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The Ins and Outs of Set-Asides in Government Contracts

2 December 2017 No Comment

A small business set-aside is a government program that aims to assist small businesses in competing and receiving government contracts as a small business sub-contractor. Under this program, federal agencies that are procuring goods and services are obliged to provide small business owners with opportunities to win procurement contracts. If the market study determines that there are small businesses that can deliver the products, or perform the services being obtained by the government, then it is a requirement.

It is important to note that the price of the services and products the government intends to purchase is one of the bases for set-asides. For instance, if a certain federal government procurement has a projected value beyond the rate of $3,500 up to $150,000, it should be automatically set-aside for micro businesses for as long as the Rule of Three (three or re small business competitors in one industry) is met.

If the “Rule of Three” is met, contract opportunities that are over $150,000 should be set aside. With regard to construction contracts, opportunities above $700,000 that were granted to Other-than-Small-Businesses may or may not need subcontracting plans. Such plans ascertain subcontracting objectives for small businesses and businesses for the PWDs, women, and veterans.

Why are Set-Asides in Government Contracts Important to Small Businesses?

In many instances, small businesses are naturally at a disadvantage if they compete against large and established enterprises. Given this reality, it would be impossible for them to compete and win government contracts even if they have the capability to deliver the goods and services for procurement, hence, the small business set-aside program. Through this program, qualified small businesses are provided opportunities to compete and win government contracts. When “set-aside” requirements are met, credible small businesses can exclusively compete against each other for the same contract without having to worry about large companies competing and winning.

Through the set-aside program, small businesses are encouraged to continue, improve, and expand their ventures so that they can ultimately contribute to fueling the American economy.

How Can a Veterans Take Advantage of Set-Asides to Build Their Business

One of the most effective and efficient ways for veterans to take advantage of set-aside programs is by being knowledgeable on how a veteran-owned small business can navigate through the government procurement system. This can be done by joining local SBA groups and organizations to learn and be updated on local opportunities and by monitoring the Federal Business Opportunities website.

What Type of Companies are Eligible for Set-Aside Programs

The following programs are eligible to enjoy the set-aside program for small businesses:

Firms that are eligible to receive business assistance under the 8(a) Business Development Program include those that are owned and managed by disadvantaged business owners. Through this program, these entrepreneurs have the opportunity to be awarded no-bid contracts of up to $6.5 million, for goods/services and manufacturing, respectively. They are also given the chance to organize joint ventures so they can bid on government contracts.

Small businesses that are entitled to receive the Historically Underutilized Business Zone (HUBZone) program include those that are in urban and rural communities. Small business entities that are accredited as HUBZone-certified firms can receive competitive and no-bid contracts and 10% price estimation.

The WOSB Federal Contract Program aims primarily to expand the number of industries where women-owned small business (WOSB) can compete to receive government contracts. It helps economically disadvantaged women-owned small business (EDWOSB) to bid for government business that is set aside for EDWOSBs in industries where WOSB are underrepresented. Moreover, it allows set-asides for WOSBs in industries where WOSB are inadequately represented as well.

The Service-Disabled Veteran-Owned Small Business Concern Procurement Program aims to provide authority to procuring government agencies in setting acquisitions aside so that service-disabled veteran-owned businesses can exclusively compete against each other and so that they can grant sole source awards to qualified service-disabled veteran-owned business concerns.

What are Available Laws for Set-Asides that Benefit Small Business Owners

The principal legal authority governing set-asides and other similar contracting preferences for small business is The Small Business Act of 1958, as amended. This act essentially provides, in part, that “small” procurements should be given to small businesses. The provisions of the Small Business Act have also been supplemented by congressional legislation to allow the Department of Veterans Affairs to set aside government contracts to qualified SDVOBs and other VOSBs.

How to Finance Set-Aside Programs

There are numerous ways that government award set-aside. Four of these are as follows:

  1. Purchase Order Financing. In order get a set-aside through Purchase Order Financing companies such as the Meridian PO Fiancing Team – as one example – you must be certified as a vendor who can vend to government agencies. This includes acquiring your DUNS number and CAGE code, as well as registering with (SAM) the System for Award Management. You can also register for your Cage code at the (SAM) website mentioned above. You must have a track record of your history in selling goods or items.  You should also be able to fill in the government’s demands for good and services. Lastly, you should be able to meet the given timeline or delivery date.
  2. Invoice Factoring. Through invoice factoring, you will be able to get paid now instead of waiting for all the clients to send payments. Most businesses use invoice factoring to pay or reduce debt, launch a product or service, double the cash flow, and finance a project.
  3. Conventional Lending. Most conventional loans are not backed up by the government, but the beauty of this is that it costs less than FHA loans. Two forms of conventional lending are (1) fixed rate – this means that the rate of your mortgage will never change over the span of your loan; and (2) adjustable rate – this means that your interest rate can either go up or down. Thus, it can help you save money depending on the rise and fall of the market.
  4. Venture Capital. Like conventional lending, venture capital is not secured by the government. This is a form of private equity wherein firms give the funds to small businesses. These firms take the risk of financing startups with the hope that these startups will succeed in their venture. If your business is related to technology, you might want to check on venture capital.

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