Talking in Code
The U.S. Government uses multiple classification systems to manage its interactions with activities, assets, industries and more. Understanding the use of relevant systems enhances your ability to recognize needs and opportunities. This is key to establishing an information advantage, one more edge over your competition.
BACKGROUND
There continues to be confusion related to the use of classification systems used by federal agencies to identify the goods and services they purchase, and the industries they engage with, during procurement activities. Specifically, two systems. On one hand, there is the well-publicized North American Industry Classification System (NAICS) positioned as the ‘ultimate code’ by many in Industry, agency Buyers, Small Business officials, and the Small Business Administration. On the other hand are the Product and Service Codes (PSC). Lesser known but, as I hope you will soon agree, more important than its counterpart, especially in vendor market research.
WHAT IS A NAICS CODE?
There is a lot of good information available about NAICS Codes. I referenced the Ohio University Libraries FAQ for Business Research for this primer about NAICS Codes:
“The term, NAICS, refers to the North American Industry Classification System. NAICS is the Census Bureau’s “system for classifying business establishments. It is the first economic classification system to be constructed based on a single economic concept. Economic units that use like processes to produce goods or services are grouped together.” Basically, this means that similar companies that are in the same line of business will be assigned the same NAIC codes. The system is hierarchical with more broad industries at the top of the numerical range. More specific industries have more numbers.”
When you think of six-position NAICS Codes, I want you to picture entities focused on reporting statistical data related to the economy and specific industries. If you are familiar with the ‘Jobs Report,’ formally known as the Current Employment Statistics (CES) report produced by the Bureau of Labor Statistics, then you have seen one of the common and enduring uses of NAICS Codes. NAICS Codes were created for and by organizations like:
- Bureau of Labor Statistics
- Bureau of Economic Analysis
- Census Bureau
- Small Business Administration (the Small Business Scorecard in particular – that’s another piece I will write about soon)
The function of NAICS Codes in federal solicitations and transaction historical data, tells you what industry the government wants to work with, or did work with, for a specific requirement or contract action.
LIFE WITHOUT NAICS CODES
Let me explain how and why I have arrived at the opinions I’ve developed. NAICS Codes did not exist during my first ten years in federal contracting. Created in 1997, NAICS did not become a word in government contracting until 1998. For this reason, my perspective related to NAICS Codes differs from the conventional wisdom. For me, it seems that somewhere between the 1970’s when PSC Codes were established, and the late 1990’s when NAICS Codes replaced Standard Industrial Codes (SIC), Federal Contracting developed an unhealthy dependence on NAICS Codes, and I’m not certain why.
WHERE THEY GO TO LEARN
Unhealthy is a strong word, right? It is very much how I feel about the level of blind faith when it comes to NAICS Codes, applied by Government and Industry. So, as I begin busting down embedded beliefs, I will reference Defense Acquisition University or DAU. Who is DAU? Here’s their mission statement:
Mission: Provide a global learning environment to develop qualified acquisition, requirements and contingency professionals who deliver and sustain effective and affordable warfighting capabilities.
In a nutshell, DAU is an organization providing knowledge to acquisition professionals across Government, not just the Department of Defense (DoD).
WHAT IS A PSC CODE?
If you query DAU resources for the definition of a PSC Code, you will find the following:
‘A PSC is a four-digit code that describes a product, service, or research and development (R&D) activity purchased by the federal government. These codes indicate what the government bought for each contract action reported in the Federal Procurement Data System (FPDS).’
If you query DAU about how the DoD uses PSC Codes, you will find this:
“DoD organizes its spend (money spent) for services and S&E (Supplies and Equipment) using a taxonomy that maps PSCs as set forth in the Federal Procurement Data System and the Product and Service Codes Manual to portfolio groups.”
THE CATEGORY MANAGEMENT O.G.
Did you notice the last two words in the previous sentence? Portfolio groups. Let’s dig into this just a bit. In 2010, DoD rolled out an initiative known as Better Buying Power. It was an approach taken to maximize positive outcomes for the warfighter by categorizing specific supplies and services, and assigning product codes to the supplies and services within the categories. The taxonomy is based on PSC Codes.
CATEGORY MANAGEMENT, TAKE TWO
Does the Better Buying Power approach sound familiar? It should, because six years after DoD launched it, the General Services Administration (GSA) rolled out their acquisition strategy called Category Management. It looks and feels a lot like Better Buying Power, but instead of sixteen categories, Category Management has nineteen. It uses the same taxonomy approach based on PSC Codes, too. Just in case you don’t believe me, take a trip over to psctool.us when you finish reading this, to see for yourself. Don’t worry, it’s a website tool stood up by DoD. Let me offer this. If NAICS Codes were of critical importance to the Government for getting the job done, the website I am sending you to would be called the NAICS Selection Tool versus the PSC Selection Tool. Are we tracking?
