The designation of a particular Standard Industrial Classification [SIC] code is important for vendors competing for small business set-asides. The reason a SIC code designation is important is that different SIC codes, even in closely related industries, carry widely different size standards, size standards that dictate just who may be considered small for a particular acquisition.
The standard for a SIC code designation in a particular acquisition is that announced in 13 C.F.R. § 121.402(b), regarding also the industry descriptions set out in the Standard Industrial Classification Manual, Office of Management and Budget, 1987 edition, the industry descriptions and notes set out in 13 C.F.R. § 121.201 (reprinted, although not necessarily the current version, in Federal Acquisition Regulation (FAR) 19.102), and the decisions of the Small Business Administration’s Office of Hearings and Appeals (OHA). A searchable database of OHA decisions is available on the WorldWide Web. West Group makes OHA decisions available both electronically, and on its Governments Contracts CD-ROM service.
Here are the requirements of 13 C.F.R. § 121.402(b):
The procuring agency contracting officer, or authorized representative, designates the proper SIC code and size standard in a solicitation, selecting the SIC code which best describes the principal purpose of the product or service being acquired. Primary consideration is given to the industry descriptions in the SIC Manual, the product or service description in the solicitation and any attachments to it, the relative value and importance of the components of the procurement making up the end item being procured, and the function of the goods or services being purchased. Other factors considered include previous Government procurement classifications of the same or similar products or services, and the classification which would best serve the purposes of the Small Business Act. A procurement is usually classified according to the component which accounts for the greatest percentage of contract value.
Vendors adversely affected by a SIC code designation may appeal the SIC code designation to OHA. 13 C.F.R. § 121.402(e). SIC code appeals must be filed with OHA and served on the contracting officer within 10 calendar days “after the issuance of the initial invitation for bids or initial request for proposals or quotations.” 13 C.F.R. § 134.304(a)(3). The solicitation document must clearly set out the SIC code designation before this timeliness requirement attaches. SIC Appeal of Summit Research Corp., No. 4283 (1997). There is no requirement to first file objections with the procuring activity. SIC Appeal of CMC Construction Co., Inc., No. 4154 (1996). SIC code appeals must be filed with OHA, not with the contracting officer. SIC Appeal of Environmental Services, Inc., No. 3657 (1992). SIC code appeals will not be considered under timely filed size appeals. Size Appeal of L. Freedman & Associates, P.C., No. 4247 (1997).
The right to appeal a SIC code designation arises only when a solicitation is issued, and not upon the publication of a Commerce Business Daily announcement. There must be a formally issued procurement containing a SIC code designation before the appeal right attaches. SIC Appeal of Data Monitor Systems, Inc., No. 4292 (1998). If a solicitation omits a SIC code designation, and the Small Business Administration supplies the SIC code under its 13 C.F.R. § 121.402(d) authority, then a SIC code appeal may be filed within 10 calendar days after an adversely affected party receives written notice of the SIC code designation. SIC Appeal of EER Systems Corp., No. 3797 (1993). Where a competition is limited to small disadvantaged businesses under the Small Business Administration’s 8(a) program, only the Associate Administrator for Minority Enterprise Development may appeal a SIC code designation. 13 C.F.R. § 134.302(b); SIC Appeal of Cabaco, Inc., No. 4228 (1996).
Only vendors that have been, or could be, adversely affected may appeal a SIC code designation. A small business offeror has no standing to appeal a SIC code designation in a solicitation that is not restricted, i.e., that is not set aside, in whole or in part, for small business participation. SIC Appeal of Engineering Design Corp., No. 4268 (1997); SIC Appeal of Sonicraft, Inc., No. 3864 (1993).
A material amendment to a solicitation triggers appeal rights. Thus when a small business restricted solicitation is amended and assigned a new SIC code designation, a small business offeror may appeal the new SIC code designation. SIC Appeal of Madison Services, Inc., No. 4223 (1996). Likewise when a previously unrestricted solicitation is set-aside for small business participation. SIC Appeal of R.M. Vredenburg & Co., No. 4220 (1996). Finally, a solicitation amendment that materially changes the principal purpose of a restricted solicitation (recall that this is the sine qua non for SIC code designation) triggers a new appeal right. SIC Appeal of Information Ventures, Inc., No. 4294 (1998).
Even where a designated SIC code would not preclude an offeror from participating in an acquisition, such an offeror may appeal from the SIC code designation to advocate a lower size standard/SIC code to restrict further the competitive advantage conferred by the set-aside. SIC Appeal of Challenger Engineering, Inc., No. 3728 (1993); SIC Appeal of Field Support Services, Inc., No. 3680 (1992).
Vendors that qualify under the SIC code designated, or under the SIC code advocated, have, prior to the date set for bid opening or receipt of initial competitive proposals, the right to appeal a SIC code designation. SIC Appeal of America House, No. 3659 (1992). However, after the date set for bid opening or receipt of initial competitive proposals, a vendor that has not submitted a bid or competitive proposal is no longer an interested party with standing to file and pursue a SIC code appeal. SIC Appeal of Challenger Engineering, Inc., No. 3719 (1992).
