Senator: No NAICS Codes = Simpler Size Standards A Senate subcommittee chair has proposed simplifying SBA’s size standards by doing away with the NAICS code classifications in federal contracting. Sen. Claire McCaskill’s Fairness for Small Businesses in Federal Contracting Act, S. 1590, would replace the 1,200 NAICS codes with a classification system of no more than 20 industries in broad categories such as manufacturing, construction, professional services, wholesale and retail. The size standards would be based on market conditions as identified by the Economic Census conducted by the Census Bureau every five years. Industry groups have long complained that the size standard system was too complicated to be understood. In its current revision of size standards, SBA is using a methodology that takes 60 pages to explain. McCaskill has described the NAICS codes as “complex and clumsy.” The codes were not designed for federal contracting. She highlighted the issue at a July 26 hearing of her contracting oversight subcommittee. “My biggest concern here is that the system simply doesn’t make sense,” she said. “…We don’t need to be spending taxpayer dollars to prop up a system that allows the government to take credit and large businesses to profit at the expense of the small businesses that the system is meant to help.” McCaskill’s favorite example of the inequities of the current system is the SBA rule that allows resellers to be classified as manufacturers, thus qualifying for small business set-asides under size standards ranging up to 1,500 employees. “Even if you don’t make anything and you’re just buying products from a large business for resale to the government, with a markup, you get to be considered a manufacturer,” she said. Her bill would rescind that rule. She called the government’s system for measuring small business contracting “a numbers game,” because SBA rules allow agencies to count contractors as small if they outgrow small business status during the life of a contract. “There’s a bunch of money in there that isn’t really from small business,” she said at the hearing.