What is a small business set-aside?

A set-aside is a federal contract where the government limits competition to small businesses, or to a specific group of small businesses such as women-owned or veteran-owned firms. Instead of competing against every company in the country, you compete only against firms that meet the same size test or hold the same certification. For a small company trying to break into federal work, that difference is often what makes a bid realistic. This guide explains why set-asides exist, how contracting officers decide to use them, the main types you will see on SAM.gov, who counts as small, and the practical steps to start bidding.

Why set-asides exist

Congress wants a fair share of federal spending to reach small businesses, and it backs that intention with numbers. The federal government aims to award at least 23% of all prime contracting dollars to small businesses each year. On top of that, it has goals of 5% for women-owned small businesses, 5% for service-disabled veteran-owned small businesses and 3% for small businesses located in HUBZones, as listed on SBA's contracting assistance programs page. SBA grades each agency's progress in an annual procurement scorecard, so agencies have a real incentive to meet these goals.

Set-asides are one of the main tools agencies use to get there. When a contract is set aside, every dollar of it counts toward the small business goal, and when it is set aside for a socioeconomic program, it counts toward that program's goal as well. That is why set-asides show up across almost every industry, from janitorial services and construction to IT, engineering and manufacturing.

The "rule of two"

The decision to set work aside is not left entirely to preference. FAR 19.502-2 sets the test. For purchases of supplies or services above the micro-purchase threshold and up to the simplified acquisition threshold, the acquisition "shall be set aside for small business" unless the contracting officer determines there is no reasonable expectation of offers from two or more responsible small businesses that are competitive on fair market prices, quality and delivery. For larger purchases, the contracting officer must set the work aside when there is a reasonable expectation of offers from at least two responsible small businesses and of an award at fair market prices. This test is commonly called the "rule of two."

The rule explains why market research matters so much. Contracting officers form their expectation from past buying history and from responses to sources sought notices and requests for information. If capable small businesses answer those notices, the rule of two is easier to satisfy and the work is more likely to be set aside. If nobody answers, the agency may conclude it cannot meet the test and open the work to everyone.

The FAR also sets the relationship between programs. Under FAR 19.203, there is no order of precedence among the 8(a), HUBZone, SDVOSB and WOSB programs, and above the simplified acquisition threshold the contracting officer must consider those socioeconomic programs before a general small business set-aside. Small business set-asides, in turn, have priority over full and open competition.

Main types of set-asides

The type of set-aside appears on every SAM.gov notice, and it decides who may compete. The most common is the total small business set-aside, which is open to any business that is small under the size standard for the notice's NAICS code. No certification is required beyond meeting the size standard and being registered in SAM.gov.

A partial small business set-aside reserves only part of a requirement, such as certain line items or a share of the quantity, for small businesses, while the rest is open to everyone.

The four socioeconomic set-asides require SBA certification. 8(a) set-asides are for participants in SBA's 8(a) Business Development program, which serves firms owned by socially and economically disadvantaged individuals. HUBZone set-asides are for certified firms whose principal office is in a Historically Underutilized Business Zone and at least 35% of whose employees live in one. WOSB and EDWOSB set-asides are for certified women-owned small businesses, and only in industries where SBA has found women-owned firms underrepresented. SDVOSB set-asides are for small businesses owned and controlled by service-disabled veterans and certified through SBA's VetCert program. Some notices are sole-source awards under one of these programs, meaning the agency intends to award to a specific eligible firm without competition.

You may also see notices tied to the Buy Indian Act, used by the Bureau of Indian Affairs and the Indian Health Service, and Department of Veterans Affairs set-asides for veteran-owned small businesses under the VA's own program. For a side-by-side look at the four SBA programs, read our post HUBZone, WOSB, SDVOSB and 8(a) set-asides compared.

Who counts as "small"?

There is no single cutoff. SBA sets a size standard for each NAICS industry code, usually expressed either as average annual receipts or as average number of employees. A firm can be small in one industry and other-than-small in another, and on a set-aside it is the NAICS code the contracting officer assigned to that notice that counts. Consider a hypothetical: a company with annual revenue in the tens of millions might be small for a code with a high receipts threshold yet too large for a code with a much lower one. Check every code you plan to work in against the SBA size standards, and make sure the size information in your SAM.gov registration is accurate, because that is what contracting officers see.

What a set-aside asks of you after award

Winning a set-aside comes with obligations. The main one is the limitation on subcontracting in FAR 52.219-14, which keeps set-aside work from simply passing through to large firms. On a services contract, the prime may not pay more than 50% of the amount paid by the government to subcontractors that are not similarly situated; for supplies the limit is also 50%, excluding the cost of materials; for general construction it is 85% and for special trade construction 75%, both excluding materials. A similarly situated subcontractor is one with the same program status that is also small for the subcontract's NAICS code. Plan your staffing with these limits in mind before you bid.

How to get started

Start by identifying the NAICS codes that describe what you sell and confirming you are small for each. Next, register your entity on SAM.gov. It is free, and SAM.gov advises allowing at least ten business days for a new registration to become active; our step-by-step registration guide covers each screen. If you qualify for 8(a), HUBZone, WOSB or SDVOSB status, apply through SBA Certifications, which is also free.

Then start watching for work. Our guide to finding set-aside contracts on SAM.gov shows how to search and filter, and our article on winning your first set-aside contract covers choosing bids and writing proposals. You can browse today's open notices by set-aside type, by state or by industry.

Free one-on-one help is available from APEX Accelerators and from SBA, where you can find your district office. Counselors can review your registration, explain the certifications and look over a draft bid at no cost.

Frequently asked questions

What is a small business set-aside?

A federal contract where competition is limited to small businesses, or to a specific group of small businesses such as 8(a), HUBZone, women-owned or service-disabled veteran-owned firms.

Do I need a certification to bid on a total small business set-aside?

No. You need to be small under the SBA size standard for the NAICS code and registered in SAM.gov. Programs like 8(a), HUBZone, WOSB and SDVOSB require SBA certification.

What is the rule of two?

Under FAR Part 19, a contracting officer generally sets work aside for small businesses when they reasonably expect offers from at least two responsible small businesses at fair market prices.

SetAside Signal is an independent publication, not a government agency, and this isn't legal advice. Rules change, so confirm details at sba.gov, sam.gov and acquisition.gov. Reviewed Oct 18, 2026.