Air Force angers small businesses with code decision

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.