Many entrepreneurs are attracted to government contracting by the small business set aside contract. And they are surprised to learn that a range of set-aside contracts exist, and not all small businesses are created equal.
If you’re considering government contracting and think your business may qualify for small business set-asides, you need to learn about opportunities they can create for you. In this blog, we’ll provide all you need to know about this exciting opportunity in government contracting, including:
- What is a small business set-aside and why are they important
- What are the different types of set-asides
- How do you know if your business qualifies for set aside contracts
- How to get your business eligible for set aside awards
Are you ready? Let’s get started!
What is a Small Business Set Aside and Why Are They Important?
Every year, government agencies spend billions of dollars on products and services acquired from the private sector through contracts. And they’re all funded by your tax dollars! Therefore, agencies like the Small Business Administration (SBA) advocate that a percentage of spending be “set aside” for small businesses to make it easier for them to compete. In effect, a set aside contract is reserved for small businesses and “other than” small businesses are ineligible to compete for them.
At the federal level, agencies have small business goals established by the SBA, which is an important element of public procurement policy. The contract dollars spent on contracts for small businesses grow the economy by encouraging these businesses to hire more employees, purchase more raw materials, and lease more office space.
This is good for the country and your small business, but not all small businesses are the same, and neither are all set asides when it comes to government contracting. We’ll look at the different types of small businesses and their associated set-aside in the next section, but first lets learn why not all set asides are created equal.
The Distinction Between Small and Small Disadvantaged Businesses
Government contracts may be set aside for small businesses or a subset of small businesses which are defined by characteristics like their ownership, physical location, or socioeconomic status. Minority owned businesses can qualify as small disadvantaged businesses through SBA’s 8(a) program; businesses located in historically underutilized business zones may qualify as HUBZone concerns; and veterans with service related disabilities may qualify for contracts set aside for SDVOSBs.
The aforementioned business types have one thing in common: they are considered “disadvantaged” small businesses, and the government has an expressed interest in providing contracting opportunities to them. That’s why a contract may be set aside for small businesses in general, but you’ll often see more specific set asides for small disadvantaged businesses. So if you’re a small business, how do you know if you qualify for one of these more specific disadvantaged business designations?
The SBA requires that your business must be at least 51% owned and controlled by a socially and economically disadvantaged individual or individuals. Per the SBA, “African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans are presumed to qualify.” Other individuals are able to qualify as a small disadvantaged business if they can show “by a preponderance of evidence” that they are disadvantaged. The most common example of a business owner who may qualify as a small disadvantaged business by under the “preponderance of evidence” criteria are veterans with a service-related disability. This is known as a Service Disabled Veteran Owned Small Business (SDVOSB), and is an attractive small business set aside category for businesses seeking to win contracts at the Department of Veterans Affairs thanks to a contracting principle known as the “Rule of Two”.
What Are The Different Types of Set Asides?
It’s important to understand the different types of small disadvantaged businesses because they define how your business may qualify for a particular set aside designation, and eligibility for the contracting assistance program benefits that correspond to your designation. The SBA provides four particular contracting assistance programs related to socioeconomically disadvantaged businesses:
- Women-Owned Small Businesses (WOSB)
- Service-Disabled Veteran Owned Small Businesses
- 8(a) Business Development Program
- HUBZone Program
Let’s take a look at each assistance program and their eligibility requirements.
Women-Owned Small Business Federal Contracting Program
This contracting program was formally created in the 2015 National Defense Authorization Act (NDAA), making it easier for qualified small businesses to participate and formalizing the set-aside goals for federal agencies. While WOSB’s used to self-certify, they now must go through the process of certifying their status at beta.certify.sba.gov.
This WOSB category also includes a sub-category for Economically Disadvantaged WOSBs (EDWOSBs). In order to level the playing field for these two business types, the WOSB federal contracting program limits competition for certain contracts in specific industries based on NAICS code.
Service-Disabled Veteran Owned Small Businesses
This contracting program exists to provide veterans with a service disability greater access to contracts by limiting competition to those firms that qualify. This is the only socioeconomic designation that is earned, as veterans must have a service-connected disability to qualify.
Small businesses that wish to do work with the Department of Veterans Affairs (VA) should be especially interested in the service-disabled veteran owned small business (SDVOSB) set-aside program. If there are two or more SDVOSBs in a given market that can perform a particular requirement, VA contracting professionals are required by the Rule of Two to set that opportunity aside for SDVOSBs.
While you can self-represent your business as being owned by a service-disabled veteran when you register on SAM.gov, VA runs a distinct verification process for SDVOSBs who wish to qualify for set-asides through their Vets First Verification Program.
8(a) Business Development Program
This is the only certification that comes with an SBA-assigned Business Opportunity Specialist to help qualifying firms navigate federal contracting, establish joint venture relationships with established businesses through the mentor-protege program, and get other assistance such as business training, marketing assistance, and executive development.
Therefore, the qualification requirements are a bit more extensive (for instance, the owner must be an economically and socially disadvantaged individual and not exceed certain net worth and income thresholds) and you must go through SBA’s certification process. If you are interested in this set-aside, you can get a preliminary assessment at SBA’s Certify website.
The goal of the HUBZone set-aside program is to create more opportunities for qualifying firms that are located in historically underutilized business zones. To be eligible for these set-asides, there is an extensive qualification process that SBA made easier in 2020. Applicants can expect a decision on their submission within 60 days, but the effort is worth it for those who qualify. Not only can your business be eligible for HUBZone set-asides, you’ll also receive a 10 percent price evaluation preference in any full and open contract competition!
Find out if your business has its principal office located in a HUBZone (and 35% of your employees must also live in one as well) and get a preliminary assessment to see if you qualify at SBA’s Certify website.
How to Get your Business Eligible for Set-Aside Contracts
While the qualifications for each of the aforementioned set-aside programs are unique, there are a few baseline requirements that the majority business owner (defined as owning 51% or more of the company) must meet in order to be considered:
- Owner meets one of these categories: African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans
- Owner can show by a “preponderance of the evidence” that they are disadvantaged.
- Owner makes less than $750k including equity and primary residence & meet size standards per industry
- Owner is an American citizen
Businesses are able to self-certify as a small disadvantaged business when they register in the System for Award Management (SAM), but the specific categories (WOSB, SDVOSB, 8a, and HUBZone) require additional certification steps as described in the prior section.
Fortunately, SBA offers a useful self-serve resource to determine whether you qualify for one of the SBA contracting programs. You can walk through the pre-assessment process by answering each question about your business. Take some time to work through this process to learn more about your eligibility. If you can earn one of these set-aside certifications, they can set you and your business up for future contracting success!
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