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# Set-aside procurement

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## Content

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## When to use set-aside or sole-source contracts

The federal government prefers to contract with small businesses whenever possible. Contracting officials can use set-aside and sole-source contracts to help their agencies meet their small business contracting goals.

How you should offer a contract will depend largely on two factors:
                  - The number and type of small businesses that are able to do the work
                  - How much the contract is worth

### Determine if there are two or more businesses to do the work

In general, if there are at least two small businesses that could do the work for a fair price, the contract should be set aside exclusively for small businesses to compete. If there are fewer than two, you may be authorized to create a sole-source contract, or otherwise you may offer it for full and open competition.

Contracting officials must base the decision on sufficient facts to prove that they’ve made a reasonable assessment. Agencies can use different methods to assess the availability of small businesses. Common methods include:
                  - Reviewing recent procurement history
                  - Conducting market surveys
                  - Searching on the Dynamic Small Business Search (DSBS)
                  - Getting expert advice from an agency's small business specialist
                  - Getting expert advice from SBA’s Procurement Center Representative

### Consider the value of the contract

A small business set-aside is based in part on the value and quantity of the goods or services the government wants to purchase.

 

## Set-asides and sole-source for socio-economic programs

Both SBA’s regulations and the Federal Acquisition Regulation require you to consider SBA socio-economic programs first for set-aside and sole-source contracts above $250,000. There is no order of preference among the programs.

The process and conditions of making and releasing procurement requirements for these programs may vary based on your agency and which program you’re using. Find more information about the programs here:
                  - 8(a) Business Development program
                  - HUBZone program
                  - Women-Owned Small Business program
                  - Service-Disabled Veteran-Owned Small Business program

You must document your rationale to support the specific set-aside — including the type and extent of your market research — in the contract file. You must also include documentation of the winning contractor’s certification in the System for Award Management.

Set-asides for socio-economic programs can be made if:
                  - At least two qualified small businesses are likely to submit offers
                  - The contract can be awarded at a fair market price

Set-asides for socio-economic programs cannot be made if:
                  - The requirement would be fulfilled through the award of Federal Prison Industries, Inc. or Javits-Wagner-O’Day Act participating nonprofit agencies for the blind and severely disabled
                  - The requirement is currently being performed by an 8(a) participant or SBA has accepted that requirement for performance under the authority of the Section 8(a) program

Sole-source contracts for socio-economic programs can be made in accordance with each program's requirements and procedures.

For full details on the rules and regulations governing set asides, see Title 13 of the Code of Federal Regulation (CFR) Parts 124.503(j), 125.2(f), 126.607(b), 127.503(d), and Subpart 19.5 of the Federal Acquisition Regulation.

## Other rules affecting set-asides and sole-source awards

### Nonmanufacturer rule

If a small business receives a set-aside award but doesn’t manufacture the products it sells to the government, it must supply the products of another small business that's manufactured in the United States. As a contracting officer, you can apply for an SBA waiver to this nonmanufacturer rule if it’s not possible to use a small business’ product.

The nonmanufacturer rule does not apply to small business set-aside contracts at or below $250,000, but it does apply to all set-aside contracts under the 8(a), HUBZone, SDVO, and WOSB programs.The regulations that govern the nonmanufacturer rule are outlined in 13 CFR 121.406.

Learn more about the nonmanufacturer rule.

### Set-aside subcontracting limitations

Under set-aside award conditions, small businesses are required to perform minimum levels of work when they receive a federal contract.

These subcontracting limitations apply to contract set-asides for small businesses when the contract amount exceeds $250,000, and all other set-aside or sole-source contracts under the 8(a), HUBZone, SDVOSB, and WOSB programs.
                  -  **Service contracts (except construction):** The small business concern will not pay more than 50 percent of the amount paid by the Government for contract performance to subcontractors that are not similarly situated entities. 
                  -  **Supply contracts (other than procurement from a nonmanufacturer):** The small business will not pay more than 50 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors not similarly situated entities. 
                  -  **General construction contracts:** The small business will not pay more than 85 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors not similarly situated entities. 
                  -  **Specialty construction contracts:** The small business will not pay more than 75 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors not similarly situated entities. 

Under SBA rules, the small business prime contractor can utilize similarly situated subcontractors to meet these performance requirements. A similarly situated subcontractor is a subcontractor that has the same required size and small business program status as the prime contractor.