Small Business Set Aside Programs

Every federal government purchase anticipated to be valued from $2500 to $100,000 is automatically set-aside for small businesses as long as there are at least 2 companies that can provide the product/service. Contracts over $100,000 can be set aside if enough small businesses are able to do the work. Contracts over $500,000 have to include a small business subcontracting plan so that small businesses can get work under these large contracts.

  • Small Business

Contracts less than $100,000 or those where 2 or more small businesses can fulfill the contract can be set aside for small businesses. This is typically a contracting  officer decision after they perform market research.

 Contracts can be fully set aside or partially set aside (large company and small company). The SBA’s definition of a small business varies based on industry but typically is less than 500 employees or less than $5,000,000 in revenue.

  • HUB Zone

The HUBZone programis to encourage small businesses located in designated high unemployment, low-income areas through set aside contracts. HUBZone stands for “Historically Underutilized Business Zone”. To qualify a company must be a small business, owned and controlled 51% by US citizens, have main office in a HUBZone and have at least 35% of employees living in a HUBZone. The governments contracting goal is 3% of all prime contract dollars being awarded to HUBZone businesses. There are also sole source contracts possible and 10% price preference (HUBZone company prices can be 10% higher and still be considered competitive). To become HUBZone qualified the company must submit an application and supporting documentation to the SBA.


The SBIR/STTR program was established to provide small companies with funding to develop products which have government and commercial potential. SBIR’s  are research grants to fund research and development efforts. In 2005 federal agencies spent $1.85 billion on SBIR awards. STTR is similar to SBIR except the company must partner with a university under an STTR. Federal agencies with R&D expenditures over $100 million per year set aside 2.5% of the R&D funds for the SBIR program. Twenty percent of the SBIR award companies were founded entirely or partly based on SBIR contracts (“An Assessment of the SBIR Program”). SBIR is a three phase program. Phase I is worth up to $100,000 and is to explore whether the proposed solution will work. Phase II can have a budget up to $750,000 and is to develop a proof of concept. Phase III is to commercialize the solution and has a mix of government and private funding.


  • 8(a)

Small disadvantaged businesses may apply to the SBA 8(a) program. To qualify a business must be owned by socially or economically disadvantaged people, in business for at least 2 years and owners must have a net worth under $250,000. Once certified by the SBA 8(a) companies have set aside contracts available.

  • Women-Owned

There is no formal certification for women-owned small businesses – it is self certified. The government contracting goal is 5% to women-owned businesses but there are no specific set aside programs.

  • Service Disabled Veteran Owned (SDVO)

In order to be a classified as a Service Disabled Veteran Owned Small Business Concern (SDVOSBC) the business must be 51 percent owned by a Service Disabled Veteran (SDV) as determined by the Department of Veterans Affairs. In addition the SDV must be the highest officer position in the company and control the management and daily operations. There are a number of laws that have been passed to assist service disabled veterans win government contracts.

The Veterans Entrepreneurship and Small Business Development Act of 1999 established an annual government wide goal of not less than 3 percent of the total value of all prime contract and subcontract awards for participation by SDVOSBC’s. In 2003 the Veterans Benefits Act of 2003 was passed to provide a procurement program that allows federal contracting officers to restrict competition to SDVOSBC’ s and award a sole source or set aside contract where certain criteria are met. The contract cannot exceed $5 million for manufacturing contract or $3 million for other types of contract.

READ MORE ON INDIRECT RATE STRUCTURES for Government Contractors – Go to Post

  •  Veteran Owned

Veteran owned companies is a self certifying designation when at least 51% of the company is owned by veterans. There are no specific set aside programs for veteran owned.

  • Small Disadvantaged Business

Small disadvantaged businesses are 51% owned and controlled by African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans. This designation is self certifying.

  • Native American

Native American (including Alaskan and Hawaiian) can have contracts set aside and sole sourced to them.

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