NAICS codes are critical determinants in federal set-aside programs, establishing size standards that qualify businesses for small business set-asides. Each code carries specific employee count or revenue thresholds that vary by industry. Contracting officers must specify the applicable NAICS code in solicitations, which directly impacts eligibility for programs like 8(a), WOSB, and HUBZone. Proper NAICS selection enhances a company’s competitive positioning and access to federal contracting opportunities, particularly on vehicles like the GSA Schedule.
How NAICS Codes Determine Small Business Size Standards
The Small Business Administration (SBA) assigns size standards to each NAICS code using two primary metrics: average annual receipts or number of employees.
For example, manufacturing companies might have employee-based standards, while service providers often use revenue thresholds. These standards vary considerably across industries—what qualifies as small in construction differs from technology or retail.
Contracting officers must specify the applicable NAICS code in all federal solicitations, which then determines which businesses can compete as small business entities. Understanding these classifications is essential for entrepreneurs seeking federal contracting opportunities and small business loans through government programs.
Navigating the Nonmanufacturer Rule for Set-Aside Contracts
Many small businesses seeking federal contracts encounter the Nonmanufacturer Rule (NMR), a critical regulation affecting supply contracts set aside for small business participation.
The rule applies to contracts exceeding $25,000 where the small business does not manufacture the end items being supplied.
To qualify under NMR, contractors must meet five key criteria: maintain small business status under the relevant NAICS code, supply products manufactured by U.S. small businesses, operate primarily in retail or wholesale, and take ownership of products before delivery.
Proper NAICS code selection is essential for qualifying under size standards and finding relevant contract opportunities in the federal marketplace.
Compliance challenges arise particularly in sectors with few small business manufacturers.
In these cases, companies can pursue waiver applications through the SBA, which may grant class or individual waivers when small business manufacturers are unavailable for specific product categories. When approved, these waivers allow small businesses to supply products from any size manufacturer regardless of their domestic or foreign status. The SBA maintains a published list of class waivers for specific product categories on their website to streamline the procurement process.
Strategic NAICS Code Selection for GSA Schedule Opportunities
While the Nonmanufacturer Rule creates specific compliance requirements for small business set-asides, selecting appropriate NAICS codes represents another critical dimension of successful federal contracting.
The NAICS code importance cannot be overstated in GSA Schedule contracting, as only about 200 of the 1,000+ codes are represented on the Multiple Award Schedule. Companies must self-assign codes that accurately reflect their core business activities, which directly impacts their eligibility for specific Special Item Numbers (SINs). GSA Schedule contractors should pay close attention to the six-digit primary NAICS code during registration, as it determines qualification for set-aside programs. These codes provide hierarchical classification with each digit representing progressively narrower business categories. Federal procurement standards require businesses to maintain strict compliance with their chosen NAICS codes to maximize contracting opportunities.
The NAICS code impact extends beyond mere classification—it determines which solicitations a company can pursue and how effectively they can compete in the federal marketplace. Contractors should leverage resources like the Census Bureau website to identify the most relevant codes for their services, ensuring alignment with their SAM.gov registration and intended GSA Schedule categories.
Frequently Asked Questions
Can a Company Challenge an Incorrect NAICS Code Assignment?
Yes, companies can challenge incorrect NAICS code assignments through a formal appeal to the SBA Office of Hearings and Appeals.
To resolve NAICS code disputes, appellants must file within 10 calendar days of the solicitation’s issuance, notify the contracting officer, and demonstrate the assigned code is “clearly erroneous.”
Alternatively, companies may pursue informal resolution by contacting the SBA Area Director or Procurement Center Representative before initiating a formal challenge process.
How Often Are NAICS Codes and Size Standards Updated?
NAICS codes undergo thorough reviews and updates every five years across North America, with the next revision anticipated for 2027.
The Office of Management and Budget oversees this process through its Economic Classification Policy Committee.
Size standard changes by the SBA typically occur alongside NAICS updates but may also happen independently when market conditions warrant adjustments.
The most recent major update occurred in 2022, impacting classifications across multiple industry sectors.
Do International Companies Use NAICS Codes for Federal Contracting?
Yes, international companies must use NAICS codes for federal contracting in the United States.
For international contracting purposes, these companies are required to register in the System for Award Management (SAM) and select appropriate NAICS codes that match their business activities.
NAICS relevance extends to all entities seeking U.S. government contracts, regardless of country of origin.
International businesses must understand how these classifications impact size standards, eligibility requirements, and competitive positioning in the federal marketplace.
What Happens if My Business Outgrows Its Small Business Status?
When a business outgrows its small business status, it loses eligibility for set-aside contracts and sole-source opportunities.
The company must recertify its size during key contract events, such as mergers or option exercises.
Existing contracts generally remain valid through their base period, but future options may be affected.
The business should shift to competing in full and open procurements, consider strategic partnerships, and guarantee compliance with size reporting requirements.
Can I Use Different NAICS Codes for Different Contract Proposals?
Yes, contractors may use different NAICS codes for different contract proposals.
This contract flexibility is permissible and common when a business provides diverse products or services. However, code selection must accurately reflect the principal purpose of each specific opportunity.
The contracting officer ultimately assigns the appropriate NAICS code based on the predominant work being performed, and businesses must meet the corresponding size standard to qualify for small business set-asides under that code.