Understanding Federal Set-Asides

Understanding Federal Set-Asides: Guide for Small Businesses

Each year, the federal government aims to reserve approximately 23% of its contracting budget specifically for small businesses. These opportunities, known as federal set-asides, allow various types of small businesses to compete in the federal marketplace. But what exactly are set-asides, and how can your business qualify?

Federal set-asides refer to the percentage of federal spending reserved for small businesses, ensuring fair competition and participation. The federal government offers set-aside categories based on business types, allowing small businesses with diverse backgrounds and capabilities to qualify. Below, we’ll explain the key federal set-asides and the qualifications required.

Federal Set-Aside Spending Goals

The government sets specific goals for each small business category:

• Small Business: 23%
• Women-Owned Small Business (WOSB) / Economically Disadvantaged Women-Owned Small Business (EDWOSB): 3%
• Service-Disabled Veteran-Owned Small Business (SDVOSB): 3%
• Historically Underutilized Business Zone (HUBZone): 5%
• 8(a) Business Development Program: 5%

Eligibility for Federal Set-Asides

Understanding the criteria for each set-aside is crucial before beginning the registration process. Below, we break down each category and its qualifications:

Small Business

To qualify, a business must meet the Small Business Administration’s (SBA) size standards, which are based on the North American Industry Classification System (NAICS) code. These standards take into account the average annual revenue and the number of employees. Eligible businesses must be independently owned and based in the United States.

Women-Owned Small Business (WOSB) / Economically Disadvantaged Women-Owned Small Business (EDWOSB)

To certify as a WOSB, a business must be at least 51% owned, controlled, and managed by one or more women who are U.S. citizens. For EDWOSB, the owner must also demonstrate economic disadvantage, with a personal net worth of less than $750,000 (excluding primary residence and business equity).

Service-Disabled Veteran-Owned Small Business (SDVOSB)

For SDVOSB certification, the business must be 51% owned, controlled, and managed by one or more veterans with a disability rating issued by the Department of Veterans Affairs or the Department of Defense. The service-disabled veteran must be actively involved in daily management and decision-making processes.

Historically Underutilized Business Zone (HUBZone)

HUBZone certification requires that a business be located in a designated area, such as an urban or rural zone with low income, high unemployment, or both. The business must be 51% owned by U.S. citizens or qualifying entities, and 35% of its employees must reside within a HUBZone.

8(a) Business Development Program

The 8(a) program supports socially and economically disadvantaged businesses. To qualify, a firm must be 51% owned and managed by one or more individuals from disadvantaged backgrounds, such as minority groups, women, or service-disabled veterans. Participants must demonstrate good character, sound financial practices, and potential for success.

Did You Know?

Prime vendors classified as Other Than Small Business (OTSB) who win contracts valued above $750,000 must submit a subcontracting plan. This plan outlines their strategy for including small businesses as subcontractors.

OTSB includes large businesses, state and local governments, non-profits, public utilities, educational institutions, and foreign-owned firms that receive contracts if any work is performed in the United States.

Important Rule: The Rule of Two

Every contract above the micro-purchase threshold ($10,000) and below the Simplified Acquisition Threshold ($250,000) must be set aside for small businesses if the Rule of Two applies. If at least two responsible small businesses express interest and can submit competitive bids, the solicitation must include a set-aside requirement.

Back to Basics

Each set-aside program has its own unique qualifications. For example, qualifying as a WOSB requires more than just ownership; the woman owner must also demonstrate control and management.

Before starting the registration process, it’s important to confirm eligibility. Working with USFCR’s Case Team ensures that your business qualifies for the right set-aside before proceeding, saving valuable time and resources.

Explore Federal Opportunities: Get Your Free Set-Aside Assessment

Want to know which set-aside your business qualifies for? Get a Free Set-Aside Assessment from USFCR to explore federal contracting opportunities for SDVOSB, WOSB, HUBZone, and other small business certifications.