Appeal of the agency’s NAICS code designation is granted, where the primary purpose of an RFP calling for the operation of a hardware goods storefront on a military base was the procurement of the goods themselves, and any required administrative tasks were in support of that purpose.
Noble Supply & Logistics appealed the Navy’s assignment of NAICS code 561110, Office Administrative Services, with a corresponding $7.5 million annual receipts size standard, to its procurement for a contractor-operated civil engineering supply store. Noble argued the correct designation is NAICS code 332722, Bolt, Nut, Screw, Rivet and Washer Manufacturing, with a corresponding 500 employee size standard.
A contractor-operated civil engineering supply store is a government-owned facility that is operated by a contractor which maintains inventories of civil engineering supplies on behalf of a military department, and furnishes these supplies to the department as needed. According to Noble, the primary purpose of this procurement is the acquisition of consumable items for use by government personnel. However, the RFP requires the contractor to provide personnel to operate the storefront, supply the items, and provide 300,000 hours of Craft Services annually, about 150 full-time equivalents.
Noble noted that another storefront has never required this level of staffing, which suggests either the agency is significantly downsizing its workforce, without notice, or the RFP is not truly reflective of the agency's needs. Accordingly, Noble asserted the agency failed to assign a NAICS code which described the RFP's principal purpose, operation of the COCESS and the supply of products. Instead, Noble suggested that the proper NAICS code is a manufacturing code corresponding to the screws, nuts, and washers, the category of items that will comprise a plurality of the items to be purchased through the store.
Noble also pointed out that NAICS code 561110 states that establishments under the code do not provide operating staff to carry out the complete operations of a business, unlike the RFP’s call for the operation of a complete business. Noble argued the primary purpose of the procurement is to provide supplies, with the storefront merely a vehicle for delivery.
In its initial response, the agency corrected the estimated craft hours requirement from 300,000 annually to 3,000. In defense of its NAICS code designation, the agency argued that the primary purpose of this solicitation is to obtain contractor services to operate and manage the storefront, not the purchase of the supplies themselves. The agency noted the RFP requires requisition, inventory management, warehousing, and transportation services. Because NAICS code 561110 covers the physical distribution of items and logistics, the agency argued it was appropriate for material coordination and warehousing services.
The agency explained that the annual purchase of the items to be supplied will be conducted via post-award micro transactions on an as needed basis. The agency also explained that the craft hours portion of the contract are not guaranteed hours, but reflect the amount of time the contractor might be required to requisition and deliver nonroutine materials on a contingency basis. Under the government estimate, the service-related ELINs constitute roughly 46 percent of the total value of the CLIN in terms of cost, with the required in-stock inventory comprising the remainder. Finally, the agency noted that while the greater part of the contract value is the cost of materials, the actual post-award value is speculative given the lack of guaranteed material sales.
The agency also disputed Noble’s contention that the storefront services are the operation of a complete business, and thus excluded from the designated code. According to the agency, its business is the defense of the United States, and this storefront is one of hundreds of operations at the base, not a complete business. Further, the agency will provide significant government-furnished property, including a warehouse and office equipment.
In response to the agency’s reply, Noble argued that the Navy’s assertions supported Noble’s interpretation. According to Noble, the agency admitted that the only services being procured are those typically procured under a COCESS contract which, while necessary, are only incidental to the procurement of supplies under COCESS contracts. Noble pointed out that the agency’s reply: (1) described the only services being procured as for store operations; (2) conceded the majority of the procurement's dollar value is the cost of materials; and (3) acknowledged that a procurement is usually classified according to component which accounts for the greatest value of the solicitation.
OHA agreed that NAICS code 561110, Office Administrative Services, was not appropriate for the procurement, explaining that the code covers the administrative services a business requires to support its overall operations. The code explicitly excludes its use for the provision of operating staff to carry out a business's complete operations. Previously, OHA has held that this NAICS code is appropriately used for ancillary administrative services in support of an organization's mission.
The agency argued that the RFP requires the operation of a storefront, but OHA explained that government procurements may not be classified under either Wholesale Trade or Retail Trade NAICS codes. Acquisitions for supplies must be classified under the appropriate manufacturing or supply NAICS code. In this case, the RFP did not seek administrative services, but the acquisition of supplies and equipment via the operation of a storefront. Any administrative services required are merely those necessary to carry out the task of providing the supplies and equipment.
Accordingly, OHA concluded the agency erred in assigning NAICS code 561110 to the procurement. However, OHA also concluded that the procurement encompassed a wide range of goods, and therefore Noble’s suggested NAICS code also did not apply. Instead, OHA concluded that the appropriate code is 332510, Hardware Manufacturing, with a corresponding 750 employee size standard. This code specifically includes a number of the items required by the RFP, including various types of metal hardware used for engineering, repairs, and maintenance services.
OHA granted the appeal and reversed the CO’s NAICS code designation. Because the decision was issued before the close of the solicitation, the CO was directed to amend the solicitation to change the NAICS code designation from 561110 to 332510.
Noble Supply & Logistics is represented by Gary J. Campbell of Womble Bond Dickinson (US) LLP. The government is represented by John V.R. Aguon, Naval Facilities Engineering Command Marianas, Department of the Navy.