Set Aside Contracts: Everything You Need to Know
Set aside contracts are contracts offered by the government agencies to contractors and businesses that have complied with a variety of complex requirements. 3 min read updated on February 01, 2023
Set aside contracts are contracts offered by the government agencies to contractors and businesses that have complied with a variety of complex requirements.
What are Set Aside Contracts?
If you are a federal contractor, or if you are a business owner that is interested in pursuing federal contracts, it is recommended that you examine your certifications so that you can be certain you have complied with state and federal level regulations. By complying with these regulations, you will have the ability to:
- Bid on government contracts.
- Accept contracts where your bid was successful.
- Access set-aside contracts.
Set aside contracts, as you might suspect from their name, are contracts that the federal government has set aside for businesses that have taken the effort to comply with contracting requirements. For instance, businesses that operate in disadvantaged locations, or businesses owned by minorities or women, are often able to accept these set aside contracts.
An official certification or award must be granted to a company registered with the System for Award Management (SAM) before the company can qualify for a set aside contract.
There is a certain type of set aside contract that is specifically reserved for small business. These are known as small business set asides. Small businesses have access to a great deal of work, as the government provides access to private sector contracts that total $500 billion annually. If you are a small business that is struggling to compete with larger companies or is having trouble breaking into your chosen industry, using small business set asides can be a great way to put your company on the path towards success.
If a purchase made by the federal government is expected to be between $2,500 and $100,000, and there are more than two businesses that can provide the service, it will be considered a small business set aside automatically. If a contract is valued at more than $500,000, there must be a subcontracting plan so that small businesses will have the ability to compete for the contract.
Twenty-three percent of all spending by federal agencies must go to small businesses. This set aside amount must include:
- 3 percent for businesses owned by disabled veterans.
- 5 percent for small businesses that are veteran-owned.
- 5 percent each for HUBZone and 8(a) businesses.
- 3 percent for businesses owned by women.
Who is Eligible for Small Business Set Asides?
The government uses set aside contracts for almost every type of private sector work imaginable. The purpose of the Small Business Administration's 8(a) program to put small business owners in disadvantaged areas on equal footing to larger companies when it comes to bidding on government contracts.
If you want to be considered an 8(a) business, you will need to meet the following qualifications:
- Own a business and be disadvantaged, either economically or socially.
- Have owned and operated your business for two years or longer.
- Have a net worth that does not exceed $250,000.
The 8(a) program lasts for nine years and provides eligible businesses with training, counseling, and the ability to procure federal contracts.
If more than two small businesses are available to complete a contract, and the contract is valued at $100,000 or less, it will be set aside. Usually, the decision to set aside a contract will be made after a good deal of market research has been performed. Depending on the nature of the contract, it can be set aside partially or fully.
Businesses that have fewer than 500 employees, or whose revenue is under $5 million, is considered a small business by the SBA.
The goal of the government is to offer small businesses 23 percent of prime contracts. However, this percentage can be higher.
To help businesses owned by women compete, the Women-Owned Small Businesses Federal Contracting Program was established. This program strives to correct the inequality that women-owned businesses typically face and works to help these businesses competed in industries dominated by male business owners. Women-owned businesses that are economically disadvantaged can also qualify for this program. A business with a 51 percent female ownership, and whose day to day operations are handled by women, is eligible for this program. However, there is no process for a business to be certified for the program. Instead, businesses will self-certify.
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