Editorial · October 15, 2014
NAICS Code: How to Find the Right One for Your Firm
A NAICS code is a six-digit number that labels your main line of business. NAICS, pronounced "Nakes," stands for North American Industry Classification System. To find yours, search the Census Bureau's NAICS list and pick the entry that fits your primary activity, which Census generally counts as the work that brings in the most revenue. The Small Business Administration (SBA) bases its size standards on NAICS codes, so the code decides which size standard applies. Federal buyers also name a code for what they plan to buy.
What the six digits mean and how the list changes
The first two digits name the sector. The third names the subsector, the fourth the industry group, and the fifth the NAICS industry. The sixth names the national, or U.S., industry. Take 722511, Full-Service Restaurants. The sector is 72, Accommodation and Food Services. The subsector is 722, Food Services and Drinking Places. The industry group is 7225, Restaurants and Other Eating Places.
A complete NAICS code has six digits. Census says a longer number labeled a NAICS code is not truly one. It may be better called a NAICS-based code, which probably belongs to the agency or group that made it for its own purposes.
The current version is the 2012 NAICS. It has 1,065 U.S. industries, down from 1,175 in the 2007 version. NAICS is set for review every five years, so codes can change. Census says new codes can be considered only during that review.
How to look up your NAICS code
The Census Bureau's NAICS site has a search box that takes a keyword or a code of two to six digits. SBA suggests using a single word as the search term. You can cut the word short to get even more results. Read the matches and pick the one that fits your main activity best. You can also browse. Open the 2012 list, click a two-digit sector, then click a six-digit code to read its definition.
Census generally counts the activity that brings in the most revenue at a business location as its primary activity. SBA's rule for a firm's primary industry looks at employees and costs of doing business too, not only receipts. If nothing fits well, pick the closest match.
No central government agency assigns, monitors, or approves NAICS codes for businesses. Various federal agencies keep their own business directories and assign codes for their own needs. If you question the code on a form from an agency other than the Census Bureau, Census says to contact that agency.
Use the 2012 list. SBA's Size Standards Tool needs a 2012 NAICS code to give a result.
How a NAICS code decides if you count as small
SBA sets a size standard for each industry and ties it to a NAICS code. A size standard is usually stated as a number of employees or as average annual receipts. It is the largest a business and its affiliates can be and still count as small.
Compare two codes. Under 541511, Custom Computer Programming Services, a firm is small at $27.5 million in average annual receipts or less. Under 722511, Full-Service Restaurants, the limit is $7.5 million. So a firm with $10 million in average annual receipts is small under the first code and too big under the second. Some codes use the number of employees instead. Under 332710, Machine Shops, a firm is small at 500 employees or fewer. To test your own firm, enter your code and your size in SBA's Size Standards Tool.
Standards also change. SBA raised nearly all of its dollar-based industry standards, effective July 14, 2014, to account for inflation since 2008. The 541511 and 722511 limits above were $25.5 million and $7 million until then. SBA warned that firms in federal procurement programs might see their size status change on July 14. It said they must verify that their profile and certifications in the System for Award Management (SAM) were up to date under the revised standards. SBA has also proposed raising many manufacturing standards, but that proposal is not final.
How the code works on a federal bid
On a federal bid, the contracting officer assigns the code, not you. The Federal Acquisition Regulation (FAR) sets the steps. The officer places what is being bought in the NAICS industry whose definition best describes its principal nature. Then the officer finds SBA's size standard for that industry and states it in the solicitation. If the item could fit two or more industries with different size standards, the officer applies the standard for the industry with the biggest share of the contract price.
The small business provision at FAR 52.219-1 has blanks for the NAICS code and the size standard. It then has you state, as part of your offer, whether you are a small business. The code that counts is the bid's code, which may not match your own. For a bid set aside for small businesses, you must first be a for-profit business and meet the size standard for that code. SBA says a mismatch does not keep you from bidding, if you meet the standard and can do the work.
SBA says you must register in SAM to take part in federal procurement, though not to subcontract for other companies. It also says you must list at least one NAICS code there and may list more, including codes for work you can do or would like to do. SAM then tells you whether you count as small under the codes you list.
An interested party hurt by a bid's code can appeal to SBA's Office of Hearings and Appeals. The deadline is short. The clock starts when the solicitation, or an amendment that affects the code or size standard, is issued. In just one case, only SBA can appeal: a sole-source contract under SBA's 8(a) program.