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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: April 20, 2000

FROM: Barry McVay, CPCM

SUBJECT: Office of Management and Budget; North American Industry Classification System -- Update for 2002

SOURCE: Federal Register, April 20, 2000, Vol. 65, No. 77, page 21241

AGENCIES: Office of Management and Budget (OMB)

ACTION: Notice

SYNOPSIS: OMB is seeking comments on the advisability of adopting the proposed North American Industry Classification System (NAICS) updates for 2002. OMB's Economic Classification Policy Committee (ECPC) recommends an update of the industry classification system to extend the harmonized three-country (United States, Canada, and Mexico) classification structure to construction and to recognize important changes in the retail trade and information sectors. In addition, as an interim measure in the United States, the ECPC recommends restructuring the wholesale trade sector to reflect differences in production functions and to capture more accurately the rapidly-growing business-to-business electronic markets developing in the United States. This proposed NAICS revision would become effective in the U.S. on January 1, 2002.

EDITOR'S NOTE: NAICS is a system devised by the United States, Canada, and Mexico for classifying establishments by type of economic activity. Its purposes are: (1) to facilitate the collection, tabulation, presentation, and analysis of data relating to establishments, and (2) to promote uniformity and comparability in the presentation and analysis of statistical data describing the economy. The NAICS was first published in 1997, and it is replacing the Standard Industrial Classification (SIC), which was originally developed in the 1930s and last updated by OMB in 1987. The NAICS reflects the enormous changes in technology and the growth and diversification of services that have marked recent years much better than does the SIC.

The NAICS uses a 6-digit hierarchical structure to classify establishments, as follows:

On October 22, 1999, the Small Business Administration (SBA) published a proposal to amend its small business size regulations by replacing the SIC-based size standards with NAICS-based size standards. This change is expected to be effective October 1, 2000.

DATES: Submit comments no later than June 19, 2000.

ADDRESSES: Submit comments on the proposed NAICS changes to Katherine K. Wallman, Chief Statistician, Office of Management and Budget, 10201 New Executive Office Building, Washington, DC 20503, 202-395-3093, fax: 202-395-7245, or send e-mail comments to pbugg@omb.eop.gov with the subject "NAICS02".

Send inquiries about the contents of industries to Carole Ambler, Chair, Economic Classification Policy Committee, Bureau of the Census, Room 2633-3, Washington, DC 20233, 301-457-2668, fax: 301-457-1343.

The NAICS, previous NAICS notices, and related documents are available on the Internet from the Census Bureau at http://www.census.gov/naics.

FOR FURTHER INFORMATION CONTACT: Paul Bugg, 10201 New Executive Office Building, Washington, DC 20503, 202-395-3093, fax: 202-395-7245, e-mail: pbugg@omb.eop.gov.

SUPPLEMENTAL INFORMATION: OMB published a notification of intention to complete portions of NAICS on February 25, 1999, soliciting comments on the advisability of revising the NAICS 1997 structure for 2002 and solicited comments on the creation of new industries in the construction and wholesale trade sectors, modifications to the national industries for department stores and nonstore retailers, and other changes identified as necessary during the initial implementation of NAICS 1997.

The ECPC received 28 comments in response to the February 25, 1999, request: 22 on the construction sector, 3 on the wholesale trade sector, and 3 that were outside the scope of the request for comments. Many of the comments, particularly those regarding the construction sector, were contradictory (for instance, one comment might suggest combining two industries together, another comment might suggest further subdividing the two industries). Some comments that were acceptable to the United States were not acceptable to Canada or Mexico, and vice versa. After considering all proposals from the public, consulting with a large number of U.S. data users and industry groups, and having extensive discussions with Statistics Canada and Mexico's Instituto Nacional de Estadistica, Geografia e Informatica (INEGI), the ECPC, INEGI, and Statistics Canada developed a revised structure for both the construction (Sector 23) and information sectors (Sector 51) of NAICS that would apply to all three North American countries (of particular note is that all Internet publishing would be moved to new Subsector 516, Internet Publishing and Broadcasting, and Internet service providers would be in Subsector 518, Internet Service Providers, Web Search Portals, and Data Processing Services).

The following are the proposed structures for Sectors 23 and 51:

For Sector 42, Wholesale Trade, after extensive discussions with Statistics Canada and INEGI, the representatives of the three countries' statistical agencies decided to delay changes to this sector and instead plan for a complete restructuring of the distribution network industries (wholesale, retail, transportation, and warehousing) in 2007. In the interim, the ECPC recommends restructuring the wholesale trade sector to reflect differences in production functions between those wholesalers that take title to goods (new Subsector 423, Merchant Wholesalers, Durable Goods; and new Subsector 424, Merchant Wholesalers, Nondurable Goods) and those that do not (new Subsector 425, Wholesale Electronic Markets and Agents and Brokers), and to capture more accurately the rapidly-growing business-to-business electronic markets developing in the United States (Subsector 425). The following are the proposed structures for Sector 42:

In addition, the ECPC is proposing to create additional national level detail for department stores and nonstore retailers. These changes would create more meaningful, homogeneous industries for the United States. The ECPC proposes splitting NAICS Industry 45211, Department Stores, into two new 6-digit industries: 452111, Department Stores (except Discount), and 452112, Discount Department Stores.

Finally, the ECPC is proposing to split NAICS Industry 45411, Electronic Shopping and Mail-Order Houses, into three new 6-digit industries: 454111, Electronic Shopping; 454112, Electronic Auctions; and NAICS 454113, Mail-Order Houses. The proposed changes for electronic shopping acknowledge the rapid growth of these activities in the United States.

EDITOR'S NOTE: This is not some "make work" exercise -- the NAICS will have a direct effect on federal acquisitions because the SBA is using the NAICS as the basis for its revised small business size standards. It is hard to believe that Industry 51611, Internet Publishing and Broadcasting, or Industry 51811, Internet Service Providers and Web Search Portals, can't be further subdivided. Lumping all the Internet publishers (for example) into a single category means the SBA will set a uniform, industry-wide small business size standard despite all the different kinds of Internet publishing that are conducted. What might be an appropriate small business size standard for Internet newspaper publishing might not be appropriate for Internet map publishing -- a small business size standard that is right for one would probably be wrong for the other. So this is the time to speak up!

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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