Link: GAO Opinion
Agency: Department of Veterans Affairs
Disposition: Protest sustained.
Keywords: NAICS code; Small business set-aside
General Counsel P.C. Highlight: An agency is bound to follow the determinations made by the SBA’s Office of Hearings and Appeals regarding the applicable NAICS code for a specific procurement.
A request for proposals (RFP) issued by the Department of Veterans Affairs for this small business set-aside initially assigned North American Industry Classification System (NAICS) code 532291, Home Health Equipment Rental, to the procurement, which was for the provision of home oxygen equipment rental and services to VA beneficiaries. The NAICS code scheme is used by the federal government to identify and classify specific categories of business activity and is used to determine the applicable size standard. The VA contracting officer for this procurement subsequently changed the NAICS code to 339112, Surgical and Medical Instrument Manufacturing, based upon a U.S. Court of Federal Claims decision in Rotech Healthcare, Inc. v. United States.
Prior to the due date for proposal submissions, Eagle Home Medical Corporation filed an appeal with the Small Business Administration’s Office of Hearings and Appeals (OHA), arguing that the contracting officer’s re-designation of the NAICS code was unreasonable because the code did not best describe the principal purpose of the procurement. The OHA granted the appeal, and determined that because the RFP requirements meant the contractor must deliver both supplies and services it was more prudent for NAICS code 532291 to be used, as it covers all services necessary to make home health care equipment functional. The OHA decision distinguished Rotech from the procurement at issue because Rotech was decided on a different issue related to a non-manufacturing rule. The VA received OHA’s decision before the proposal due date, but chose not to amend the solicitation. Eagle then protested.
As a preliminary issue, the Small Business Act vests the authority to establish and approve small business size standards exclusively with the SBA, and federal agencies are generally bound to follow the SBA’s determination. Specifically, NAICS code designations made by authorized contracting officers may be appealed to the OHA and any formal NAICS code designations made by the OHA are final and binding on the parties.
The VA countered Eagle’s protest by claiming that the OHA decision impermissibly disregarded the Rotech decision. GAO, however, agreed with the OHA’s determination that Rotech was distinguishable based on the limited nature of the inquiry in that case. GAO went on to determine that there was a timely NAICS code appeal filed with the OHA, and OHA made a reasoned determination based on its review of the solicitation requirements that the NAICS code designation should be 532291. Based on these determinations, GAO concluded that the VA was required to comply with the decision of the OHA. As such, GAO recommended that the RFP be amended in a manner consistent with the OHA decision and that Eagle be reimbursed its costs for filing and pursuing the protest.