COVID-19 relief options and additional resources

What is a Small Business Set Aside?


Small business set-asides are a powerful tool for helping small businesses compete for and win federal contracts. Every year, the federal government purchases approximately $400 billion in goods and services from the private sector.  When market research concludes that small businesses are available and able to perform the work or provide the products being procured by the government, those opportunities are “set-aside” exclusively for small business concerns.

There are many different types of set-asides. Some are open to all small businesses; others are open only to small businesses with certain designations.  

Contract Value

A set-aside is based, in part, on the value of the goods or services that the government is looking to purchase.

$3,500 - $150,000
Every federal government purchase with an anticipated value above the micro-purchase threshold of $3,500, and up to the Simplified Acquisition Threshold (SAT) of $150,000, is required to be automatically and exclusively set-aside for small businesses.  There must be at least two or more (Rule of Two) responsible small business concerns that are competitive in terms of market prices, quality, and delivery for an automatic set-aside to occur.   

Contract opportunities above the SAT of $150,000 shall also be set aside if the Rule of Two is met.

$700,000 or $1.5M for Construction
Contracts opportunities over $700,000 or $1.5M (for construction), awarded to Other-than-Small-Businesses (OTSBs), must have small business subcontracting plans to the extent there are subcontracting opportunities.  A small business subcontracting plan establishes subcontracting goals for small businesses, small disadvantaged businesses, HUBZone, veteran-owned, service-disabled veteran-owned and women-owned small businesses.

Prime Contract Goals

The Federal government has specified annual prime contracting goals for designated small businesses. The current, government-wide procurement goal stipulates that at least 23% of all federal government contracting dollars should be awarded to small businesses. In addition, targeted sub-goals are established for the following small business categories:

  • Women Owned Small Business – 5%
  • Small Disadvantaged Business – 5%
  • Service Disabled Veteran Owned Small Business – 3%
  • HUBZone – 3%

Set Aside and Sole Source Programs

Government contracts can be set-aside for small businesses in the following certification programs and socio-economic categories:  

In addition, there are sole source development opportunities under the 8(a) program and sole source conditional opportunities under the  HUBZone, SDVOSB, WOSB programs.

Important Contracting Rules & Limitations

Non-Manufacturing Rule

The non-manufacturer rule is an important provision impacting small business set-asides. If a small business prime contractor does not itself manufacture the products or materials that it provides to the government under a set aside contract for supplies, it must supply the product of a small business.  The SBA may issue waivers to the non-manufacturer rule if it determines that there are an insufficient number of small businesses with the required manufacturing capabilities.  If a waiver is provided, the firm can provide the product of any size business.  A waiver of the non-manufacturing rule does not affect other legal requirements that might apply to a supply contract, such as the Buy American Act or Trade Agreements Act. 

Subcontracting Limitations

Under set-aside award conditions, small businesses are required to perform minimum levels of work when they receive a federal contract. These subcontracting limitations apply to contract set-asides for small businesses when the contract amount exceeds $150,000, and all other set aside or sole source contracts under the 8(a), HUBZone, SDVOSB or WOSB programs. 

  • Service Contracts: The small business prime contractor must provide at least 50% of the contract cost for personnel.
  • Supply Contracts:  The small business prime contractor must perform work for at least 50% of the cost of manufacturing the supplies, not including the cost of materials, unless the concern qualifies as a non-manufacturer.
  • General Construction Contracts: The small business prime contractor must perform at least 15% of the cost of the contract with its own employees, not including the cost of materials.
  • Specialty Construction Contracts:  The small business prime contractor must perform at least 25% of the cost of the contract with its own employees, not including the cost of materials.
  • Under the HUBZone, SDVOSB or WOSB Programs the small business prime contractor can utilize similarly situated subcontractors to meet these performance requirements. 
  • Under the HUBZone program, there are higher performance requirements for construction contracts.