When the U.S. government issues a solicitation for federal contracts, the assigned North American Industry Classification System (NAICS) code determines which businesses qualify as "small" and can compete for set-aside procurements. An incorrect NAICS code can exclude qualified small businesses from bidding, making it critical to challenge improper designations. This blog post explores the process of challenging a NAICS code, the legal standards governing such appeals, and what must be demonstrated to succeed, drawing insights from cases like NAICS Appeal of Tinosa, Inc., SBA No. NAICS-6338 (2025), where we recently prevailed.

Understanding NAICS Codes and Their Importance

NAICS codes classify businesses based on their primary industry, each with a corresponding size standard (e.g., average annual receipts or number of employees) that defines what qualifies as a small business. For federal procurements set aside for small businesses, the Contracting Officer (CO) assigns a NAICS code to reflect the solicitation's principal purpose. An incorrect NAICS code can drastically alter eligibility, as size standards vary significantly between codes. For example, in Tinosa, the CO's choice of NAICS code 811310 ($12.5 million size standard) instead of 541380 ($19 million size standard) threatened to exclude the incumbent contractor from bidding.

The Process of Challenging a NAICS Code

To challenge a NAICS code, a business must file an appeal with the U.S. Small Business Administration's Office of Hearings and Appeals (OHA). The process involves:

1. Timeliness: The appeal must be filed within 10 calendar days after the solicitation's issuance or amendment affecting the NAICS code (13 C.F.R. § 134.304(b)).
2. Standing: Only an “interested party” adversely affected by the NAICS code designation can appeal (13 C.F.R. § 134.302(b)). This typically includes potential offerors who qualify as small under the correct NAICS code but not under the assigned one. Tinosa, as the incumbent contractor qualifying under NAICS 541380 but not 811310, had standing.
3. Suspension Request: Upon filing, the appellant can request that the agency suspend procurement activities until the appeal is resolved, as required by Federal Acquisition Regulation (FAR) 19.103. In Tinosa, the Navy suspended the proposal deadline pending OHA's decision.
4. Filing Requirements: The appeal must be submitted to OHA (e.g., via email to [email protected]) and served on the CO and the SBA's Office of General Counsel (13 C.F.R. § 134.305). Tinosa's appeal included a certificate of service confirming compliance.

Legal Standards for NAICS Code Appeals

OHA reviews NAICS code appeals under a clear error standard, meaning the appellant must prove, by a preponderance of the evidence, that the CO's designation was based on a clear error of fact or law (13 C.F.R. § 134.314). The CO is not required to select a “perfect” NAICS code but must choose the one that “best describes the principal purpose of the product or service being acquired” (13 C.F.R. § 121.402(b)).

The selection process considers:

• NAICS Manual Descriptions: The industry descriptions in the NAICS Manual (available at www.census.gov) are primary guidance.
• Solicitation Details: The product or service description in the solicitation and its attachments.
• Relative Value and Importance: The component accounting for the greatest percentage of contract value typically dictates the NAICS code (13 C.F.R. § 121.402(b)(2); FAR 19.102(b)).
• Function of Goods/Services: The purpose and operational context of the procurement.

In Tinosa, the OHA found that NAICS code 811310 (covering heavy machinery repair) was erroneous because the RFP focused on precision testing, calibration, and certification of Divers Life Support System (DLSS) equipment, aligning with NAICS code 541380 (Testing Laboratories and Services).

Keys to a Successful NAICS Code Appeal

To prevail, appellants must build a compelling case demonstrating clear error. Based on Tinosa and OHA precedent, the following elements are critical:

1. Detailed Solicitation Analysis:
• Break down the solicitation's requirements to show which tasks dominate the scope and value. In Tinosa, the appellant analyzed 198 individual line items, demonstrating that 75% of the contract value involved testing and compliance services (e.g., hydrostatic testing, gauge calibration, air sampling) covered by NAICS code 541380.
• Highlight specialized requirements, such as certified personnel or controlled environments. Tinosa emphasized the need for D.O.T.-certified technicians and Class 100,000 cleanrooms, which aligned with laboratory testing under NAICS 541380, not machinery repair.
2. Alignment with NAICS Manual:
• Compare the solicitation's tasks to NAICS Manual descriptions and index entries. Tinosa cited specific NAICS 541380 index entries like “hydrostatic testing” and “calibration testing,” while showing that NAICS 811310's focus on blades, welding, and heavy machinery was irrelevant.
• Distinguish the equipment or services involved. Tinosa argued that DLSS breathable air compressors, designed for human respiration, differed from industrial compressors covered by NAICS 811310.
3. Evidence of Contract Value:
• Provide a quantitative or qualitative assessment of contract value. Tinosa estimated that testing services constituted 75% of the contract's cost, a claim the CO failed to rebut, strengthening the appeal.
• Emphasize the critical nature of certain tasks. In Tinosa, the OHA noted that precision testing was vital for diver safety, outweighing routine maintenance in importance.
4. Precedent and Consistency:
• Reference prior contracts or OHA decisions. Tinosa noted that the predecessor contract used NAICS 541380, and the OHA decision cited cases like NAICS Appeal of Elevated Techs., Inc., SBA No. NAICS-6146 (2022) to demonstrate NAICS 811310's narrow scope.
• Address counterarguments, such as the CO's reliance on other contracts using the disputed code. In Tinosa, the OHA dismissed the CO's claim that other DLSS contracts used NAICS 811310, as it lacked relevance to the RFP's specific requirements.
5. Clear Articulation of Error:
• Explicitly state how the CO's designation misaligns with regulations or facts. Tinosa argued that NAICS 811310 failed to capture the RFP's technical scope, while NAICS 541380 directly encompassed the required testing services.
• Avoid overreliance on incidental tasks. The OHA in Tinosa cited NAICS Appeal of Noble Supply & Logistics, SBA No. NAICS-5886 (2018), noting that ancillary services (e.g., routine maintenance) should not dictate the NAICS code.

Practical Tips for Businesses Appealing a Solicitation's NAICS Code

• Act Quickly: Monitor solicitations and file appeals within the 10-day window to avoid losing eligibility.
• Engage Legal Counsel: An experienced government contracts attorney can draft persuasive appeals that are consistent with regulation and precedent.
• Document Thoroughly: Provide detailed analyses, as Tinosa did, to substantiate claims about contract scope and value.
• Leverage Incumbency: If you're the incumbent, highlight consistency with prior NAICS designations, as Tinosa did successfully.

Conclusion

Challenging a NAICS code is a strategic tool for small businesses to ensure fair access to federal contracts. Success hinges on proving clear error through detailed analysis, alignment with the NAICS Manual, and evidence of contract value. The Tinosa case illustrates how a well-crafted appeal can overturn an erroneous designation, preserving a business's ability to compete. If your business faces an incorrect NAICS code, act promptly and seek expert legal guidance to protect your interests.

For assistance with NAICS code appeals or other federal procurement challenges, contact Pannier Law, P.C. at (310) 971-5093 or visit www.pannierlaw.com.

Disclaimer: * This article is provided for information purposes only. It does not constitute legal advice. It is not intended to form an attorney-client relationship. Any legal advice should be sought from an attorney. Consult a qualified attorney for advice specific to your situation. *

About the Author: William Pannier is the founder of Pannier Law, with over 20 years' experience as a Government Contracts attorney.