Making sense of NAICS and UNSPSC codes
By Building Radar	September 7, 2016 Construction Data
Procurement codes in Building Radar
To optimize production, target buyers, and contract suppliers in public procurement processes, classification is essential to businesses.
At Building Radar, we combine different public procurement codes to provide comprehensive and international business opportunities to our customers. Currently, we have implemented the usage of CPV (Common Procurement Vocabulary); NAICS (North American Industry Classification System) and UNSPSC (United Nations Standard Products and Services Code) codes. These are used for almost all contract opportunities in the western hemisphere and beyond. Further information about CPV codes, in particular, can be found here.
The NAICS System
One of the code systems used in public procurement are NAICS – the North American Industry Classification System. NAICS is used by companies and the governments of North America to classify business establishments according to the type of economic activity (process of production) in Canada, Mexico, and the USA. It has largely replaced the older Standard Industrial Classification (SIC) system. Nevertheless, certain government departments and agencies, such as the US Securities and Exchange Commission (SEC), still use the SIC codes.
The NAICS system was created in 1997 with the intention to replace the SIC codes. SIC codes are no longer updated, while NAICS codes were last updated in 2012 (the revision slightly reduced the number of industries and modified six sectors). Since many resources in North America (such as FedBizOpps) use only NAICS or only SIC codes, it is important to have both the NAICS codes and SIC codes when doing business research. Here the Building Radar engine shines by automatically converting the outdated SIC codes to modern NAICS vocabulary.
Government bids often require businesses to provide the NAICS before announcing government contract awards to identify the type of business is applying for the contract. Also, some government funding for business is available to specific NAICS industries, so it is mandatory to know this code for your business.
Reading the NAICS
The NAICS numbering system employs a five or six-digit code at the most detailed industry level. The first five digits are generally (although not always strictly) the same in all three countries. The first two digits designate the largest business sector, the third digit designates the subsector, the fourth digit designates the industry group, the fifth digit designates the NAICS industries, and the sixth digit designates the national industries; for example:
Level Code Description
Subsector
U.S. Industry 23
236115 Construction
Construction of Buildings
Residential Building Construction
New Single-Family Housing Construction
United Nations standard codes
The United Nations Standard Products and Services Code (UNSPSC) provides an open, global multi-sector standard for efficient and very accurate classification of products and services. Its current version contains over 50,000 commodities.
The UNSPSC was jointly developed by the United Nations Development Program (UNDP) and Dun & Bradstreet Corporation in 1998 and is currently managed by GS1 US. The organization is responsible for overseeing code change requests, revising the codes and issuing regularly scheduled updates to the code, as well as managing special projects and initiatives.
The UNSPSC boasts hierarchical classification with four basic levels. The fifth level, Business Function, is optional. It is made up of a two-digit suffix for the business function performed by an organization in support of the commodity. Otherwise, each level contains a two-character numerical value and a textual description. The order of the words in a title does not imply hierarchy or importance. Let's take an eight-digit UNSPSC code 44103103 as example:
Commodity 72000000
72121403 Building and Facility Construction and Maintenance Services
Nonresidential building construction services
Specialized public building construction services
Hospital construction service
Future of public procurement codes
The ultimate goal of tendering codes is to be an efficient tool for public e-procurement. For that reason, they are revised and improved over time.
Unlike CPV codes (which are updated every 3 to 5 years), NAICS is an industry classification system, not a product classification system, and therefore neither intended nor well suited for procurement purposes. The North American Product Classification System (NAPCS) is currently under development. This system is intended to incorporate all of the outputs/products of the industries defined in NAICS, with product or service referring to goods produced and services provided. For statistical purposes, a business establishment is assigned one NAICS code, based on its primary business activity. Once NAPCS is complete, multiple NAPCS codes could be linked to any one establishment to indicate its various products.
At the moment UNSPSC code has more than 50,000 entities for everything from pencils to computers and accountancy to cleaning services. And compared to other procurement codes, the point of using UNSPSC is to have a more detailed and meaningful view of government (such as construction bids) expenditure. UNSPSC has regularly scheduled updates to the code (estimated at a maximum of twice a year), meaning the code is not yet complete and being updated all the time.
NAICSProcurementUNSCSP