NAICS codes fundamentally determine small business eligibility for federal set-aside contracts. These six-digit identifiers establish size standards based on annual revenue or employee count that businesses must meet to qualify as “small” in specific industries. Federal agencies use NAICS classifications when designating opportunities for programs like WOSB or 8(a). Businesses must carefully select appropriate codes when registering in SAM.gov, as incorrect classifications can disqualify them from valuable contracting opportunities. The strategic selection of NAICS codes opens doors to specialized federal marketplace advantages.
Understanding NAICS Codes and Their Role in Government Contracting
Serving as the foundation of federal procurement categorization, the North American Industry Classification System (NAICS) provides a standardized method for identifying and classifying businesses across the United States, Canada, and Mexico.
This six-digit code system categorizes companies based on their primary goods or services, creating a common language for procurement processes across government agencies.
Agencies assign specific NAICS classifications to contract opportunities, allowing businesses to filter and find relevant solicitations. When registering in SAM.gov, companies must select appropriate codes that match their capabilities. These designations determine which contracts a business can pursue and directly impact set-aside eligibility. The SBA determines whether a company qualifies as small based on average annual receipts and number of employees that vary by NAICS code.
Selecting the most appropriate NAICS codes during registration is crucial as it directly influences a business’s competitive advantage in securing government contracts.
The system undergoes updates every five years, with the most recent revision in 2022 and the next scheduled for 2027, ensuring NAICS codes accurately reflect evolving economic sectors and business activities. Companies should note that NAICS codes are self-assigned identifiers that they select based on their primary business activities.
Size Standards: How NAICS Codes Determine Small Business Eligibility
While NAICS codes categorize businesses by industry, they serve a more essential function in federal contracting by establishing the size standards that determine small business eligibility.
The SBA uses these industry-specific size standards to control which businesses qualify for set-aside contracts.
Size classification typically follows two metrics: annual receipts or employee count, depending on the industry. For example, a manufacturing company might qualify as small with 500 employees, while a retail business might use a $7.5 million annual receipts threshold.
When calculating size, affiliate considerations are vital—all affiliated businesses’ revenues or employees must be included in the total.
To qualify as small, businesses must also meet fundamental criteria: be for-profit, independently owned and operated, physically located in the U.S. or its territories, and not dominant in their field nationally.
Contracting officers assign one NAICS code per solicitation, establishing the applicable size standard.
Understanding NAICS code compliance is critical for businesses seeking access to government contracts and SBA financial assistance programs.
Maximizing Opportunities: Navigating Set-Aside Programs Using NAICS Codes
The strategic identification and application of NAICS codes stands as a cornerstone for small businesses seeking to maximize federal set-aside contract opportunities. Contracting officers use these codes to identify industries where small businesses are underrepresented, creating targeted set-aside programs that restrict competition to qualified firms.
Effective set aside strategies require understanding how these codes impact eligibility across various programs.
Market research within specific NAICS categories enables businesses to:
- Identify federal agencies that regularly issue contracts in underrepresented industries
- Determine which set-aside programs (WOSB, EDWOSB, etc.) align with their NAICS classification
- Assess competitive positioning by analyzing other small businesses within their code category
Businesses must regularly update their NAICS registrations to reflect their evolving operations, ensuring continued eligibility for relevant opportunities. Registration with System for Award Management is essential to properly establish and maintain NAICS code designations for government contracting purposes.
This proactive approach helps companies position themselves advantageously in the federal marketplace, particularly in industries where participation remains limited.
Understanding how the size standards table applies to your specific NAICS code is critical, as it determines whether your business qualifies as small for set-aside contracts in your industry.
Selecting codes that best reflect core business operations improves eligibility for government contracts while ensuring accurate industry representation.
Frequently Asked Questions
Can a Business Qualify Under Multiple NAICS Codes Simultaneously?
Businesses can qualify under multiple NAICS codes simultaneously, reflecting their diverse operations across different industry classifications. A company may maintain several NAICS designations to accurately represent various business activities with industry specificity.
However, for federal contracting purposes, each procurement opportunity evaluates size status independently for each applicable NAICS code. Organizations must meet the specific size standards (revenue or employee thresholds) established for each NAICS code they claim, allowing proper classification of their multiple business functions.
How Often Are NAICS Code Size Standards Updated?
NAICS code size standards undergo two separate update cycles. The SBA reviews size standards every five years as required by the Small Business Jobs Act of 2010, with the most recent updates published in 2022.
Additionally, NAICS codes themselves are revised every five years through a process managed by ECPC and OMB. These NAICS updates reflect economic structural changes, with the next revision scheduled for 2027.
Both processes include public comment periods before finalizing changes.
What Happens if My Business Exceeds Size Standards Mid-Contract?
Businesses that exceed size standards mid-contract generally maintain their eligibility for that specific contract.
Contract eligibility concerns are minimal since regulations establish that size status is determined at initial offer submission.
However, size standard implications arise for future opportunities, as the company would no longer qualify for small business set-asides under that NAICS code.
Recertification may be required for long-term contracts, task orders, or after merger/acquisition activities that greatly alter the company’s structure.
Can Subcontractors Use Different NAICS Codes Than Prime Contractors?
Yes, subcontractors can use different NAICS codes than prime contractors. This flexibility allows subcontractors to select codes that accurately reflect their specific portion of the work.
Subcontractor eligibility is determined by the NAICS code assigned to their particular tasks, not the prime contract’s code. This arrangement benefits prime contractor compliance with federal regulations while ensuring proper classification of subcontracted work.
The SBA regulations specifically permit this practice, recognizing that different aspects of a contract may involve different types of work.
How Are NAICS Codes Verified During the Bidding Process?
NAICS code verification involves multiple bidding process steps.
Contracting officers cross-check codes against contractors’ SAM.gov profiles to guarantee consistency. They validate that codes accurately reflect the contract’s principal purpose according to FAR 19.102(b)(1).
Additionally, agencies review historical bid data and confirm size standard alignment with either revenue caps or employee counts.
The System for Award Management performs automated validation, flagging discrepancies between self-reported codes and submission information.