Set-Aside

What is a Set-Aside?

A set-aside is a federal contract, or a designated portion of a contract, that is reserved exclusively for competition among small businesses or businesses in a specific socioeconomic category. Set-asides are a cornerstone of federal small business policy, designed to ensure that smaller firms can win government work without competing head-to-head against large prime contractors.

Definition

Under the Federal Acquisition Regulation (FAR) Part 19, contracting officers are directed to reserve acquisitions for small businesses whenever competition among qualified small firms is reasonably expected. A set-aside limits eligibility to bid, but it still preserves competition within the reserved pool. Set-asides can apply to an entire requirement (a total set-aside) or to a defined share of a larger contract (a partial set-aside).

Set-asides fall into two broad groups. Small business set-asides reserve work for any qualifying small business under the relevant NAICS code size standard. Socioeconomic set-asides further narrow eligibility to firms certified under a specific program — such as 8(a), HUBZone, the Women-Owned Small Business (WOSB) program, or the Service-Disabled Veteran-Owned Small Business (SDVOSB) program. Some of these programs also permit sole-source awards in addition to competitive set-asides.

Key Points

• Rule of Two: A requirement must be set aside for small businesses when the contracting officer reasonably expects offers from at least two responsible small businesses at fair market prices.
• Total vs. Partial: A total set-aside reserves the entire requirement; a partial set-aside reserves a defined portion while the rest is competed unrestricted.
• Eligibility depends on certification: Socioeconomic set-asides require the matching certification (8(a), HUBZone, WOSB/EDWOSB, SDVOSB) and an active SAM.gov registration with the correct size representation.
• Size standards vary by NAICS code: Whether a business qualifies as "small" is determined by the size standard tied to the solicitation's NAICS code.

Practical Examples

1. Total Small Business Set-Aside: An agency reserves a janitorial services contract entirely for small businesses because it expects competitive offers from several qualified small firms.
2. 8(a) Set-Aside: A federal agency sets aside an IT support requirement for businesses in the SBA's 8(a) Business Development Program, limiting competition to certified socially and economically disadvantaged firms.
3. Partial Set-Aside: A large construction contract is split so that a defined portion is reserved for small businesses while the remainder is competed on an unrestricted basis, broadening overall participation.