By David Chen, Compliance Specialist
The North American Industry Classification System (NAICS) is fundamental to government contracting in the United States. These codes determine eligibility for contracts, set-aside opportunities, and shape the competitive landscape. Understanding how to navigate the NAICS system is essential for any business seeking to succeed in the government marketplace.
What are NAICS Codes?
NAICS (pronounced "nakes") is a classification system developed by the United States, Canada, and Mexico to create common industry definitions across North America. The system replaced the Standard Industrial Classification (SIC) system in 1997 and is updated every five years to reflect changing economic landscapes.
NAICS codes are hierarchical, with 2-digit sectors representing broad industry categories, which are further divided into more specific subsectors, industry groups, industries, and national industries.
How NAICS Codes Work in Government Contracting
Contract Classification
Every federal contract opportunity is assigned a NAICS code that best represents the principal purpose of the acquisition. This code determines:
- Which businesses are eligible to bid
- Size standards for small business qualifications
- Set-aside opportunities for specific business categories
- Reporting requirements and compliance standards
Size Standards
Each NAICS code has an associated size standard, usually expressed in number of employees or annual receipts. These standards determine whether a business qualifies as a small business for federal contracting purposes.
"Selecting the right NAICS codes is one of the most strategic decisions a government contractor can make. It opens doors to opportunities and determines competitive positioning." - Federal Contracting Advisor, 2025
Selecting the Right NAICS Codes
Primary NAICS Code
Your business should have one primary NAICS code that best represents your main line of business. This code is particularly important for:
- Small business certifications
- System for Award Management (SAM) registration
- Economic census reporting
Additional NAICS Codes
You can select up to five additional NAICS codes that represent other capabilities your business possesses. These secondary codes expand your opportunities in the government marketplace.
Choosing the Most Advantageous Codes
When selecting NAICS codes, consider:
- Which codes best represent your core capabilities
- The size standards associated with each code
- The level of competition in each code category
- Which codes align with your growth strategy
NAICS Codes and Small Business Set-Asides
NAICS codes play a crucial role in small business set-aside programs. Contracts may be set aside for:
Small Business Set-Asides
Contracts reserved exclusively for small businesses that meet the size standard for the specific NAICS code.
8(a) Business Development Program
Contracts set aside for businesses participating in the SBA's 8(a) Business Development program.
HUBZone Program
Contracts set aside for businesses located in Historically Underutilized Business Zones.
Service-Disabled Veteran-Owned Small Business
Contracts set aside for small businesses owned and controlled by service-disabled veterans.
Women-Owned Small Business Program
Contracts set aside for small businesses that are at least 51% owned and controlled by women.
Recent Changes to NAICS Codes
The NAICS system is revised every five years to reflect changes in the economy. The 2022 NAICS revision (NAICS 2022) included several significant changes:
New Industries
The 2022 update introduced new codes for emerging industries such as:
- Drone manufacturing and services
- Renewable energy consulting
- E-commerce platform services
- Cybersecurity consulting services
Revised Definitions
Many existing codes were updated to better reflect modern business practices, particularly in technology and professional services.
Impact on Contractors
These changes mean contractors should regularly review and update their NAICS code selections to ensure they accurately represent their capabilities and take advantage of new opportunities.
Best Practices for NAICS Code Management
Regular Review
Review your NAICS code selections at least annually and whenever the NAICS system is updated (every five years).
Documentation
Maintain documentation supporting your NAICS code selections, including descriptions of relevant projects and services.
Professional Guidance
Consider consulting with government contracting experts or procurement technical assistance centers (PTACs) to ensure optimal NAICS code selection.
Monitor Opportunities
Regularly review contract opportunities in your selected NAICS codes to identify trends and new business possibilities.