Note that there are no provisions precluding an acquisition from moving forward after a SIC code appeal has been filed. If the procuring agency awards the contract proposed by the solicitation while a SIC code appeal is pending, the SIC code appeal is mooted, and will be dismissed. SIC Appeal of M.C. Dean, Inc., No. 4120 (1995); SIC Appeal of Intown Properties, Inc., No. 3998 (1995).
In a SIC code appeal, the vendor has the burden of proof and must show, by a preponderance of the evidence, a clear error of fact or law in the SIC code designation. SIC Appeal of South Bay Sand Blasting and Tank Cleaning, Inc., No. 4272 (1997). Given that procurements are usually classified according to the component that accounts for the greatest percentage of contract value, OHA, in the absence of persuasive argument and evidence to the contrary, will defer to the contracting officer’s allocation. SIC Appeal of Jack Faucett Associates, No. 4282 (1997). This said, OHA will not defer to contracting officer statements that are mere assertions, unsupported by analysis or documentation. SIC Appeal of Hager Sharp, Inc., No. 4112 (1995).
An appeal petition must demonstrate just why the designated SIC code is inappropriate, and it should identify an alternative SIC code and state why the alternative SIC code is preferable. SIC Appeal of Information Ventures, Inc., No. 4289 (1998). It is not enough to assert only that the vendor cannot understand the reasons for the contracting officer’s classification.SIC Appeal of The Business Office, Inc., No. 4256 (1997).
It is the product or service solicited that characterize the principal purpose of the procurement, and thus the correct SIC code, not the background or experience of potential offerors. SIC Appeal of Resource Management International, Inc., No. 3857 (1993). While OHA will consider SIC code designations in previous procurements, these previous classifications are not, by themselves, dispositive. SIC Appeal of Distributed Information Systems, Inc., No. 4189 (1996).
It is worthwhile to see just how a SIC code appeal is presented and resolved. Let us consider, as a hypothetical, a solicitation that is issued with a SIC code designation of 8742, “Management Consulting Services.” This SIC code carries a size standard of $5 million in averaged annual receipts. The solicitation is a total small business set aside. Further, let us assume that the solicitation proposes a contract consisting of four separate tasks: program management, security systems services, information security, and personnel security, and that not one of these four tasks amounts to 50 percent or more of the value of the proposed contract.
We begin by looking at the industry description in the Standard Industrial Classification Manual, and here we find that the industry description for SIC code 8742 is “[e]stablishments primarily engaged in furnishing operating counsel and assistance to managements of private, nonprofit, and public organizations.” Doesn’t look like this fits all of the tasks in our hypothetical.
Now we review the published OHA decisions. We find more. SIC code 8742 is inappropriate because the solicitation includes four separate task areas that go beyond consulting and planning. SIC Appeal of Jack Faucett Associates, No. 4282 (1997). The solicitation is not primarily focused on “operating counsel and assistance” as set out in the industry description for SIC code 8742 in the Standard Industrial Classification Manual. SIC Appeal of Jack Faucett Associates, No. 3848 (1993). Finally, the solicitation has no single central purpose as is required for an acquisition to be properly classified under SIC code 8742. SIC Appeal of Resource Management International, Inc., No. 3857 (1993).
Now that we can show that SIC code 8742 is inappropriate, we need to find a proper alternative. As it turns out, we need to look beyond the Standard Industrial Classification Manual to the industry descriptions and notes set out in 13 C.F.R. § 121.201. Here we find an exception, “Base Maintenance,” under SIC code 8742 that carries a size standard of $20 million in averaged annual receipts. One of the notes, note 12, sets out an industry description for “Base Maintenance” as “the performance of three or more separate activities in the areas of service . . .,” each of which must be in a separate SIC code, and none of which accounts for 50 percent or more of the value of the proposed contract.
It turns out that the term “base” in SIC code 8744 does not limit designation of this SIC code to military installations. SIC Appeal of Field Support Services, Inc., No. 3680 (1992). Rather, SIC code 8744 is also properly applied to service requirements at large federal installations. SIC Appeal of E.L. Hamm and Associates, No. 4276 (1997).
Our hypothetical solicitation is already divided into four separate task areas. If we can show that not one of these separate task areas accounts for 50 percent or more of the value of the proposed contract, and if we can show that each separate task area is in a separate SIC code, then the proper SIC code designation is SIC code 8744, “Base Maintenance.” SIC Appeal of Call Henry, Inc. and Baker Support Services, Inc., No. 3933 (1994); SIC Appeal of All Star Maintenance, Inc., No. 3693 (1992); SIC Appeal of All Star Maintenance, Inc., No. 3646 (1992). By doing so, we raise the bar for participation in our hypothetical solicitation from $5 million in averaged annual receipts to $20 million in averaged annual receipts.
SIC code designation, a seemingly trivial task, has important consequences for vendors and agencies. For vendors, the issue is who can compete, and how a particular competitive advantage may be protected or enhanced. For agencies, the issue is how to structure an acquisition to assure a proper SIC code/size standard that will ensure competition among qualified vendors. In addition to these considerations, picking an appropriate SIC code requires review of reference materials and resources beyond those set out in the FAR.
In this article, we’ve set out the rules, and the resources, that may be applied in arriving at a proper SIC code designation. Vendors and agencies need to pay close attention to the rules, and to make proper use of all of the resources.
— Cy Phillips
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