsell
A recent case provides a helpful reminder that small business set-asides generally must be tied to a single NAICS code.
In NAICS Appeals of: edCount, LLC, SBA No. NAICS-5396 (Aug. 31, 2012), the Department of Education had published a synopsis of a small business set-aside citing two NAICS codes: “Codes of 541720 - Research and Development in the Social Sciences and Humanities [$7 million] and 611710 - Educational Support Services shall be considered.” When the Request for Proposals was issued, it referenced only NAICS 611710 [$7 million], but erroneously referenced a size standard of $14 million. During Q&A, one offeror noted the earlier listing of NAICS 541720 and asked whether the Department would consider that code as indicated in the synopsis or, in the alternative, if both codes could be assigned to the procurement. As part of its Q&A response, the contracting officer explained, “The Department shall be considering both NAICS codes, but will only be awarded under one of the NAICS codes upon contract award. This shall not influence the award of this contract.”
One of the companies pursuing the contract, edCount, LLC, timely challenged the Department’s stated approach, contending that the agency is legally obligated to assign a single NAICS code and size standard to the RFP and that such decision cannot be put off until contract award. In its appeal to the Small Business Administration’s Office of Hearings and Appeals (OHA), edCount also asserted that the proper NAICS code is 611710, with a size standard of $7 million.
By the time OHA was ready to consider the case, the parties had already agreed on the first issue. In its response, the Department agreed with edCount that it should have chosen a single NAICS code and that the appropriate code to apply was NAICS 611710, with a $7 million size standard, because the majority of the work to be performed required expertise in English language education. Even intervenor Synergy Enterprises, Inc. agreed that only one NAICS code can be assigned to the RFP, although Synergy then argued in favor of NAICS 511199, which has a size standard of 500 employees, on the grounds that the procurement did not require uniquely educational skills.
Before conducting a detailed examination of the procurement and ultimately siding with edCount and the Department by finding a significant education nexus, OHA affirmed the rule regarding one NAICS code per set-aside. Its decision explained that suggesting “two NAICS codes, with very different size standards, might apply to the instant procurement” and indicating that the Department would wait until the time of contract award to determine which code to use “is improper because the FAR requires that a procuring agency designate a single NAICS code and size standard to each Solicitation.” The sole exception to this rule is where “the procurement calls for multiple products or services and the agency specifies which NAICS code and size standard applies to each individual product or service.” edCount, LLC, SBA No. NAICS-5396 (Aug. 31, 2012) (citing FAR 19.102(c) and 19.303(b); Technica Corp., SBA No. NAICS-5248 (June 20, 2011)). OHA went on to note that putting the NAICS code determination off until contract award “is problematic because it prevents prospective offerors from determining whether they may represent themselves as small businesses for that procurement.”
Thus, without breaking new legal ground, OHA reminded agencies that they must choose only one NAICS code per product or service, and that the choice must be made at the time of solicitation rather than waiting until contract award to choose from a list of possible options.
Eric Whytsell is the attorney responsible for the content of this article.