Intervention in NAICS Code Appeal Required for Judicial Review

A Court of Federal Claims decision sustaining a protest challenging the contracting officer’s change of a solicitation’s North American Industry Classification System code was reversed by the Court of Appeals for the Federal Circuit because the protester failed to exhaust its administrative remedies. After a prospective offeror appealed the NAICS code designation in the solicitation for coordination work for pain consortium centers issued as a small business set-aside, the Small Business Administration Office of Hearings and Appeals ordered the CO to change the designation. The new code rendered the protester ineligible to compete, and the protester appealed the new designation to OHA and filed a protest in the CFC while the OHA appeal was pending. OHA subsequently dismissed the appeal under the doctrine of issue preclusion, explaining the protester should have intervened in the prior appeal. In sustaining the protest, the CFC rejected the government’s argument the court should not reach the merits of the protest because the protester failed to exhaust its administrative remedies at the SBA when it declined to participate in the prior OHA appeal ( 59 CCF ¶80,624).

Endless Cycles of Litigation

The CFC found the government’s approach would require potential small business bidders to participate in an OHA NAICS proceeding to preserve their right to judicial review, even if they had not yet decided to bid and the current NAICS code did not negatively affect their ability to bid. However, SBA’s regulations require exhaustion ( SBA 121.1102), and there was no merit to the protester’s argument the exhaustion requirement is satisfied as long as any interested party files an OHA NAICS appeal and OHA renders a final decision. The regulations permit any person adversely affected by an NAICS code designation to file an appeal with OHA ( SBA 134.302 (b)), allow interested persons to intervene ( SBA 134.210 (b)), and make clear OHA’s code determination is final and not subject to reconsideration ( SBA 134.316). Taken together, the regulations require an interested party to participate in a pending OHA NAICS code appeal, or be precluded from filing suit. Moreover, the protester’s contention exhaustion was excused relied on distinguishable cases. SBA-OHA “is vested with exclusive jurisdiction to review the [CO’s] determination of the appropriate NAICS code designation,” and OHA correctly stated that, to hold otherwise “would potentially create endless cycles of NAICS code litigation.” ( Palladian Partners, Inc. v. U.S., CA-FC, 59 CCF ¶80,620)