Air Force angers small businesses with code decision

NetCents program managers are attempting to make the contract much more attractive to customers, experts say

The Air Force is trying to make its new network infrastructure contract as appealing as possible to potential customers, but that is upsetting small-business owners who fear they may be squeezed out. The recent activity around the $4.2 billion Network Operations and Infrastructure Solutions contract has angered some business owners who believe the Air Force is gaming the system.

The dispute revolves around the North American Industry Classification System codes that the Air Force has assigned to the contract. The NAICS codes define which types of businesses can bid on the contract as small businesses, gaining preferential treatment.

“They’re basically shopping the NAICS codes,” said the owner of a 80-employee small business, who requested his name not be used because he plans to bid on the contract.

Code shopping refers to choosing NAICS codes that allow favored or larger companies to bid as small businesses, rather than those that most fairly apply to the contract's scope of work. NetOps, part of the Air Force’s Network-Centric Solutions 2 (NetCents 2) contract, is entirely set aside for small businesses.

Air Force officials selected the NAICS code for wireless telecommunications carriers, which will get the contract a larger number of small businesses. Having more companies in the contractor pool would make the contract more appealing to customer agencies than a pool of a few very small firms, experts say. However, the new small-business definition allows larger companies in. making the field of competitors very different than the one that would have developed under NetOps' initial NAICS designation, computer system design services.

Sales on the first NetCents contracts have come in below the $9 billion estimate, as the contract competes with the Defense Department and General Services Administration other telecom contracts, people familiar with the sales say. They also say NetCents program managers are trying to convince Defense Department officials that NetCents is worth what they spend on it.

NetCents is the “poor stepchild of military service contracts,” said Larry Allen, president of the Coalition for Government Procurement.

NetOps and NetCents 2 are in the pre-solicitation phase, and a request for proposals is expected late this fall. The NetCents managers are in the process of extending NetCents for as much as two more years as they get NetCents 2 released and awarded.

The code for wireless telecommunications carriers defines a small business as one with fewer than 1,500 employees. The code for computer systems design services limits it to companies with less than $25 million in annual revenue.

Officials selected the wireless telecom carriers NAICS code “based on the preponderance of work for the requirement,” the Air Force said today in a statement. “Both the local small-business specialist and the Small Business Administration representative reviewed and concurred with the [contracting officer’s] decision.”

Those assurances don't assuage the business owners who suspect other motives. The anonymous owner of the 80-person small business said the Air Force believes smaller small businesses are riskier than larger small businesses. It’s a “grossly inaccurate” view, the business owner said.

He said the Air Force is tilting the field in favor of having a broader small-business size standard, even when precedence calls for the opposite. Recent Government Accountability Office decisions sustained the rule of two, which says when two small businesses can do the work, an agency must set aside the contract or task order for that type of small business.

Air Force officials also fear receiving fewer than 10 bid proposals for NetOps under the computer design code, the business owner said, saying Air Force officials told him that.

According to a May 14 determination and findings report, the small-business community has already raised its concerns with officials, arguing that the design services code is more appropriate, based on NetOps’ services described in the performance work statement, such as “enterprise services” and securing fiber optic infrastructure. However, Francine Nix, the contract’s contracting officer, said those services will be only a small fraction of the overall work. Most of the work instead will be managing defense networks and establishing the Air Force Intranet among other things, the report states.

Under the wireless telecom carriers code, companies must own or lease transmission facilities and infrastructure and do most of their work over that infrastructure.

Air Force officials have been dealing with the code issue for some time. At a meeting in March where officials discussed NetOps, John Caporal, deputy director of the Air Force Small Business Programs Office, warned that the Small Business Administration upheld a recent challenge against the wireless telecom carriers code for similar work at another Air Force base. The report says he was also concerned that “a NAICS code successfully challenged could delay the schedule.”

The team of officials said that neither code is a “perfect” match with the scope of NetOps’ work. However, the contracting officer must figure out which code best describes the primary work customers will order from the contract.

A DOD inspector general's audit on the first NetCents, issued in June 2007, concluded that the computer design services code more accurately reflected the service provided under NetCents based on past orders. According to the determination and findings report, all the Air Force officials in the meeting except for one agreed with the IG's audit, and they expect the same types of orders for NetCents 2. Ardis Hearn, the lead engineer on NetOps, instead said the majority of work will be for the constant operation of the networks, and the contractors will have to meet Air Force's needs using their equipment, hardware and software.

However, officials also realized that changing to code to the smaller size standard “may result in additional concerns being raised among the ‘larger’ small business,” delaying the contract’s schedule, the report states.

Air Force officials asked industry in April for their input on which code was best. The results showed 24 of 32 responses favored the wireless telecom carriers code, the report states. Some responses questioned whether the smaller small businesses have the capacity to handle such work, but the majority of respondents gave no rationale except that their company would be able to compete, the report states.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Thu, Sep 3, 2009

The AF has the NAICS code right. The argument against it has no merit.

Tue, Sep 1, 2009 Program Manager Virginia

Per the note below describing 517110 as an "industry [made up of] establishments primarily engaged in operating and/or providing access to
transmission facilities and infrastructure that they own and/or lease ..." -- please remember this is an industry description, not a qualifier for companies. In this case, the "industry" includes the DoD itself as a network owner (think about that), and the contractors supporting the DoD are part of the larger definition. In other words, we in the contractor community, and the Air Force network operations component, are together in managing the networks owned and/or operated by the Air Force. This is why 517110 correctly describes the collective activity of NETOPS better than any other code.

Tue, Sep 1, 2009 Just Saying

The system is the system and the CO's are required by the FAR and DFAR and CFR's to follow the regulations. It is not up the CO to make up new rules as they go. The DoDIG has been explicit on both the current Netcents and the Army's ITES2-S and it seems that everyone wants to classify NETCENTS 2 work under US based telecommunications carrier as defined in the NAICS definitions. "This industry comprises establishments primarily engaged in operating and/or providing access to
transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text,
sound, and video using wired telecommunications networks."

Tue, Sep 1, 2009 Program Manager Virginia

You wrote "Why doesn't the SBA stand up for small businesses on issues like this?" The answer is simple -- they have no business being involved in a dispute between one class of small businesses and another class of small businesses. A business classified as "small" under 517110 (i.e., with under 1500 employees) is just as entitled to the protection of the SBA as the micro-business with $25 million in sales. Both are "small" in the eyes of the Government and its agencies assigned to protect them, and if I am with the 1499-employee business and SBA takes sides against me in favor of the $24.9M business, then why is there an SBA? I did not define my business as "small"; NAICS did so, and it is just as much SBA's duty to defend me as it is you. Our (small businesses') need for protection is against full-and-open competitions, not from each other. And, oh, by the way, let me share something else. Micro-businesses have one heck of a better chance of getting work as partners to 1500-employee businesses than they do from the big integrators. The fomer understand your needs and capabilities; the latter regard you as a box to check. Just saying.

Mon, Aug 31, 2009 Rich

The whole NAICS code method of defining small business size standards needs to be re-evaluated. The SBA is attempting to use a Census Bureau tool to accomplish a goal it wasn't designed for in the first place. And since the SBA is piggy-backing on the Census Bureau's system, the SBA has no recourse to adjust or alter the NAICS codes when it's become clear that they're no longer the best solution for identifying small business set-asides. Particularly on IT contracts and IDIQ contracts like NETCENTS 2.

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