Small business set-asides are contracts “set aside” by the SBA that must be awarded to small businesses, in order to help them compete for the $500 billion in goods and services the federal government buys from the private sector annually. Set-asides are awarded across a variety of industries, and disadvantaged businesses are given special consideration.
Many small business owners are rightfully curious about the concept of 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 U.S. Small Business Administration.
The SBA works with federal agencies to help ensure that at least 23% of all prime government contracts are awarded to (“set aside” for) small businesses. This is one way that small businesses can compete with Amazon and the other giants of commerce.
Here’s how small business set-asides work, and how your small business can qualify for and obtain one.
There are two main types of small business set-asides: competitive set-aside contracts, and sole-source set-aside contracts.
For competitive contracts, two or more businesses can submit a bit to take on the job. Generally (though not always), this happens automatically when the contract is under $150,000. Some of these contracts are only open to those who participate in SBA contracting assistance programs.
Sole-source contracts are awarded without a bidding process when only a single business can fulfill the contract requirements. These contracts are publicly posted, and potential vendors can still bid on them, assuming the business participates in the relevant contracting assistance programs.
In addition to the government-wide 23% set-aside goal, there are different goals for certain subsets of small businesses:
These groups are also typically given special consideration when applying for SBA loans.
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.
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 had a goal of awarding 22% of prime contracts and 34% of subcontracts to small businesses. The Department of Energy had a goal to award 10.2% of prime contracts and 40% of subcontracts to small businesses.
Any qualifying small business has the opportunity to win a set-aside contract. Doing so can open the door to future opportunities, and can be used as an excellent marketing tool for other jobs as well. If you’re interested in a small business set-aside from the SBA, the pay-off could very well be worth the effort.
Rieva Lesonsky is a contributing writer for Fundera.
Rieva has over 30 years of experience covering, consulting and speaking to small businesses owners and entrepreneurs. She covers small business trends, employment, and leadership advice for the Fundera Ledger. She’s the CEO of GrowBiz Media, a media company specializing in small business and entrepreneurship. Before GrowBiz Media, Rieva was the editorial director at Entrepreneur Magazine.