PSC CODES AND CATEGORY MANAGEMENT
Here is DAU sharing why PSC Codes were selected for Better Buying Power AND Category Management:
“PSCs were selected because they are readily available, accurate, and consistently recorded, unlike other classification codes used by various contracting offices.
Attributes of PSCs include:
- Nature and type of services, supplies, and equipment
- Manufacturing level (raw materials to a completed end item)
- Intended use or application (air, land, sea, or space)
- Environmental attributes (energy efficient, bio-based product, environmentally preferable)”
None of these elements are common to NAICS Codes.
HAZARDOUS TO YOUR HEALTH?
Let’s circle back to my use of the term ‘unhealthy.” When companies get started on the federal contracting journey, they are provided the same or very similar advice, from nearly everyone they encounter in Government or Industry. This advice, without fail, guides them to select a slew of NAICS Codes, and place them on their System for Award Management (SAM.gov) profile, their marketing materials, and to use those codes as a primary filter when looking for business opportunities. I cannot think of an instance where I met someone who told me they were guided to PSC Codes by a Contracting official, Small Business Program official or technical assistance organization. Given all the evidence available, I wonder why that is.
I do want to give credit to DoD for the guidance they provide in their Doing Business with the Department of Defense – A Toolkit for Defense Acquisition. The very first bullet under Step 1 – Identify your Product or Service is Know the Product Service Codes (PSCs) and the North American Industry Classification System (NAICS) codes for your product, services or industry in which your organization normally does business.
PSC Codes are required be entered into FPDS for every contract action, and they are referenced on solicitations in the Contract Opportunities engine in SAM.gov. This means anyone who has ever viewed content in either of those systems has already SEEN PSC Codes. Simply seeing the codes and knowing they are there is not enough. Do you know why?
C-O-N-T-E-X-T IS WHY
Without someone providing you information as to why you should pay attention to them, PSC Codes may as well be invisible. Since many of us have never been told by an agency official or technical assistance representative that PSC Codes matter, we simply ignore them. I am taking this opportunity to unequivocally tell you that PSC CODES matter, especially in your market research. Yes, I echoed this sentiment from the first paragraph. Here’s why:
- If you sell products to DoD, you may have come across a thirteen-digit code called an National/NATO Stock Number or NSN. The first four digits are a supply-based PSC Code.
- The position of the PSC Code in Contract Opportunities solicitations is the same as the position of the PSC Code in the Contract Action Report (CAR) in FPDS. In both cases, the PSC is directly above the NAICS Code. What they buy first, and from which industry, second.
- Have you ever done a search in Contract Opportunities (the artist formerly known as FedBizOpps) based on your favorite NAICS Code, and wondered why so many of the results did not match your offering? The result you see is the effect of Contracting Officer’s selecting the INDUSTRY it wants to engage with to support the requirement.
Let’s go deeper, still. During fiscal 2022, when agencies made obligations under the Engineering Services NAICS Code 541330, they simultaneously referenced 826 unique PSC Codes to indicate what they were buying with that NAICS. The result includes codes from nearly all 110 supply, service and research and development groups. By the way, the total obligations to this NAICS Code was $40 billion. Here’s some food for thought:
- How many of those PSC Codes aligned to part of your offering?
- Where did they rank in spending, under that NAICS Code?
- How much time might you spend looking at information that is not capable of producing the results you need?
Here’s the hard part. Companies do find and win business going about their business leading with NAICS Codes. It’s been happening for years. Now envision getting new information that allows you to begin reducing your cost of doing business by minimizing the time you spend interacting with unnecessary information. Imagine finding more relevant results, too.
GROWTH INHIBITOR
As television detective Columbo used to say, ‘just one more thing.’ In market research, NAICS Codes stifle PSC Code in the same way a governor or speed limiter will limit how fast you can go, no matter how hard you press on the gas. If you do a search of historical awards based on a NAICS Code, or a combination of a NAICS and PSC, you are inherently limited as to the result you can see. What’s worse is that result is not a true picture of the actual spend, or opportunity.
By searching on a NAICS Code, you only see the supplies and services purchased when that specific NAICS Code was referenced by the Government. Last fiscal year, agencies referenced over 1,100 NAICS Codes. What is the likelihood that the PSC Code or Codes relevant to you, were only referenced under one or even one dozen NAICS Codes?
When searching on a combination NAICS/PSC, such as the combination awarded for a GSA Schedule and specific Special Item Number (SINs), the result is limited to that precise combination of codes. If you execute a query where you untether a relevant PSC Code from a NAICS you will, in most instances, discover more customers and dollars, a lot more. I’m just going to leave this here.
Peace, Health, and Success,
Go-To-Guy Timberlake
