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Primary Industry and NAICS Code for Company that is Part of an Affiliated Group

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I am trying to analyze whether a company that is clearly part of an affiliated group would have its own primary industry/NAICS or if it must rely on the primary industry of the affiliated group. I have read 13 CFR 121.107 and some of the size appeal cases that discuss this section, but for our purposes it would help if a manufacturing standard applied to the manufacturing company. Taken as a whole, the primary industry of the group would likely be construction. However, because there are less than 500 employees in the entire group, the manufacturing company could still be small if manufacturing was deemed its primary industry.

I think I may be reaching here, however, given the fact that 121.103 has a two part test for determining when a small business concern can receive financial assistance (based on whether the concern by itself is small given its primary industry and is small according to its group's primary industry), I thought their might be other circumstances where a concern's primary industry is based on its business activities alone.

Also, 121.107 says when determining a concern's primary industry "or a concern combined with its affiliates" look at the following factors. I was hoping that wording was not a mandate that the primary industry of a concern always must be determined based on the group.

Thanks!

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The NAICS code applies to a procurement, based on what the government is buying. It is selected by the contracting officer. The NAICS code does not apply to a company. See FAR 19.102(B), ?, (d), and (e). The NAICS code selection determines the small business size standard that applies to the procurement.

In determining whether or not it meets the small business size standard, a company must include its affiliates.

As for determining a firm's primary industry, 13 CFR 121.107 is clear:

In determining the primary industry in which a concern or a concern combined with its affiliates is engaged, SBA considers the distribution of receipts, employees and costs of doing business among the different industries in which business operations occurred for the most recently completed fiscal year. SBA may also consider other factors, such as the distribution of patents, contract awards, and assets
.

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The NAICS code applies to a procurement, based on what the government is buying. It is selected by the contracting officer. The NAICS code does not apply to a company. See FAR 19.102(<_<, ?, (d), and (e). The NAICS code selection determines the small business size standard that applies to the procurement.

In determining whether or not it meets the small business size standard, a company must include its affiliates.

We are concerned with whether a concern is small for small business subcontracting plan goals. I understand that a contractor can usually rely in good faith on a small business concern's representations with some exceptions (HubZone). However, this is worth investigating for us.

Thanks, I will take a look at those provisions.

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As for determining a firm's primary industry, 13 CFR 121.107 is clear:

.

Which way you count is determined by the rule that you are applying.

The OR in that sentence doesn't leave some ambiguity for you? Also, 121.103 has a two part test using both the primary industry of the concern and the primary industry of the concern plus affiliates.

The "Which way you count is determined by the rule that you are applying" didn't show up above. Any thoughts on how the rule is applied for just a normal small business (not 8(a) SDB or otherwise)?

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No, it's not ambiguous. You just don't understand. The term "small business concern" includes a firm's affiliates. If a firm has no affiliates, then there are no affiliates to count. If a firm has affiliates, then you count the affiliates. You have affiliates, so when determining your firm's primary industry, count the affiliates.

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Ok. I appreciate hearing your thoughts. Thanks.

The only real size appeal I could find on point, SBA No. SIZ-4441, considered whether you must determine an 8(a) SDB's primary industry by including its affiliates. The SBA office of appeals concluded it was correct to make the determination of primary industry by looking at the firm and its affiliates because of the legislative history of 13 C.F.R. ? 121.601 which used to explicitly say so. That is why I was wondering what the "primary industry" rule for a regular small businesses said. I have had trouble locating a similar rule.

However, I have a recollection that older appeals which were more difficult to locate said that the determination of a primary industry must always include affiliates. They were based on statutes that used different wording, but perhaps the statute has changed to attempt to eliminate the difficulty some people, such as myself, were having.

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If you want financial assistance, you must qualify as a small business in your primary industry both alone and with your affiliates. See 13 CFR 121.301 as follows:

(a) For Business Loans (other than for 7(a) Business Loans for the period beginning May 5, 2009 and ending on September 30, 2010) and for Disaster Loans (other than physical disaster loans), an applicant business concern must satisfy two criteria:

(1) The size of the applicant alone (without affiliates) must not exceed the size standard designated for the industry in which the applicant is primarily engaged; and

(2) The size of the applicant combined with its affiliates must not exceed the size standard designated for either the primary industry of the applicant alone or the primary industry of the applicant and its affiliates, which ever is higher. These size standards are set forth in ?121.201.

