Small Business Set-Asides: How Do They Work?

Many small business owners are curious about small business set-asides—how do they work and how you can get in on the action? Here’s a closer look.

Every year, the federal government buys some $500 billion worth of goods and services from the private sector. Does a small business stand a chance of winning any of those contracts? Yes, thanks to the SBA. Since it was founded in 1953, the U.S. Small Business Administration has worked with federal agencies to help ensure that at least 23% of all prime government contracts are awarded to (“set aside” for) small businesses.

How Small Business Set-Asides Work

In addition to the government-wide 23% set-aside goal, there are different goals for certain subsets of small businesses:

• Small disadvantaged businesses (8a program) — 5%
• Women-Owned Small Businesses (WOSB) — 5%
• Service-Disabled Veteran-Owned Businesses — 3%
• Businesses in HUBZones (historically underutilized business zones) — 3%

Learn more about these programs.

Not all set-asides are for prime contracts (those directly with a government agency). There are also small business set-asides for subcontracts resulting from a prime contract. For example, if an automotive manufacturer gets a prime contract to build Army jeeps, they could subcontract with a small manufacturer to supply some of the parts. Learn more about the Small Business Subcontracting Program.

Adding to the complexity, each federal agency sets its own specific set-aside goals with the SBA every year. For example, for the fiscal year of 2017, the Department of Defense has a goal of awarding 22% of prime contracts and 34% of subcontracts to small businesses. The Department of Energy’s goal is to award 10.2% of prime contracts and 40% of subcontracts to small businesses.

How Can You Find Small Business Set-Asides?

• Make sure you meet the SBA size standards. To be eligible for set-asides, your business can’t exceed the maximum size standard for the specific set-aside. Size standards depend on your industry, as specified by the North American Industry Classification System (NAICS) codes, and may be determined by number of employees or annual gross revenues. Learn more about SBA size standards.
• Get a D-U-N-S number. If you don’t already have one, get a D-U-N-S number from Dun & Bradstreet. This is a free identification number you must have to do business with the federal government.
• Register with the System of Award Management. SAM is a database of companies that do business with or want to do business with the federal government. Registering is free. Government agencies and government contractors use it to search for companies interested in contracting opportunities. But don’t wait for them to find you—take the initiative. Once registered in SAM, you can search for relevant set-asides at FedBizOpps.gov.

How Can You Win Small Business Set-Asides?

• Prove you can do it. Government agencies want to be confident you’ll deliver before they will take a chance on you. Show that you have completed similar work, on a similar scale, on time and within budget in the past, and have a track record of satisfied customers. (If the biggest order your manufacturing company has ever filled is for 50,000 units, the Department of Defense isn’t going to choose you for a contract that requires 50 million units.) Some contract solicitations require you submit your Open Ratings, Inc. Past Performance Evaluation. This is an independent audit of your customer references that gives you a rating. Even if a bid doesn’t require it, sharing your rating can be a good marketing tool.
• Price it right. To win a bid, you need to show that your business offers the government agency the best value. Since agencies often choose the lowest bidder, when you’re first trying to get set-asides, you may want to set your price lower than you normally would to increase your chances of landing the contract. Be sure, however, you don’t bid so low you lose money on the work.
• Get help. Navigating the world of government contracting can be challenging due to all the rules and regulations. Fortunately, there are plenty of places to get help. The SBA offers a wide variety of resources for small businesses interested in set-asides, including Procurement Center Representatives to help business owners understand the federal contracting process and free online classes that teach the basics of government procurement.

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