Small Business Set Asides

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As demands rise for unique, competitive products marketed with fresh, honest strategies, breaking into the big-business world can seem daunting for a start-up or hopeful small business. However, there is a long-standing opportunity for your small business’ growth. By acquiring a government contract, you can become eligible for a set-aside.

What are Set-Asides?

A set-aside for small businesses reserves an acquisition or set amount of money exclusively for defined small businesses, based on government interest. It is a portion of a federal contract only awarded to small businesses. These set-asides are open to all small businesses which meet set standards and may be total or partial in reward.

How do they work? The government sets aside a large provision annually for private goods and services.  When research indicates that certain small businesses are available to provide particular products required by the government, those opportunities are set aside, meaning a huge opportunity for businesses which fit that indication.

Set-asides are a powerful aid in giving a substantial competitive boost to small businesses. Small businesses have historically been responsible for so many innovations and the creation of jobs in our country, and the government continues to show interest in encouraging small business growth, in the interest of overall economic benefits. A set-aside is a direct way to show that support.

Owners of small businesses looking to grow or break into the industry are advised to seek after these set-asides.

Small Businesses Are In Demand

To put government demand into perspective, consider that approximately $500 billion is secured by the federal government annually in private sector contracts. The opportunity for growth is clearly alive and federal contracts help foster that growth. It is a continuing concern for Congress to monitor small business set-asides.

Set-asides were introduced to address this concern. In 1958, Congress created the Small Business Administration, or SBA, mandating a per annual goal of no less than 23 percent of the total value of all prime contract awards. The SBA’s goal was to aid small business growth, and their ability to compete with larger companies. Set-asides are meant to help enable small businesses to break into the larger world of industries.

So, How Can My Business Qualify?

SAM is a database of companies that do business with or want to do business with the federal government. Registering to join SAM is free. Government agencies and government contractors use it to search for companies interested in contracting opportunities.

To do business with the government, you also must have a DUNS number to identify your business location, which can be obtained from Duns & Bradstreet.

Just being a small business won’t entitle you to set-asides. To create a persuasive bid, you need to be priced competitively and perform at a competitive rate. This requires a good knowledge of your competitors in the small-business market. It also means understanding the size standards applying to your business.

Size Standards

The SBA defines the size of small businesses using size standards. These represent the largest size that a business, including all subsidiaries and affiliates, can grow to while remaining classified as a government small business concern.

The standard maximum size for a small business is 500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for nonmanufacturing industries. A few in the retail industry such as grocery stores, department stores, motor vehicle dealers (except new car dealers) and electrical appliance dealers are exceptions and may range from $11 million to $38.5 million in average annual receipts.

However, there are a number of exceptions. The SBA welcomes insight into its definitions of these standards and provides its methodology for clearer understanding.  

The definition of determination varies based on industry differences and are set per sector. The standards are used to determine eligibility for SBA’s financial assistance and for federal procurement programs designed to help small businesses.

“The Small Business Act states that unless specifically authorized, no other federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern unless such proposed size standard meets certain criteria and is approved by the Administrator of SBA.” 

Who Determines Set-Asides?

Market research sets out to determine which small businesses are able to perform the work or create the goods needed by the government. A determination is then made by a contracting officer.

The contracting officer sets aside an individual acquisition, or a new category of acquisitions, for small businesses when:

  • A service or category of services is found to be of use to national use for production, war or national defense programs
  • Government contracts in each industry category are placed with small business concerns, and if circumstances described in 19.502-2 or 19.502-3(a) exist.

Within Subpart 19.5, section 19.502, provides important requirements on setting aside acquisitions with the purpose of aiding government with services and products.

Provision contracts are available from the government for nearly every area of private sector business.

Several sub-categories of programs also exist for small businesses which the government targets for set-asides, under 8a for Business Development.

If a business combines these sub-categories (for example, by being a SDVO, HubZone program owned by a woman), they can receive all three types of set-asides.

Rules and Limitations

The non-manufacturer rule greatly impacts set-asides for small businesses. For example, if a business does not manufacture products or materials that it is selling to the government under a set-aside contract, it then must supply another business’s product.

Waivers of this rule from the SBA are only issued if it determines that there are not enough small businesses which have the required capabilities to manufacture the products.  Acquiring a waiver does not affect other legal requirements that might apply to a contract, such as the Buy American Act or Trade Agreements Act.

In addition, to meet set-aside award conditions, small businesses must perform federally defined minimum levels of work when they receive a federal contract.

Set Yourself Apart

The best steps you can take towards a distinctive bid for set-asides is to be unique as well as competitive. You need to prove that you can perform and deliver so that government agencies will be confident when taking a chance on your business.

Look for ways you can be more valuable in the eyes of your intended consumer base. Letting customers know when you are a minority-owned business, for example, pays when it is a concern of the purchaser to fill annual quotas. Many purchasers have to meet yearly requirements for products purchased from minority-owned businesses.

Having the correct certificates and making sure they are well-known is also essential to establishing an image of reliability. Find ways to let others know your certifications, including on your website and other social media, to add to your credibility and visibility.

The bottom line? Set yourself apart.

Start The Conversation

Growing a small business is becoming increasingly more competitive, and it pays to know all the tools at your disposal. If you have more knowledge to contribute to others in the process, we invite you to join the conversation. What has helped you in your growth? What do you wish you had known before? Share your stories or expertise, and ask us questions below.

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Natalie
Government procurement, information security and the AbilityOne Program are a few of Natalie's favorite subjects to write about. Like all of us here at Supply Chimp, Natalie has a love for office supplies; laminators, quality paper and good pens are her top picks. In her off time, Natalie enjoys music, singing, movies, being outdoors and volunteering with children.

1 COMMENT

  1. […] In our last blog, we addressed the benefit of set-asides to your small business. Just being a small business won’t entitle you to set-asides. To create a persuasive bid, you need to be priced competitively. This takes a good knowledge of your competitors in the small-business market. You must also meet size standards, have adequate certifications, and be unique as well as competitive for government needs. […]

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