Small business set-aside programs designate federal contracts exclusively for qualified small businesses. The 8(a) program, HUBZone, Service-disabled Veteran owned, Woman-owned, and Small Disadvantaged businesses are entitled to a percentage of federal contracts each year based on the demographics of the business and business owner.

Preference Programs

Referred to as small business “set-asides,” these programs set aside federal contracts exclusively for small businesses. Businesses that meet the government’s size standards are allowed to bid on these small business contracts. According to the Small Business Association (SBA), a small business must be

  • Independently owned and operated, and
  • Not be dominant in its field of operations.

The federal government reserves a set percentage of federal contracting dollars specifically for small businesses – 23 percent, currently.

Within the general small business set-aside category are more specific preference programs based on the demographics of the business and business owners.

8(a) Small Business

Businesses that are:

Owned or controlled by one or more socially and economically disadvantaged individuals of good character and U.S. citizens qualify for 8(a) classification. The SBA decides an organization’s “good character” based on:

  • Adverse information regarding criminal conduct
  • Violations of any SBA regulations
  • Debarment or suspension
  • Submission of false information during the application process or after approval

The business must also be in business for at least two years (in order to demonstrate success). Once accepted into the program, business owners commit to a participation in the nine year-long program. Four years are spent in a developmental stage, the last five in a transition phase. The end goal is for participants to secure themselves in government contracting.

HUBZone Businesses (Historically Underutilized Business Zones)

This program was enacted into law as part of the Small Business Reauthorization Act of 1997 to send federal dollars to areas and businesses that need it most. These geographic areas are generally defined by high unemployment and low household incomes. They could also be areas with lands within Indian reservations or base closure areas. Find the HUBZone map via the SBA here.

Businesses that qualify for HUBZone status must be:

  • 51 percent directly and unconditionally owned and controlled by U.S. citizens, a Community Development  Corporation, an agricultural cooperative, or an Indian tribe.
  • Must have at least 35 percent of its employees living in a HUBZone
  • Must have the principal office located in a HUBZone (“principal” meaning where the greatest number of employees  work, unless the business is in services or construction.)

The federal government has a goal of 3 percent of all prime contract dollars awarded to HUBZone businesses.

Service-Disabled Veteran-Owned Small Businesses

There is a government-wide goal of 3 percent of all prime and subcontracts awards intended to reach service-disabled veteran-owned businesses. Veterans are (as defined in this context) individuals who served “in the active military, naval or air service, and who was discharged or released therefrom under conditions other than dishonorable.” “Service-disabled” meaning if the disability was suffered or worsened in the line of duty.

To qualify, businesses must be, at least, 51 percent unconditionally and directly owned and controlled by service-disabled veterans. There is no formal process to complete for certification.

Women-Owned Small Businesses

There is a government-wide goal of 5 percent of all prime and subcontract dollars awarded to women-owned businesses. To be considered a woman-owned small business, the firm must be at least 51 percent owned by women, with management and daily operations also controlled by women.

Small Disadvantaged Businesses (SDB)

Small disadvantaged businesses do not have to submit an application to the SBA for SDB status. The business must be, at least, 51 percent or more owned and controlled by one or more socially and economically disadvantaged individuals. There is a government wide goal of 5 percent of prime and subcontracts to go towards SDB.