In the world of federal contracting, whether a business is small depends on the applicable NAICS Code and the corresponding size standard, which is expressed either in terms of number of employees OR in terms of revenue (see our prior Blog Post on this subject for more information). All federal procurement opportunities are assigned a NAICS Code by the Contracting Officer (CO), and the assigned NAICS Code is especially relevant for businesses that would like to represent themselves as small. That is, a particular business may be considered small for one NAICS Code but other than small for another NAICS Code.
The regulations pertaining to NAICS Appeals can be found at 13 CFR 121.1103. In general, the most important procedural requirements include:
- Appeals must be filed and served within 10 days of issuance of the solicitation;
- Appeals must be in writing and sent to the SBA's Office of Hearings and Appeals as well as served on the CO that assigned the NAICS Code at issue; and
- Upon receipt of the appeal, the CO is required to stay the solicitation pending resolution of the appeal.
NAICS Appeal of Caduceus Healthcare, Inc. (August 4, 20217)
On August 4, 2017, the SBA OHA released a decision in the matter of NAICS Appeal of: Caduceus Healthcare, Inc. On July 7, 2017, the U.S. Department of Homeland Security, U.S. Customs and Border Protection (CBP) issued an RFP for expert market research, data analytics, recruitment, and advertising services. The CO assigned NAICS Code 541612, Human Resources Consulting Services, with a corresponding size standard of $15 Million. The Performance Work Statement contained 8 objectives/requirements all of which were to further CBP’s need for “all requisite recruitment, market research, data analytics, advertising and marketing services to be performed by a contractor with the expertise and capability to execute a recruiting and hiring campaign.”
On July 17, 2017, Caduceus Healthcare, Inc. (Caduceus) filed an appeal challenging the NAICS designation. In its appeal, Caduceus argued that the CO’s designation was erroneous and that NAICS Code 561311, Employment Placement Agencies, with a size standard of $27.5 Million best described the principal purpose of the solicitation. Underlying this appeal was the fact that Caduceus was other than small for the $15 Million standard but was considered a small business for the $27.5 Million standard (which is a basis for a NAICS Code appeal on an unrestricted procurement).
In considering such appeals, the standard is whether the CO’s designation of the NAICS Code was a clear error of fact or law. Specifically, OHA looks at whether the CO assigned 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, the description in the solicitation, the relative value and importance of the components of the procurement making up the end item being procured, and the function of the goods or services being acquired.”
Ultimately, OHA sided with Caduceus, finding that based on the solicitation, CBP was clearly not seeking advice and assistance with respect to HR personnel policies, practices and issues, but rather was seeking performance of the HR services itself. In addition, OHA felt that NAICS Code 561311 best fit the procurement’s principal purpose, which was recruitment, referral and placement of applicants with CBP, all of which are tasks that Employment Placement Agencies typically perform.
A decision as to whether to file a protest or appeal is not a decision to be taken lightly and there are many factors that go into the decision-making process. We hope this blog post highlights the fact that not all protests/appeals are futile. Please also keep in mind that prevailing on a protest or appeal does not necessarily result in ultimate success. In the Caduceus example, OHA ordered the CO to amend the solicitation to change the NAICS Code designation which means that Caduceus will now be able to identify itself as a small business for purposes of this procurement, therefore giving it a competitive advantage. However, there is no guarantee that Caduceus will ultimately be awarded the contract as there could be another more qualified/experienced company with better pricing.
For more information on this or other issues relevant to small business federal contractors, please contact us at (808) 369-9710 or via email at email@example.com.