Knowing the Code
One part of my mission in leading The ASBC, is to help everyone in Federal Contracting to communicate better. Specifically, I want to help everyone have clear and consistent context as it relates to identifying, pursuing and winning contracts supporting the requirements of the U.S. Government. I hope this sounds straightforward since I’ve talked about context many times before. It’s the knowledge element many business leaders and their teams are missing when it comes to terminology and systems used in Federal Contracting. An example of incomplete or erroneous context is the hype about multiple award contract vehicles or MACs. Since this isn’t the topic of this piece, I’ll cut to the chase. MACs represent less than 25 percent of the fiscal spend. Want to know more? Ask me about it at Bootcamp, an ROI Mixer, or in Chicago at the WIPP ChallengeHER event.
Now, let’s get on-track for this discussion. What will it take to convince you that using NAICS Codes as the sole, primary or significant criteria in your market research, is a waste of your time, money, and energy?
Let me repeat in case anyone didn’t catch it the first time. Using NAICS Codes in federal contracting market research doesn’t provide useful information that supports effective strategy or business development.
For starters, what does the presence of a NAICS Code in an upcoming or already awarded contract tell you, other than the size standard when set-aside procedures are in play? It tells you the industry the Government designated as the one that should do the work to fulfill a requirement. After all, NAICS stands for North American INDUSTRY Classification System, right? If you visit this page hosted by the Census Bureau, they describe NAICS Codes this way:
The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.
Speaking of classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data, there’s the SBA Small Business Procurement Scorecard. This is a classic case of NAICS Codes in play. What’s it really telling us, though? SBA says, “the annual scorecard assesses how well federal agencies reach their small business contracting goals,” and they do this by assessing the industries where small businesses have reportedly seen success in working with Uncle Sam. There is a catch. The industry represented by the NAICS Code assigned to a contract may or may not represent the industry of the product or service being procured. For example, the NAICS Code 541330 represents Engineering Services and is one of more than 1,000 NAICS Codes referenced in a fiscal year. This particular NAICS Code was associated with Goods, Services and Research & Development representing a broad cross-section of every type of product and/or service purchased by the U.S. Government during fiscal year 2022. The question is, do all of the organizations providing the array of goods and services actually represent the definition or spirit of Engineering Services? For the record, the full description of this industry is described as follows:
This industry comprises establishments primarily engaged in applying physical laws and principles of engineering in the design, development, and utilization of machines, materials, instruments, structures, processes, and systems. The assignments undertaken by these establishments may involve any of the following activities: provision of advice, preparation of feasibility studies, preparation of preliminary and final plans and designs, provision of technical services during the construction or installation phase, inspection and evaluation of engineering projects, and related services. (NAICS.com)
If we look at the tax returns of the companies winning contracts under this NAICS Code, what are the chances it matches the one they reported to IRS as their industry? Compare the previous description to the following:
This industry comprises establishments primarily engaged in providing operating staff to perform a combination of support services within a client's facilities. Establishments in this industry typically provide a combination of services, such as janitorial, maintenance, trash disposal, guard and security, mail routing, reception, laundry, and related services to support operations within facilities. These establishments provide operating staff to carry out these support activities, but are not involved with or responsible for the core business or activities of the client. Establishments providing facilities (except computer and/or data processing) operation support services and establishments providing private jail services or operating correctional facilities (i.e., jails) on a contract or fee basis are included in this industry. (NAICS.com)
Many very large awards under the Engineering Services NAICS Code represented contracts for NASA, Army, Navy and others, where companies were responsible for operation of government facilities. I’m sure there is engineering happening at these facilities, but the work these vendors are doing, based on the description of what the agency purchased, is more in line with the second industry description I provided. This description is associated with NAICS Code 561210 – Facilities Support Services. There are endless examples like this, where the SBA Scorecard does not accurately depict the actual industries of the small businesses represented in the report. Sadly, this is not new nor is it news. As a reminder, pay attention to NAICS Codes to be aware of the small business size standards when set-aside procedures are in play, and only then.
As you may have gathered, NAICS Code don’t work alone. NAICS is not the code describing WHAT the Government is buying. That responsibility falls on the shoulders of a classification system that precedes NAICS Codes by over twenty years. Additionally, this other code is the basis for how goods, services and research and development are assigned part numbers under the current Category Management acquisition system. Go visit www.acquisition.gov and you will find the PSC Code Manual that describes Product Services Codes as those used by the Government to specify WHAT they purchase for each action submitted to the Federal Procurement Data System.
Want to see a neat trick? Go look in FPDS for contract actions dated prior to 1998 and tell me what you see, and don’t see. 1998 is when NAICS Codes were introduced to Federal Contracting, and that year also represented my tenth year in this industry. So, pardon me for looking at NAICS Codes as one of the new kids. This long view is what allows me to see things in a different and more expansive way than someone who came into the business years after me. We have different levels of context.
Do your homework to understand the terms used every day as opposed to relying on hearsay for your decision-making. We’ve seen too many instances of companies receiving the information we’re giving, and achieving tremendous results. Here’s the bottom line. If you are beholden to NAICS Codes in your strategy and market research, you are working too hard and not getting the most clear and accurate picture of your opportunities.
Peace, Health, and Success,
Go-To-Guy Timberlake
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