The North American Industrial Classification System is one of the tools used by government agencies to classify the acquisitions and procurements conducted for goods, services and solutions. While it was not created for government contracting, it’s use is important to both government and industry.
The Small Business Administration offers a substantive overview of NAICS Codes and federal contracting on their website, with references to the size standards used with NAICS Codes as well. The size standards determine which company’s are eligible to participate in opportunities where small business set-asides and small business subcontracting are used.
How NAICS are used.
It’s important to understand how industry and government organizations utilize NAICS Codes. Generally:
- agencies use NAICS Codes to classify how they will use goods and services they purchase.
- companies use NAICS Codes to classify their offerings or the segment of an industry sector in which they do business.
- agencies reference NAICS Codes in documents related to requirements such as forecasts, pre-solicitations and solicitations, and subsequent contracts and agreements.
- companies reference NAICS Codes in their SAM profiles, Dynamic Small Business Search profiles (for small business concerns) and often on their marketing materials such as websites, business cards and capability statements.
A couple NAICS Code myths.
One of the common myths associated with NAICS Codes is the belief you are not eligible to bid on requirements if the NAICS Code referenced by the Government is not listed on your SAM profile. My friend Steven Koprince wrote a piece in his SmallGovCon blog back in December which describes and dispels this misconception.
For many years it was stated if a company, especially a small business, had too many NAICS Codes listed on its profile, it was an indication their attention was ‘all over the map.’ In actuality, having too few could mean someone doesn’t understand how NAICS Codes are used. For example, since the start of Fiscal Year 2010, when Uncle Sam purchased ‘electric services’ where that term was used to describe the primary service procured, ninety-eight federal agencies, boards and commissions utilized 144 different NAICS Codes to do so. For the record, they also obligated more than $8 billion in the process.
Here’s another example. Searching prior transactions using the keyword ‘ruler‘ tells me thirteen different agencies obligated nearly $3 million referencing 30 different NAICS Codes, also since FY2010. The caveats here are that not every recorded transaction has a description, and not every use of the term is in the context of an agency purchasing a ‘ruler.’ Nonetheless, the fact the term made it to the description field of a purchase (I only looked at initial awards and not modifications to existing orders) means it would be worth taking a look to vet what opportunity did or did not exist. You can apply this logic to historical as well as upcoming procurements.
Uncle Sam does not live on NAICS Codes alone…
Speaking of which, NAICS Codes are not the only ‘code’ referenced on acquisitions and procurements by federal agencies that can help you understand what they have bought or will buy. For this reason, it’s extremely important to ensure the ‘other code’ used is part of your marketing and market research, too. What is this other code and how is it used? That would be the Product and Service Code or PSC and it describes the primary product or service being purchased for each transaction.
How important is it to understand both codes and their relationship? How are you currently positioned if a buyer does preliminary market research based on what product or service they need versus how those products and services will be used, or vice versa? I’ve seen companies lose out on opportunities at agencies they were doing business with because they could not be ‘found’ in SAM or DSBS. Conversely, if you have searches set up in tools like FedBizOpps or even fee-based systems, searching based on NAICS Codes will only show you part of the picture. Sometimes you’ll see the part that matters to you and other times, not so much.
Getting started with NAICS Codes
To select the NAICS Codes most relevant to your company’s offerings, start with the NAICS Association website located here. Don’t rely on the NAICS title alone however, click on the title to view the full description that usually begins with “This U.S. industry comprises establishments primarily engaged in…”
#Ask@GovConGuy is a resource for you to get accurate and experience-based answers to questions to better understand the steps to take in getting started as a vendor to the federal government.
Guy Timberlake, @GovConGuy