What Is a Small Business Set-Aside?

Small business set-asides are programs that aid small businesses in competing for inclusion in the bidding process for work contracts related to different government projects and agencies. The idea behind the program is to provide those smaller companies with the chance to compete with larger companies for those contracts, provided they meet the qualifications required by the terms of the contract. In effect, a small business set-aside is a program that sets aside or reserves a select range of purchases for bidding by small businesses.

While many national governments have programs that help to provide smaller companies with the chance to bid on and secure government contracts, the United States is among the countries that offer a structured program for this purpose. Known as the Small Business Set-Aside Program (SBSA), this mechanism makes it possible for the purchasing functions of the government to intentionally include consideration of doing business with small companies for certain goods or services. At times, a purchasing officer associated with a given agency may initiate the process and structure a business proposal that allows room for bidding by small businesses. At other times, the Small Business Administration or (SBA) may also be involved in the process.

With most small business set-aside programs, the nature of the goods or services involved along with the budgets for the contracts will often play a role in determining which new government contracts are set aside or open for small businesses. Another factor involves anticipating the participation of small businesses in the bidding for the contract. If there are no indications that at least two small companies are likely to step forward for inclusion in the bidding process, then the project may not have any provisions for a small business set-aside.

The structuring of a small business set-aside may be complete or partial. Partial set-asides are used when there is evidence that a complete set-aside is not cost effective or feasible for some reason, and the needs for the project can reasonably be divided into sections or lots and fulfilled by more than one provider. For example, a government agency may choose to go with a partial set-aside arrangement, ultimately selecting one vendor to provide long-distance services, a different vendor for audio and web conferencing services, and a third vendor for Internet access. This approach is sometimes used when research indicates that utilizing multiple vendors rather than bundling services will in fact be more efficient and cost-effective.