For other programs, such as 8(a), you must qualify with your affiliates. See 13 CFR 121.601 and Group O, Inc., SBA No. SIZ-4441 (2001):

An applicant for SDB certification must qualify as a small business under 13 C.F.R. Part 121 for the size standard corresponding to the SIC or NAICS code of its primary business activity. 13 C.F.R. ? 124.1002(B)(1). This corresponds to the requirement under SBA's 8(a) program that an applicant must be small under the applicable size standard for its the primary industry classification. 13 C.F.R. ? 121.601. The previous version of ? 121.601 explicitly stated that this primary industry determination included the firm's affiliates. 13 C.F.R. ? 121.1102(B)(1) (1995). When SBA revised the rule, it stated that it was not making any substantive change, but only making the rule clearer, easier to use, and more concise. See 60 Fed. Reg. 57982-83, 57988 (Nov. 24, 1995) (proposed rule). Clearly, therefore, the Area Office must, when considering an 8(a) firm's primary industry, consider its affiliates. Because the SDB regulation uses similar language, and the SDB regulations rely on the 8(a) criteria, 13 C.F.R. ? 124.1002(a), the Administrative Judge concludes that in a size determination in connection with an SDB application, the primary industry determination includes the applicant firm and all its affiliates. Accordingly, the Area Office correctly included Appellant's affiliates in this case.

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Right, my questions is where is the exact authority stating a firm's primary industry must be determined based on the primary industry of it including its affiliates is for a regular small business not one that is in the 8(a) program or otherwise. If you can point me to that statute, you will solve my whole issue/confusion.

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13 C.F.R. ? 121.410. Could that statute be it? However, still does not say whether the primary industry is based on the company alone or company with affiliates . . .

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Take a look at the SBA website:

http://www.sba.gov/contractingopportunitie...size/index.html

You will find the history of SBA and the Small Business Act. This is from the website.

"SBA has established numerical definitions, or "size standards," for all for-profit industries. Size standards represent the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business concern. These size standards apply to SBA?s financial assistance and to its other programs, as well as to Federal government procurement programs when there is a benefit available to qualifying as a small business concern. Also, the Small Business Act states that unless specifically authorized by statute, no Federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard meets certain criteria and is approved by the Administrator of SBA."

The size standards are set forth in regulations (Title 13, CFR, part 121). You'll see afflifiates are included. This applies to all small businesses and not just 8(a)s.

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Hi Guys,

I appreciate all your help and know how much insight and practical knowledge you have to offer. I think I might just be over thinking things.

I understand that the revenue/employees of all of the affiliates must go toward the applicable limit. The question is what is the applicable limit? It is the NAICS code, but based on what industry? Does it depend on the procurement? I think so for set-asides and sole source contracts. Does it depend on what type of small business assistance you are requesting? Financial assistance or otherwise? I believe it does.

My real question goes toward subcontracting goals as I mentioned before. Is a potential subcontractor small for small business subcontracting goals purposes if he is small as to the primary industry he performs (even when combined with affiliates) but not as to the primary industry of himself and all his affiliates? I think 121.410 might answer my question as to small business subcontracting goals. If he is small as to the service the prime contractor is requesting (when including the measure of employees or revenue of his affiliates), he will be small for small business subcontracting purposes.

I just get lost in the web that is these rules. Any more thoughts, ideas, or insight would be appreciated. If you think I am dead wrong, feel free to tell me.

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Yes, the applicable limit is the specific NAICS code assigned by the Contracting Officer to the individual procurement. A company could be small on one procurement and large on a second closely related procurement based upon the NAICS code chosen.

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Yes, the applicable limit is the specific NAICS code assigned by the Contracting Officer to the individual procurement. A company could be small on one procurement and large on a second closely related procurement based upon the NAICS code chosen.

Then, I think the same thing would apply to small business subcontracting plans according to the language of 121.410. I think that might solve my problem entirely and give me the solution I needed.

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