Small Business Set-Aside Program

This first program is probably one of the oldest, if not the original, program set up to help small businesses win government contracts. The Small Business Set-Aside Program (SBSA) helps assure that small businesses are awarded a fair proportion of government contracts by reserving (i.e., "setting aside") certain government purchases exclusively for participation by small business concerns.

The determination to make a small business set-aside is usually made unilaterally by the Contracting Officer. However, this determination may also be joint. In this case, it is recommended by the Small Business Administration procurement center representative (PCR) and agreed to by the Contracting Officer. The regulations specify that, to the extent practicable, unilateral determinations initiated by a Contracting Officer, rather than joint determinations, should be used as the basis for small business set-asides.

• Contracts of $0-$2,500: No set-asides available.
• Contracts of $2,500-$100,000: Under the set-aside program, every acquisition of supplies or services that has an anticipated dollar value between $2,500 and $100,000 (except for those acquisitions set aside for very small business concerns, as described below) is automatically reserved exclusively for small businesses. However, every set-aside must meet the "Rule of Two," which requires that there must be a reasonable expectation that offers will be obtained from two or more small business concerns that are competitive in terms of market prices, quality, and delivery. If only one acceptable offer is received from a responsible small business concern in response to a set-aside, the Contracting Officer is required to make an award to that firm. If no acceptable offers are received from responsible small business concerns, the set-aside will be withdrawn and the product or service, if still valid, will be solicited on an unrestricted basis.
• Contracts over $100,000: In addition, the Contracting Officer is required to set aside any contract over $100,000 for small businesses when there is a reasonable expectation that offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns and that award will be made at fair market prices.
• Partial Set-Asides: A small business set-aside of a single acquisition or a class of acquisitions may be total or partial. The Contracting Officer is required to set aside a portion of an acquisition, except for construction, for exclusive small business participation when:
  • A total set-aside is not appropriate.
  • The government's purchase requirement is severable into two or more economic production runs or reasonable lots.
  • One or more small business concerns are expected to have the technical competence and productive capacity to satisfy the set-aside portion of the requirement at a fair market price.
  • The acquisition is not subject to simplified acquisition procedures.
• Qualified Products List (QPL): Any products on a QPL are not set-aside for small business.

What's required to be awarded a set-aside contract? To get this type of contract, a business must perform at least a given percentage of the contract. This provision limits the amount of subcontracting a concern may enter into with other firms when performing these types of contracts. The provisions are as follow:

• Construction -- For general and heavy construction contractors, at least 15 percent of the cost of the contract, not including the cost of materials, must be performed by the prime contractor with its own employees. For special trade construction, such as plumbing, electrical, or tile work, this requirement is 25 percent.
• Manufacturing -- At least 50 percent of the cost of manufacturing, not including the cost of materials, must be done by the prime contractor.
• Services -- At least 50 percent of the contract cost for personnel must be performed by the prime contractor's own employees.

Recertification Process for Long-Term Set-Asides. In an effort to improve small business contracting and make sure government goals are being met, the SBA issued a new regulation effective June 30, 2007, regarding size certification. For long-term contracts (more than five years), small businesses will have to recertify their size status after five years, and then before the execution of any contract option after that. In addition, companies that have undergone mergers or acquisitions will have to recertify their size status as well.

Originally, businesses only had to certify prior to receiving a contract. The problem was, sometimes businesses grow (or merge) into larger businesses over time. So a contract that was intended only for small businesses morphs into a contract for a regular business. But the government still recognizes the contract as a "small business" contract, counting it toward fulfilling the government's procurement goals.

This misleading situation skewers the true level of contracts being awarded to actual small businesses.

According to the SBA, the only objective of the new regulation is to achieve better tracking of set-aside contracts, not to penalize growing businesses. In fact, if during the course of a contract your business grows out of its "small" size, there is no termination. All terms and conditions still apply. The only outcome is that the buying agency no longer gets credit for contracting with a small business, forcing the agency to work harder to meet its procurement goals. They also hope the improved record-keeping will increase opportunities for small businesses.