What to Know About Federal Small Business Set-Aside Contracts

Congress created the Small Business Administration (SBA) in 1958. At the time of the SBA’s inception, Congress mandated a per annual small business contracting goal of not less than 23 percent of the total value of all prime contract awards. The goal was to allow small businesses to flourish and compete with larger companies in varied industries.

“Small business set-asides” refer to that portion of federal contracts that must be awarded to small businesses. Annually, the federal government secures approximately $500 billion in private sector contracts, meaning there’s a lot of work out there for enterprising small business owners.

These small business set-asides are often a great way for a small or new company to break into an industry dominated by big players – here’s what you need to know.

Who Can Get Small Business Set-Asides?

Set-aside contracts exist for pretty much every kind of private sector work the government needs, from construction to catering. In addition to general small businesses, there are several specific categories of small businesses that the government aims to support through set-asides, including 8(a) business development, Women-Owned Small Businesses (WOSB), Service-Disabled Veteran-Owned Businesses, and HUBZone businesses.

8(a) Business Development

The SBA 8(a) program is designed to help disadvantaged small business owners compete for contracts they may not otherwise qualify for.

To qualify as an 8(a) small business, the business must 1) be owned by socially or economically disadvantaged people 2) have been in business for at least 2 years and 3) owners must have a net worth under $250,000.

For further information on how to qualify for 8(a) set asides and find opportunities, visit the SBA 8(a) Business Development page.

Women-Owned Small Businesses (WOSB)

The Women-Owned Small Businesses (WOSB) Federal Contracting Program was created in order to increase the number and types of businesses that Women-Owned Businesses (WOSB) could compete in. It’s an attempt to address the historic inequality in work opportunities for women compared with their male counterparts and it’s a great way to get a start in a traditionally male-dominated industry.

This program also covers Economically Disadvantaged WOSBs (EDWOSBs), which must meet additional financial criteria.

For further information on how to qualify for WOSB set asides and to find opportunities, visit the SBA’s Women-Owned Small Business page.

HUBZone Program

The Historically Underutilized Business Zones (HUBZone) program targets small businesses in regionally underrepresented business zones, such as urban or rural populations. The goal of the HUBZone Program set-asides is to stimulate economic development and job growth in these distressed areas.

For further information on how to qualify for HUBZone set asides and find opportunities, visit the SBA’s HUBZone Program page.

Service Disabled Veteran Owned Program (SDVO)

SDVO programs set asides exist to help the veteran population create business opportunities after their active service has expired. To qualify for SDVO contracts, a small business must be at least 51% owned by a veteran who was disabled in service.

For further information on how to qualify for SDVO Programs and to find opportunities, visit the SBA’s Service Disabled Veteran Owned Business page.

Qualification requirements vary based on the type of set aside program.

Getting Your Small Business Set-Aside

It’s tough to compete with big, well-established companies for contracts – and it’s also bad for the government (and the taxpayers!). If there’s no competition, there’s no incentive for those big companies to keep prices low and efficiency high. In addition, concentrating all the work in a few big organizations means new jobs aren’t being created elsewhere. In other words, small business set-asides are good for everyone.

But just being a small business (or even one that fits in one of the targeted categories) isn’t enough. You’ll have to create a compelling bid with a competitive price. You’re not up against the big wigs, but you are up against other small businesses aiming for the same contracts.

That means you’re going to need to do your homework. You’ll need to present a bid that gets the best work done for the best price. If there’s something unique that your company can offer (like a new technology or technique), make sure to highlight that! Anything that helps you stand out from the competition. It also helps to have a strong record of delivering high-quality work on time and on budget to show that you’re capable of following through on your bid.

It’s ok to be a little bit aggressive on pricing; shaving your margins down a hair up front may mean you have access to more and bigger government contracts later. But you also don’t want to bankrupt yourself in order to get the lowest bid in. By the same token, aim for contracts you’re confident you can handle – you don’t want to take on a $50 million contract only to find that you don’t have the resources or personnel to actually complete it. Start small and aim higher as you grow!

Take Advantage of Set-Asides for Your Small Business

Small business set-asides are all about leveling the playing field between newcomers and the old, established organizations. They’re a great way for you to get a foot in the door of these industries, especially if you fit into one of the designated target categories. So get out there and see what opportunities there are for you!