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Tuesday, February 7, 2012

Small Business Set-Aside Programs: An Overview and Recent Developments in the Law

Kate M. Manuel
Legislative Attorney

Erika K. Lunder
Legislative Attorney

In government contracting law, a “set-aside” is a procurement in which only certain businesses may compete. Set-asides can be total or partial, depending upon whether the entire procurement, or just a severable segment of it, is so restricted. Eligibility for set-asides is typically based on business size, as well as demographic characteristics of the business owners. Currently, under the Small Business Act, there are set-aside programs for (1) small disadvantaged businesses participating in the 8(a) Minority Small Business and Capital Ownership Development Program (8(a) small businesses); (2) Historically Underutilized Business Zone (HUBZone) small businesses; (3) women-owned small businesses; (4) service-disabled veteran-owned small businesses; and (5) small businesses not belonging to any of the prior four categories.

These programs are all government-wide and could potentially be used by any agency. However, the programs differ in their eligibility requirements and the types of contracting preferences they provide for participating small businesses. For example, there are some significant differences among the programs as to when set-asides may be used (e.g., the value of qualifying contracts). Additionally, while the Small Business Act provides special authority for agencies to make solesource awards to 8(a), HUBZone, and service-disabled veteran-owned small businesses, solesource awards to women-owned or other small businesses are generally possible only under the authority of the Competition in Contracting Act (CICA). CICA authorizes noncompetitive awards, or awards made after soliciting and negotiating with only one source, to any size firm when certain conditions exist (e.g., single source; urgent and compelling circumstances). Moreover, only HUBZone small businesses qualify for “price evaluation preferences” in unrestricted competitions.

In addition, the Veterans Benefits, Health Care, and Information Technology Act of 2006 (P.L. 109-461) provides the Department of Veterans Affairs (VA) with additional authority to award set-aside or sole-source contracts to veteran-owned and service-disabled veteran-owned small businesses. Contracts with a value of less than $150,000 may be awarded on a set-aside or solesource basis at the contracting officer’s discretion. Contracts valued in excess of $150,000 must generally be awarded via a set-aside, although sole-source awards of up to $5 million may be made in certain circumstances.

The 111th Congress enacted legislation (P.L. 111-240) amending the statutory language that the Government Accountability Office (GAO) and U.S. Court of Federal Claims had construed, in a series of decisions issued in 2008-2010, as requiring agencies to give set-asides for HUBZone small businesses “precedence” over those for 8(a) and service-disabled veteran-owned small businesses. However, in 2010-2011, GAO and the Court of Federal Claims issued several other decisions interpreting the statutes and regulations governing the set-aside programs that could also affect the number of awards to such businesses. For example, in Aldevra, GAO found that, in certain circumstances, the VA must use set-asides for veteran-owned small businesses, instead of procuring goods or services through the Federal Supply Schedules. Other decisions have similarly found that procurements of architect-engineer services by the VA are subject to set-asides for veteran-owned small businesses, and that procurements from such businesses take precedence over procurements from the AbilityOne Program for blind individuals and individuals with severe disabilities.

Date of Report: January 24, 2012
Number of Pages: 31
Order Number: R41945
Price: $29.95

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