Small Business Set-Aside
A federal contracting provision that reserves certain contracts exclusively for small businesses — part of the government's goal of awarding 23% of contract dollars to small firms.
How It Works
The Small Business Act requires the government to direct a fair proportion of contracts to small businesses. The SBA sets size standards (by revenue or employee count) for each industry — a company meeting those standards can compete for set-aside contracts. Categories include general small business, 8(a) Business Development (disadvantaged businesses), HUBZone, Service-Disabled Veteran-Owned, and Women-Owned. Set-asides reduce competition to qualified small businesses only, giving smaller firms a better chance against large defense contractors. In FY2023, the government awarded about 27% of contract dollars to small businesses, exceeding the 23% goal.
Related Terms
- Competitive Bidding (Full and Open Competition) — The standard procurement process where the government publicly solicits proposals from multiple vendors and selects the best offer based on price, quality, and capability.
- Federal Contract — A legally binding agreement between the U.S. government and a private company to provide goods or services — from fighter jets to IT consulting.
- NAICS Code — The North American Industry Classification System code — a 6-digit number that classifies a business by the type of economic activity it performs, used to determine small business size standards.
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About This Definition
This definition is part of the TaxDollarData Federal Spending Glossary — 31 terms explaining how the U.S. government spends taxpayer money. All definitions are written in plain language for taxpayers, journalists, contractors, and researchers.