Small Business Set Aside: What It Is And How It Works

As a small business owner, you can access a steady new revenue stream through government contracts intended for small business owners. Since larger businesses often receive government contracts, the Small Business Administration (SBA) offers small business set-asides so your company can compete with the bigger companies in your industry. Read on to learn about how small business set-asides work.

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What is a small business set-aside?

A small business set-aside is a government contract that the agency in question will only offer to small business contractors. Set-aside contracts give small businesses a boost toward winning certain contracts that might otherwise prove far more difficult for these companies to access.

What are the types of set-aside contracts?

There are two primary types of set-aside contracts:

  • Competitive set-aside contracts. A competitive set-aside contract is one for which the government seeks applications from at least two small businesses that offer the services or products requested. Almost all set-aside contracts are competitive. In fact, all government contracts under $150,000 are automatically classified as competitive set-aside contracts and targeted toward small businesses instead of their larger counterparts.
  • Sole-source set-aside contracts. A sole-source set-aside contract is offered to, as its name implies, only one small business contractor. Sole-source contracts are rare and only offered when exactly one business is capable of offering the products or services required.

Additionally, some competitive set-aside contracts are reserved for small businesses with ownership or geographical conditions that meet one or more of the below socioeconomic classifications:

  • 8(a) business development. The government offers 8(a) set-aside contracts solely to what it calls “small disadvantaged businesses.” The SBA offers an extensive list of small disadvantaged business qualifications that a company must meet to qualify for these 8(a) set-aside contracts. The government sets aside approximately 5% of all federal contracting money per year for 8(a) contracts.
  • HUBZone. The government offers HUBZone set-aside contracts solely to small businesses in historically underutilized business (HUB) zones. The criteria for HUBZone contract qualifications include ownership makeup, office location, and employee location. The government sets aside approximately 3% of all federal contracting money per year for HUBZone contracts.
  • Women-owned small businesses (WOSB). The government offers WOSB set-aside contracts to small businesses for which women oversee day-to-day management, have at least half of all ownership and control, and make long-term business decisions. The government sets aside approximately 5% of all federal contracting money per year for WOSB contracts.
  • Service-disabled veteran-owned. The government offers service-disabled veteran-owned contracts to small businesses for which service-disabled veterans oversee day-to-day management, have at least half of all ownership and control, and make long-term business decisions. The government sets aside approximately 3% of all federal contracting money per year for service-disabled veteran-owned contracts.

Six steps for getting a small business set-aside

To bid on a small business set-aside contract, you’ll need to take three steps which allow you to search for and bid on these contracts. Here are the six steps for getting a small business set-aside:

1. Meet the SBA size standards

Small businesses of all shapes and sizes are eligible for small business set-asides. The SBA definition of a small business varies immensely by industry, so you can use the agency’s size standards tool to determine if your business is considered a “small business.” Check these guidelines before moving ahead with a small business set-aside. If your business size exceeds the SBA size standard for your industry, you’re ineligible for small business set-asides.

2. Have a D-U-N-S® number

Your company must have a nine-digit code called a D-U-N-S Number to receive government contracts. If you don’t yet have one, you can request one.

3. Register with the System of Award Management (SAM)

Similarly, you’ll need to register with SAM to make your company searchable to government agencies interested in small business contracting. Registration is free.

4. Price wisely

After you get a D-U-N-S number and register with SAM, you can place bids on set-aside contracts. Once you find a contract that interests you, set a reasonable price as the first step in your application. This factor may be the most important one – government agencies tend to select the least expensive contracts, but you should also avoid undervaluing your work just to secure a government contract.

5. Show your worth

Your worth includes more than just your pricing. That’s why, when you submit your bid, you should include proof that your company has completed similar projects while meeting deadlines and staying within budget. You should also prove that your customer satisfaction rates are high, and since some set-aside bids require applicants to include a past performance evaluation, you should include this report anyway to demonstrate your strong track record.

6. Don’t go it alone

When it comes to small business set-asides, you shouldn’t be afraid to seek help. Even with all the guidance offered here, chances are that you’ll still have questions, and that’s expected – in fact, the SBA has a wealth of free online classes that can walk you through the set-aside bidding process. And if you still have more questions, the agency’s procurement center representatives are just a call away.

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