Understanding NAICS Codes in Government Contracting
In order to choose the best NAICS code for government contracting, you first have to understand what they are, and how they work. NAICS (North American Industry Classification System) codes are used in the US, Canada, and Mexico for a number of purposes. They’re a prerequisite to finding and bidding on federal contracts, but it works the other way around too. Many government agencies use NAICS codes to identify potential contractors, so any business that wants to bid on federal contracts will need to identify the most relevant NAICS codes for their company.
What are NAICS codes?
NAICS codes were instituted in 1997 by the OMB (Office of Management and Budget) as a replacement for the SIC (Standard Industrial Classification) system. With the new codes, various federal statistical agencies would have access to a more connected system.
These codes are essential for any business that bids on federal contracts, but their purpose is a lot broader than that. They’re also used by federal agencies to classify businesses of all types, with the goal of analyzing and publishing relevant economic data. NAICS codes are also used for the following purposes.
Comparing different industries through research
Determining a business’ correct tax classification
Government reporting of statistics, including employment and economic statistics
Each NAICS code relates to a company’s size, industry, products, and/or services. From security contractors to furniture stores, nearly every business will have at least one applicable NAICS code, and possibly several.
NAICS codes for government contracting FAQs
NAICS codes can be complicated to grasp, which is why most people have questions at first.
How does a business get a NAICS code?
Since NAICS codes are self-assigned, it’s up to each business to determine which code (or codes) are most relevant. The NAICS website has a searchable database of codes for each industry, which will help you find the right code for your business.
Can a business have multiple NAICS codes?
Yes, they can, although they’ll still have one primary NAICS code based on their main activity (usually whatever produces the most revenue). Some agencies, like the U.S. Census Bureau, only maintain one NAICS code for each business. Others, like the SAM (System for Award Management), allow up to 10 codes. This is especially valuable when a business is searching for award opportunities. If their primary NAICS code doesn’t turn up what they’re looking for, they can use other codes to find more opportunities.
What if I can’t find the right NAICS code for my business?
If you’re having trouble finding a NAICS code that fits your business, it could just be an issue of needing to change your search tactics on the NAICS website. One method is to search by keywords that describe the business; this will give you a list of business activities, along with matching NAICS codes. If this doesn’t give you the desired results, try using different keywords, or refining your search. Another method is to go directly to the NAICS Codes and Titles and work your way through each level until you’ve found the correct code.
Is it possible to add a new NAICS code for my business?
The list of NAICS codes is reviewed every five years since it has to keep up with the current economy. As each review comes around, public comments are solicited through a notice in the Federal Register; the notice includes instructions on how and when to submit comments. If your business isn’t accurately represented by any existing NAICS code, you can make a suggestion for it to be included in the next potential revision.
What’s the difference between NAICS codes and SBA size standards?
A NAICS code for government contracting doesn’t have anything to do with size on its own. Instead, the SBA (Small Business Administration) has developed its own size standards that apply to each NAICS code.
How NAICS codes are structured
Each NAICS code has six digits, which are part of a hierarchical structure.
The first two digits indicate which economic sector the business belongs to
The third digit indicates the subsector
The fourth digit indicates the industry group
The fifth digit indicates the NAICS industry
The sixth digit indicates the national industry
The NAICS system includes 20 different economic sectors, all but two of which are included in the federal government’s economic census. Government-owned businesses typically aren’t included, even if certain NAICS codes would otherwise apply to them. In fact, some industries that are mostly government-owned aren’t even included in the NAICS codes or economic census. However, there are some exceptions; these include federal reserve banks, university press publishers, government-owned liquor stores, and hospitals.
NAICS codes and SBA size standards
The SBA sets size standards to define what qualifies as a “small business” in each industry. They also publish a table of small business size standards that is matched to NAICS codes. If a business is trying to find out whether or not it would be considered “small” by the SBA, it can consult this table. Size standards for some businesses are given in millions of dollars in yearly income, while for others they’re measured in the number of employees.
If a business falls at or below the SBA’s size standard, that’s one step towards qualifying for socioeconomic programs that can access set-aside contracts. These programs include
WOSB (Women-Owned Small Business)
SDVOSB (Service-Disabled, Veteran-Owned Small Business)
HUBZone (Historically Underutilized Business Zone)
8(a) Business Development
Some small businesses are motivated to get a NAICS code specifically to see if they would qualify for set-aside contracts. They have to satisfy other qualifications too, but this is one of the first steps. Federal set-asides are a way for small businesses to effectively bid on large contracts, without having to compete against industry giants. If they qualify as a small business according to their NAICS code, they could get access to much more lucrative contracts compared to what the private sector offers.
Best NAICS code for government contracting
If you want to know the best NAICS code for government contracting, you should look at which ones get the highest government contract awards. You may not find one that applies to your business, but you can still learn what the federal government tends to spend money on. These are the top ten NAICS codes for FY 2022.
541330 – Engineering Services
325412 – Pharmaceutical Preparation Manufacturing
336411 – Aircraft Manufacturing
524114 – Direct Health and Medical Insurance Carriers
541715 – Research and Development in the Physical, Engineering, and Life Sciences (Except Nanotechnology and Biotechnology)
561210 – Facilities Support Services
541512 – Computer Systems Design Services
236220 – Commercial and Institutional Building Construction
541519 – Other Computer Related Services
336611 – Ship Building and Repairing
These represent the best NAICS codes for total federal contracts. What if you’re a small business that wants to get a NAICS code for government contracting, though? These are the top ten NAICS codes for small businesses for FY 2022.
541519 – Other Computer Related Services
236220 – Commercial and Institutional Building Construction
541330 – Engineering Services
541715 – Research and Development in the Physical, Engineering, and Life Sciences (Except Nanotechnology and Biotechnology)
541512 – Computer Systems Design Services
541611 – Administrative Management and General Management Consulting Services
541511 – Custom Computer Programming Services
541712 – Research and Development in the Physical, Engineering, and Life Sciences (Except Biotechnology)
561210 – Facilities Support Services
339999 – All Other Miscellaneous Manufacturing
As you can see, there’s a fair amount of overlap between total contracts awarded, and set-asides for small businesses. IT-related spending is popular, which makes sense when you consider the many emerging technology trends for the federal government in 2023. But what if your business doesn’t fit into any of the top NAICS codes? The codes listed above are for specific types of businesses, but it’s possible to zoom out and identify which industries the government is interested in. These are some of the industries where the federal government does most of its spending.
IT
Professional Services
Industrial Products and Services
Transportation and Logistics Services
Facilities and Construction
Human Capital
Office Management
Travel and Lodging
Security and Protection
Clothing, Textiles, and Subsistence S & E
Using your NAICS code for government contracting opportunities
There are many differences between a commercial contract and a federal contract; one of them is that you can use your NAICS code to find relevant federal contracts. There are several ways to find these contracts, but a good place to start is with the “Contract Opportunities” section on SAM.gov. You’ll see a search panel to the left, with an option called “Product or Service Information”. Clicking on this will let you search by NAICS code, turning up the most relevant opportunities for your business. If there are too many to sort through, you can filter by keywords, notice type, or dates. By using your NAICS code to narrow down the search results, you can avoid having to sort through thousands of opportunities on your own.
Finding the best NAICS code for government contracting is worth the effort
Regardless of their industry, size, or socioeconomic classification, many businesses would benefit from having a NAICS code for government contracting. The journey to securing federal contracts is a long one, but understanding NAICS codes is a solid way to begin.