NAICS Code Appeal Provides Cautionary Reminder on Timeliness
Recently, the Small Business Administration ("SBA") Office of Hearings and Appeals ("OHA") issued a decision that provides a cautionary reminder for small businesses regarding the timeliness of filing an appeal to challenge a solicitation's North American Industry Classification System ("NAICS") code. Bottom line: the shot clock starts when the solicitation is published, so beware.
NAICS codes play an important role for small businesses both because the codes are used to classify the product or service being procured and because the SBA pegs its size standards to them. [1] Generally, SBA’s size standards are based on the average number of employees or average annual revenues of a business. [2] Where a contractor's average annual receipts or average number of employees falls below the size threshold of a given NAICS code, the contractor is considered a small business in a procurement using that NAICS code. [3] But, what if a small business disagrees with the contracting officer's NAICS code selection?
A NAICS code appeal is the mechanism by which a small business can challenge a contracting officer's NAICS code designation. [4] For example, where a small business is tracking a recompete effort and the solicitation is published with a NAICS code under a larger size standard, it may allow the incumbent to bid on the work despite outgrowing the previous, smaller NAICS code. A successful NAICS appeal could thus reset the competitive landscape, favoring small businesses that are eligible under the lower size standard. [5] Conversely, where a business wants to be eligible to compete on a set-aside, a successful NAICS appeal could also open the competition to larger small businesses.
Given that a successful NAICS code appeal can impact a contractor's eligibility or the competitive landscape, it is therefore important that small businesses be aware of the deadline that governs NAICS code appeals. As shown in a recent case, the deadline is fixed and missing it will result in dismissal.
In Salvadorini Consulting LLC, SBA No. NAICS-6082, December 1, 2020, the appellant sought to challenge the designated NAICS code in a request for quotation ("RFQ") issued on November 6, 2020. Unfortunately, however, the appellant "made a bad assumption" that it had more time to file (i.e., before the date on which quotations were due) and filed its appeal after the November 16, 2020 deadline (10 calendar days after the RFQ was issued). [6]
In dismissing the appeal as untimely, OHA provided a reminder of both the strict regulatory deadlines under which NAICS appeals are governed and the OHA's inability to extend or waive the deadline:
Pursuant to applicable regulations, an appeal of a NAICS code designation must be filed within 10 calendar days after issuance of the solicitation, or within 10 calendar days after issuance of an amendment affecting the NAICS code or size standard. 13 C.F.R. §§ 121.1103(b)(1) and 134.304(b); see also Federal Acquisition Regulation (FAR) 19.103(a)(1). An untimely appeal must be dismissed. 13 C.F.R. §§ 121.1103(b)(1) and 134.304(c); FAR 19.103(a)(4). Here, Appellant filed the instant appeal more than 10 calendar days after the issuance of the subject RFQ, so the appeal is untimely. Although Appellant's misunderstanding of the appeal deadline is unfortunate, OHA has no discretion to extend, or waive, the deadline for filing an appeal. 13 C.F.R. § 134.202(d)(2)(i)(A).
Takeaway
NAICS code appeals can be a powerful tool for small businesses. As mentioned above, a successful NAICS appeal could reset the competitive landscape by increasing or decreasing the size standard under which a procurement is conducted. But, this powerful tool is only available where a contractor timely files its appeal – so beware and plan accordingly. [7]
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[2] See 13 C.F.R. Part 121.
[3] Notably, SBA's regulations permit small businesses to challenge NAICS codes under both unrestricted and set-aside procurements. See 13 C.F.R. § 121.1103(a)(1); see also Keystone Turbine Services, LLC, SBA No. NAICS-5996, at 5 (2019).
[4] For a brief overview on NAICS code appeals, check out SBA's page, NAICS Appeals, Appeal a North American Industry Classification System (NAICS) code designation. Notably, SBA may also file a NAICS code appeal at any time before offers are due. See 13 C.F.R. §§ 121.1103(b)(1), 134.304(b).
[5] See 13 C.F.R. § 134.318(b) ("If OHA grants the appeal (changes the NAICS code), and the contracting officer receives OHA's decision by the date offers are due, the contracting officer must amend the solicitation to reflect the new NAICS code. If the contracting officer receives OHA's decision after the date offers are due, OHA's decision will not apply to the pending procurement, but will apply to future solicitations for the same supplies or services.").
[6] In addition, while the appellant tried to resolve its concerns directly with the procuring agency, "it did not wish to resort to litigation until it became clear that the procuring agency would not change the assigned NAICS code." OHA also dismissed this argument, finding that appellant's discussions did not alter the appeal deadline as the discussions did not result in a change to the solicitation. NAICS Appeal of AMEL Techs., Inc., SBA No. NAICS-5892, at 2 (2018) (quoting NAICS Appeal of Metris, LLC, SBA No. NAICS-5700, at 2 (2015)).
[7] Supra note 4. Notably, small businesses only have one opportunity to challenge a contracting officer's NAICS code designation. For details, check out the following article: NAICS Code Appeals (and the One-Shot Rule).
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