The NAIC-ed Truth, Again.
I have been a part of Federal Contracting longer than NAICS Codes. Ten years longer to be precise, and I am one who is not at all pleased with the unhealthy reliance Government and Industry has on this classification system
Yes. I did say unhealthy. Part of the reason I use this term, is because factions in Government and Industry, have created a mindset that NAICS Codes are the end all be all classification system vendors should know as it relates to doing business in the federal sector. This has played out in the same way that GSA Schedules are propped up as the single-most important contract vehicle companies should pursue, or in the way multiple-award contracts are said to be “the only way to play” in federal contracting. When I entered this Industry, buys against all multiple award contracts, including the GSA Schedule, accounted for less then ten percent of the overall fiscal spend. Buys against Definitive Contracts and Purchase Orders, referred to as Standalone Contracts, boasted 82% of total fiscal obligations. Today, the fiscal spend is more than 4x larger than in the late 1980’s, but GSA and VA Schedules only account for 8.5% of the total spend. That’s proportionately about the same as it was thirty years ago. MAC obligations represent just 22% of fiscal contract dollars. Today, just as it was in 1988, there are still more obligated dollars NOT going to MACs than there are dollars going to them.
Now back to the point of this article.
It’s not that NAICS Codes are bad, it’s how they are presented, put on a pedestal and manipulated by so many in Government Contracting. To clear the air, here are two truths about NAICS Codes:
- If NAICS Codes were as important as many believe, or try to make them, Product Service Codes would not be the prevailing classification code used Governmentwide, in the DoD Better Buying Power Initiative, and in GSA’s Category Management initiative. See the PSC Code Tool and the Category Management Alignment for confirmation.
- If the Government were to assign the SBA Size Standards to another classification, our Industry would forget the word ‘NAICS’ inside of a week.
NAICS Codes were established for statistical agencies to report on trends related to industries. Their use in federal contracting has not diverted from that mission, as they are used by SBA to track spending to specific industries. This is ironic since the Industry designation of the NAICS has little to do with the actual industries providing the supplies and services being procured under a NAICS Code.
Here’s what I mean.
If you deconstruct a NAICS Code based on historical purchases (FPDS) or upcoming solicitations (SAM.gov), and track the use of PSC Codes, you will see a very different storyline than the one presented when NAICS Codes are the leading criteria. For example. In FY2021, when agencies referenced the NAICS for Engineering Services (541330) they obligated $40 billion dollars. Mind you, this is one of well over one-thousand NAICS referenced that year. Deconstructing it reveals over 800 unique PSC Codes referenced from all three categories:
- Research & Development
- Supplies
- Services
There are more than eighty Supply groups and twenty-four services groups, to include R&D. Do you think all of these industries are engineering-based? The irony is that SBA’s Scorecard, a report on obligations to Small Business by Industry, is way off and not at all representative of the actual industries receiving those obligations.
Our Ethical Stalking for Government Contractors® Bootcamp dives into a better understanding of these and other classification codes as part of our Level-Set section. Also, I have written numerous articles over the years, breaking down fact from fiction on these same topics. Feel free to ask questions in the comments, I’ll be sure to respond.
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