What is a set-aside contract?

Set-aside contracts are the core mechanism federal agencies use to direct procurement spend toward small businesses and toward specific diverse-supplier categories. Instead of every contract being open to all bidders ("full and open competition"), the agency restricts competition to a defined eligible pool.

**The major federal set-aside categories:**

- **Small Business set-aside:** open to any business under the SBA size standard for the contract's NAICS code. The broadest set-aside category and the most contract dollars.

- **8(a) set-aside:** restricted to firms certified in the SBA's 8(a) Business Development Program. Includes both competitive 8(a) set-asides (multiple 8(a) firms compete) and sole-source 8(a) awards (one 8(a) firm receives the contract without competition, up to $4.5M for services or $7M for manufacturing).

- **HUBZone set-aside:** restricted to HUBZone-certified firms. Plus a 10% price evaluation preference on full-and-open competitions where one bidder is HUBZone.

- **WOSB / EDWOSB set-aside:** restricted to certified women-owned (or economically-disadvantaged women-owned) firms in NAICS codes designated by SBA as under-represented for women-owned businesses.

- **SDVOSB set-aside:** restricted to certified service-disabled veteran-owned small businesses. Sole-source authority up to the same dollar thresholds as 8(a). The VA's Veterans First Contracting Program prioritizes SDVOSB across all VA procurement.

**How agencies decide to set aside a contract:** under the Rule of Two, federal contracting officers must set aside any contract over the simplified acquisition threshold (currently $250,000) if there's a reasonable expectation that at least two qualifying small businesses will bid at fair market prices. For 8(a), HUBZone, WOSB, and SDVOSB set-asides, the agency also considers their own goal-attainment status — if the agency is behind on its 8(a) goal, contracting officers will set aside more 8(a)-eligible work.

**The numbers:** federal agencies obligated roughly $180+ billion annually in small-business set-aside contracts in recent fiscal years across all categories. The 8(a), WOSB, and SDVOSB set-aside pools alone are roughly $30-40 billion each per year.

**Sole-source vs set-aside:** a set-aside still has competition (multiple eligible bidders compete). A sole-source contract has zero competition — one eligible firm receives the contract without bidding against anyone. Sole-source authority is limited to 8(a) and SDVOSB at the federal level (HUBZone and WOSB don't have sole-source authority). Sole-source dollar thresholds: $4.5M for services, $7M for manufacturing.