NAICS (North American Industry Classification System)

What is NAICSNORTH (American Industry Classification System)?

The North American Industry Classification System (NAICS) is a standardized system 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. In government contracting, NAICS codes are essential for identifying potential contractors and matching them with relevant opportunities, particularly set-aside contracts for small businesses.

Definition

NAICS codes are six-digit codes that categorize businesses based on their primary business activity. The system is reviewed and updated periodically to reflect changes in the economy and emerging industries. The U.S. Census Bureau maintains the NAICS system, providing detailed definitions and guidance for each code. For government contractors, the NAICS code associated with a solicitation often determines whether a business is considered a "small business" and therefore eligible to bid on contracts set aside for small businesses. Size standards, defined by the SBA for each NAICS code, specify the maximum revenue or number of employees a business can have to qualify as small for that particular industry. A contractor’s self-certification that it meets the applicable small business size standard is a key element of its eligibility to compete for small business contracts.

Key Points

• Size Standards: The SBA defines size standards for each NAICS code, which determine a business's eligibility for small business set-aside contracts.
• Primary NAICS Code: Contractors must identify a primary NAICS code that accurately reflects their main business activity. This code is used to assess size eligibility for set-aside opportunities.
• Solicitation NAICS Code: Government solicitations are assigned a specific NAICS code, and contractors must meet the corresponding size standard to be considered a small business for that contract.
• Potential for Protest: Incorrect NAICS code assignment or size misrepresentation can lead to bid protests from other contractors.

Practical Examples

1. Small Business Set-Aside: A solicitation for janitorial services (NAICS code 561720 - Janitorial Services) is set aside for small businesses. To be eligible, a company must have annual receipts not exceeding $22 million (as of 2024).
2. Determining Eligibility: A company provides both IT consulting (NAICS 541512 - Computer Systems Design Services) and administrative management consulting services (NAICS 541611 - Administrative Management and General Management Consulting Services). The company must determine which NAICS code represents the largest portion of its revenue to identify its primary NAICS and corresponding size standard.
3. NAICS Code Changes: The government releases a new IT security software contract. A contractor has historically used NAICS 541519, but after review, it is determined that the new contract’s requirements align more closely with NAICS 513210. The contractor must update its SAM registration with the appropriate NAICS code prior to bidding.