What is a set-aside contract?

Instead of open competition, the agency limits a set-aside to a defined pool of eligible firms. The authority comes from the Small Business Act and is applied through FAR Part 19 and SBA's rules.

Small business set-asides. Under FAR 19.502-2, a purchase above the micro-purchase threshold ($15,000) and up to the simplified acquisition threshold ($350,000) is set aside for small business unless the contracting officer finds no reasonable expectation of offers from two or more responsible small businesses competitive on price, quality and delivery. Above $350,000 the contracting officer must set the work aside when there is a reasonable expectation of offers from at least two responsible small businesses and award at fair market prices. This is the "rule of two." If only one acceptable small business offer arrives, the contracting officer should award to it; if none arrives, the set-aside is withdrawn and the work is resolicited without restriction. Size is judged against the size standard for the NAICS code on the solicitation.

Program set-asides. 8(a) work is reserved for SBA-certified 8(a) participants. HUBZone set-asides are limited to certified HUBZone firms, which also get a 10% price evaluation preference in full and open competition. WOSB set-asides apply only in NAICS codes SBA designates for the program, and some of those codes are limited to EDWOSBs. SDVOSB set-asides require SBA VetCert certification.

Sole source. A sole-source award goes to one eligible firm without competition, below ceilings set in the FAR that include options: 8(a), $8.5 million for manufacturing NAICS codes and $5.5 million for other work, above which the work generally must be competed among 8(a) firms; HUBZone and WOSB/EDWOSB, the same $8.5 million and $5.5 million; SDVOSB, $8.5 million and $5 million (FAR 19.1406).

Why agencies use them. The Small Business Act sets governmentwide goals of 23% of prime contract dollars to small businesses, 5% each to small disadvantaged, women-owned and service-disabled veteran-owned small businesses and 3% to HUBZone firms, and SBA grades every agency yearly. For FY2025, SBA reported $179 billion in prime contracts to small businesses, nearly 28% of the total, counting set-aside and open-competition awards together. 8(a) firms received $24.3 billion (3.7%), SDVOSBs $32.5 billion and small disadvantaged businesses $75.3 billion (11.6%).

What this means for you. A set-aside narrows the field; it does not remove competition. Your certification, SAM.gov representations and size under the solicitation's NAICS code must all be accurate on the date you submit, because a competitor can protest your size or status to SBA. Watch SAM.gov for sources-sought notices in your codes: answering them is how a contracting officer learns that two capable small firms exist.