Significant IT Services NAICS Spending Increases Expected in Upcoming Census Report

For the first time in history, the U.S. Census Bureau will include North American Industry Classification System (NAICS) Code revision data in an Economic Census, Geographic Areas Statistics report.

The 2022 report, expected out in December, will include detailed industry statistics including impacts from the changes from the 2017 NAICS to the current codes. This article explores the changes to the codes since their implementation in 1997 focusing on IT-related contracting impacts, specifically the following NAICS Codes:

• 334111 - Electronic Computer Manufacturing
• 334112 - Computer Storage Device Manufacturing
• 423430 - Computer and Computer Peripheral Equipment and Software Merchant Wholesalers
• 518210 - Computing Infrastructure Providers, Data Processing, Web Hosting, and Related Services
• 541511 - Custom Computer Programming Services
• 541512 - Computer Systems Design Services
• 541513 - Computer Facilities Management Services
• 541519 - Other Computer Related Services
• 611420 - Computer Training/

History

Before 1997, the U.S. used the Standard Industrial Classification (SIC) system for acquiring, analyzing and reporting on the U.S. economy. The SIC system, developed in the 1930s during the manufacturing revolution was limited in its ability to keep pace with the nation’s changing economic growth in areas such as information services, health care and high-tech manufacturing. Therefore, the U.S. Economic Classification Policy Committee (ECPC), Statistics Canada, and Mexico's Instituto Nacional de Estadistica y Geografia jointly developed the NAICS Code system as a replacement to compare business statistics among those countries consistently.

The countries adopted the system in 1997 including a five-year review and revision cycle to ensure the codes remain relevant, accurate and timely. Since then, the U.S. Office of Management and Budget (OMB) has revised the codes five times, the latest in 2022. The most common changes include consolidating multiple NAICS codes into a single code and adding new subsector codes to keep up with economic changes, including diminishing and emerging industries. 

Some of the most significant changes include:

• Revisions to keep pace with advancements technology and innovation, particularly in the Information Sector (NAICS 51) and Information Technology Subsector (NAICS 541).
• Streamlined sectors and reclassified industries providing more efficient and detailed data tracking and analysis.
• Expanded service industries classifications providing more granular data in areas such as Healthcare and Social Assistance programs (NAICS 62).
• Additional Environmental and Energy-related sectors such as Waste Management and Remediation Services (NAICS 56).
• Reclassified and consolidated Manufacturing Subsectors to include innovative processes and products (NAICS 31-33).
• Realigned Trade Industries for Wholesale (NAICS 42) and Retail – NAICS 44-45). 

The 2022 NAICS Code revision impacted more than 100 codes and created 111 new industries. Overall IT spending under the above-mentioned NAICS Codes increased by 51% from FY 2017 to 2022. During those five years, IT Services under NAICS 541511, 541512, 541513, 541519 and 518210 increased 65%. Conversely, Computer Storage Manufacturing (334111) and Computer and Computer Peripheral Equipment and Software Merchant Wholesalers (423430) spending fell by about 57%. This is likely attributed to modernization efforts, bulk purchases, and transition to cloud environments.  

 

What to Expect

Based on the scheduled five-year review cycle, contractors can expect a NAICS code revision in 2027, with a Request for Comments on proposed changes anticipated within the next two years. So what can industry expect in 2027?

Data for technologies associated with Artificial Intelligence and Machine Learning, Cybersecurity, clean energy manufacturing and products and biotechnologies related to food production and health sciences remain broadly embedded within the Information Technology and Research and Development sectors. Specifically, assigned NAICS codes and correlating size standards for those industries would provide more granular analysis capabilities driving federal acquisition strategies. Benefits include increased opportunities under socio-economic categories, enhanced industry competitive analysis capabilities and expanded teaming and subcontracting opportunities. Conversely, the revisions could include further consolidation and realignments that could eliminate the competitiveness of some small businesses. Specifically,

• NAICS code consolidations require contractors to certify or recertify under the consolidated code that they may not have been previously certified for before.
• Additions and deletions of NAICS codes changes the federal procurement landscape, removing opportunities for some contracts while adding opportunities for others.
• NAICS Code size standards revisions open opportunities for some small businesses while disqualifying others.

Contractors must remain vigilant regarding potential compliance requirements, not only in the small business arena, but regarding teaming and subcontracting arrangements. Be sure to watch for Deltek’s analysis of the 2022 statistics in December.