Small Business Set-Asides: What They Are And Why They Matter?
This is how you compete against larger companies.
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Today we will cover small business set asides, the different set aside categories and why they matter. This happens to be one of the best advantages for a small business in government market, so pay close attention!
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Small business set-asides are designed to help small businesses compete against larger companies in government contracting.
A small business set-aside is a competition that is federally mandated to set-aside selected contracting work for a specific group of companies, such as small businesses. There are various niches under this umbrella, such as 8A competitions that require certification, hub zones for historically underutilized businesses, service-disabled veteran-owned small businesses, and women-owned small businesses. We will get into each category in more detail below.
The U.S. government has a goal of awarding 23% of all federal contracts to qualified small businesses.
These set-asides matter for a few key reasons. First, they allow small businesses to compete on a more level playing field. By setting aside competitions for specific categories of small businesses, the government can give these businesses a chance to work with the government and improve the overall quality of work being done.
Second, the set-asides are good for the overall health of the economy. By giving more businesses the opportunity to work with the government, the government can bring in fresh ideas and perspectives that can improve the quality of work being done. This, in turn, can lead to more innovation and growth in the small business sector.
Without this category of business classification, most contracting work would go to the big players. Hands down, this would always happen. There is no way that “Jim’s plumbing” has the same resources as a General Dynamics.
Remember that in 2024, the government's best interest is to keep employment numbers high, and make it possible to create businesses. This is a runway allowing individuals to both start and enter the government market while taking into account any disadvantages the individual business owners may have.
Regulations:
Guidance for set asides is described in FAR (Federal Acquisition Regulation) Part 19, which is where the small business requirements are found. It's important to note that the contracting officer may set aside contracts for any of these categories, but they are not required to do so.
When a competition is set aside for a small business, it means that no large businesses are allowed to submit a bid. The government has determined through market research that the work can be done by at least one, but usually more than one, small business. This is designed to help small businesses get a leg up in government contracting and improve the overall quality of work being done.
Set-Aside Requirements:
A few things to consider about how the government issues set asides, this comes straight from sba.gov:
The federal government prefers to contract with small businesses whenever possible. Contracting officials can use set-aside and sole-source contracts to help their agencies meet their small business contracting goals.
How you should offer a contract will depend largely on two factors:
The number and type of small businesses that are able to do the work
How much the contract is worth
In general, if there are at least two small businesses that could do the work for a fair price, the contract should be set aside exclusively for small businesses to compete. If there are fewer than two, you may be authorized to create a sole-source contract, or otherwise you may offer it for full and open competition.
Again, just because there are set aside businesses available, does not mean the government has to issue the set aside opportunity, but if the requirements are met they generally do.
What Acquisition Phase Do Set-Asides Fall Under?
Set-asides are set as part of the government’s market research phase. During this phase, the government determines if a small business can do the work required. This is typically done through posting on sam.gov and clicking on Contract Opportunities which is where the government posts opportunities like pre-solicitation or solicitation notices. Companies can access the information and respond there.
When the government decides to issue the RFP they will have made the decision to set aside or not. This makes sense logically as first they needed to determine if any companies could actually fulfill the work, then make the set aside for it. Otherwise qualified companies who can actually fulfill the work won’t be able to bid on it.
At the end of the day, if there are no companies that can fulfill the work, the contracting team is not obligated to make a set aside. This often happens with HUB Zone companies, as socioeconomically disadvantaged areas do not often have the ability to fulfil the work requirements.
Again, the FAR outlines the various set-aside options available to the government.
What Are the Different Types of Small Business Set-Asides?
Each of them are linked to the Small Business Association where there are specific details about each and how to apply.
8(a) Set-Aside: This is a competition that is set aside for companies that are certified under the Small Business Administration's 8(a) program. This program is designed to help small businesses owned by socially and economically disadvantaged individuals.
3. HUBZone Set-Aside: This is a competition that is set aside for companies that are located in a historically underutilized business zone (HUBZone). These zones are typically located in low-income areas or areas that have been affected by a natural disaster or military base closure.
4. Service-Disabled Veteran-Owned Small Business (SDVOSB) Set-Aside: This is a competition that is set aside for companies that are owned and controlled by service-disabled veterans.
5. Women-Owned Small Business (WOSB) Set-Aside: This is a competition that is set aside for companies that are owned and controlled by women.
Each of these set-asides is designed to help small businesses that fall into a specific category. By setting aside competitions for these businesses, the government can promote the growth of small businesses and help them compete against larger companies.
A couple things to note on this again from sba.gov:
Set-asides for socio-economic programs can be made if:
At least two qualified small businesses are likely to submit offers
The contract can be awarded at a fair market price
If these requirements are not met, then the set aside will not be made.
Please note, this is why you need to do outreach and market to the government. Sometimes the contracting officer will not be aware you can fulfill a contract. So if you see an RFI or pre-solicitation and really feel that you can meet the contract requirements, make sure the contracting officer knows this!
The Negatives of Small Business Set-Asides:
Almost everyone has heard of someone working in the government who either does very little or appears to be unqualified.
This is common, more than we would like to admit, but on a more realistic angle, there are a few other negatives we should cover. First, many small businesses miscalculate the resources and experience needed to fulfil a contract. This hurts them both in competing and in maintaining contracts and when one ultimately fails, the contracting team gets jaded. Because of this, many contract officers are very hesitant to issue set asides unless they are 100% confident in the work being completed on time and per the contract requirements.
The scenarios described above often happen from the regulatory pressure that agencies have to fulfill their set-aside requirements. It is because of these regulations that if you want to start in contracting, it is sometimes recommended that if you are not able to qualify for a set aside category, that you make a partnership with someone who qualifies for the 51% ownership required. Under the proper circumstances, it works but many times it causes issues when the person who owns a majority share of the company does not hold up their end of the work.
If you are looking to get into contracting as a small business, don’t focus only on certification. The reality is scope of work and ability to market and fulfil the contracting requirements matters way more than people like to admit.
Please note: individual states also have their own set aside programs and qualifications. You should definitely look into the requirements and opportunities within your state. State contracting will be covered more in future articles.
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