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Wednesday, March 6, 2013

Set-Asides for Small Businesses: Legal Requirements and Issues

Kate M. Manuel
Legislative Attorney

Erika K. Lunder
Legislative Attorney

It has long been the “declared policy of the Congress” that a “fair proportion” of federal contracts be awarded to small businesses. In support of this policy, Congress has enacted various statutes authorizing procuring agencies to conduct competitions in which only small businesses may compete, or to make noncompetitive (“sole-source”) awards to such firms in circumstances when similar awards could not be made to other firms.

Federal agencies may award contracts to small businesses by several different methods, depending upon the value of the contract and the number of small businesses likely to submit offers, among other factors.

  • “Small purchases” valued at between $3,000 and $150,000 are “reserved exclusively” for small businesses and may generally be made using simplified acquisition procedures (e.g., purchase orders, blanket purchase agreements), sealed bidding, or contracting by negotiation. 
  • Contracts whose value exceeds $150,000 may be awarded via sealed bidding or contracting by negotiation in competitions in which only small businesses may participate (i.e., “competitive set-asides”), so long as the contracting officer reasonably expects offers from at least two small businesses, and the award can be made at fair market price. 
  • Contracts whose value exceeds $150,000 may, in some cases, be entered into by negotiating directly with a small business if the contracting officer does not reasonably expect offers from at least two small businesses, or in certain other circumstances. 

All the foregoing are authorized under the Small Business Act, which permits federal agencies to conduct competitive set-asides for small businesses, as well as for specific types of small businesses (i.e., small disadvantaged businesses (SDBs) participating in the “8(a) Program” (8(a) firms), Historically Underutilized Business Zone (HUBZone) small businesses, women-owned small businesses (WOSBs), and service-disabled veteran-owned small businesses (SDVOSBs)). The Small Business Act also authorizes agencies to make sole-source awards to 8(a) firms, HUBZone small businesses, and SDVOSBs in certain circumstances. In addition, the Veterans Benefits, Health Care, and Information Technology Act of 2006, as amended, grants the Department of Veterans Affairs (VA) additional authority to conduct competitive set-asides for, and make sole-source awards to, SDVOSBs and other veteran-owned small businesses (VOSBs).

Small business set-asides are of perennial interest to Congress because of their role in effectuating the congressional policy of assisting small businesses. For example, the 112
th Congress held hearings on whether VA purchased goods through the Federal Supply Schedules that should have been procured through small business set-asides, and it enacted legislation (P.L. 112-239) that expands agencies’ authority to conduct competitive set-asides for WOSBs. Interest in the setaside programs seems likely to continue in the 113th Congress, in part, because of agencies’ recent failures to meet their goals for contracting with small businesses and, in part, because of litigation over agencies’ use (or non-use) of competitive set-asides in particular procurements. Recent cases have specifically raised questions about whether the VA is required to use competitive set-asides for SDVOSBs and other VOSBs instead of certain other procurement vehicles, as well as whether the Department of Labor is prohibited from using set-asides for small businesses when selecting vendors to operate Job Corps centers.

Date of Report: February 28, 2013
Number of Pages: 37
Order Number: R42981
Price: $29.95

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