The NAIC-ed Truth, Revisited

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 continue to impart 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 (MACs) are said to be "the only way to play" in federal contracting. For the record, when I entered this Industry in 1988, buys against multiple award contracts, all of them, 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. That means over 90% of obligations were to single-award contracts. Today, the fiscal spend is more than 4x larger than in the late 1980's, but GSA and VA Schedules still only account for 8.5% of the total spend. That's proportionately 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 significantly more obligations NOT going to MACs than there are obligations 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 their meaning manipulated by so many in Government Contracting. To clear the air, here are two truths about NAICS Codes:

1. 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.
2. 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 used as the leading criteria. For example. In FY2023 (year-to-date), when agencies referenced the NAICS for Engineering Services (541330) they obligated $42 billion dollars. Mind you, this is one of well over 1100 NAICS referenced during the last fiscal year. Deconstructing it reveals 761 unique PSC Codes referenced from all three categories:

1. Research & Development?(141 PSC Codes referenced - $6.2B obligated)
2. Supplies (128 PSC Codes referenced - $2.8B obligated)
3. Services (492 PSC Codes referenced - $32.8 obligated)

As opposed to NAICS Code industry sectors (the first two digits) that total twenty, there are eighty-four Supply groups and twenty-four services groups, to include R&D. Do you think all of the industries providing the goods and services represented are engineering-based? The irony is that SBA's Scorecard, a report about obligations to Small Business by Industry, is 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 module. It continues to be a pivotal moment for novice and experienced federal contractors in Business Development, Capture Management, Marketing, and Strategy. The result of acquiring this level of truth has amounted to millions of dollars in realized revenues every year for our Bootcamp Alumni, for over a decade.

Achieving clarity is essential to success in federal contracting, and our job is helping people to achieve clarity.

I’m proud to say we are excellent at our job.

Peace, Health, and Success,

Go-To-Guy Timberlake

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