Small Business Contracting

Only businesses that fall under certain established size standards are deemed small and allowed to bid on small business set-asides.

Federal Programs

The Law

Let's begin with an overview of federal law:
The Small Business Act of 1953 states that small businesses should receive a "fair proportion" of federal contracts and that small businesses should enjoy the "maximum practical opportunity" to participate in federal contacting. The Small Business Act established the Small Business Administration (SBA) to help small businesses receive their "fair proportion."

The Business Opportunity Development Reform Act of 1988 amended the Small Business Act to require the President to establish an annual government-wide goal of awarding not less than 20 percent of prime contract dollars to small businesses. The Small Business Reauthorization Act of 1997 amended the Small Business Act still further to increase this goal to not less than 23 percent.

Under the small business set-aside program, federal agencies "set aside" contracts exclusively for small business participation. Federal Acquisition Regulation (FAR) 19.502-2(a) states that a purchase with "an anticipated dollar value exceeding $2,500, but not over $100,000, is automatically reserved exclusively for small business concerns and shall be set aside for small business unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality, and delivery." This requirement often is referred to as the "rule of two."

Size Standards

An important first question to ask, then, is whether yours is in fact a small business.

The magic number is often 500 employees (i.e., if your company has 500 or less, it's a small business), yet the numbers vary widely from industry to industry. The SBA often uses annual sales as the determining factor. Those numbers also vary widely.

Here are the general size standards:

  • 500 employees for most manufacturing and mining industries
  • 100 employees for all wholesale trade industries
  • $6 million for most retail and service industries
  • $28.5 million for most general & heavy construction industries
  • $12 million for all special trade contractors
  • $0.75 million for most agricultural industries

To find out the size standard for your industry, go to this URL:

As with the women-owned small business program, the SBA does not issue certificates establishing the eligibility of small businesses. Instead firms must self-certify their small business status at the time of bid response.

Bidding Opportunities

Okay, now let's assume that yours is a small business. If you haven't done so already, check to see what types of contracts have been or are being awarded in your industry. Go to When you search, be sure to select "Total Small Business" in the Set-Aside Code option.

In general, focus on the under-$100,000 opportunities where you aren't competing against large firms. And make sure you're self-certifying your small business status in your bid responses.

Getting the Word Out

But don't wait for the opportunities to come to you. Be proactive. Find buyers and let them know your firm is capable of meeting program requirements. You may gain some advantage when the bid comes out. Not only that, you may help ensure that relevant bid opportunities come out as small business set-asides. You want to see to it that the "rule of two" works in your favor. You want buyers that buy what you sell to know there are at least two small businesses capable of providing quality products or services at competitive prices. They won't know unless they find such businesses. Help them find yours.

Although it's no substitute for contacting buyers and end-users personally, make sure your firm is listed in SBA's PRO-Net database. PRO-Net is a primary vendor directory used by federal buyers in finding small businesses.

Agency Forecasts

Federal agencies often put out special procurement forecasts that are geared toward small business. To learn more about forecasts and why they're so important, read "Finding Information On Future Procurements."

Where do you go to find forecasts? Fedmarket's Jumpstation is a good place to start, It's free. Another place is the SBA site, Also, the bid searching product Bidengine,, allows you to search agency forecast pages by keyword.


Remember, too, as we discussed in Installments 8 and 26, subcontracting opportunities are often the best way to get involved in government contracting. Federal procurement law requires that--

  • on contracts of over $500,000 ($1,000,000 for construction of a public facility), large contractors and subcontractors submit a subcontracting plan containing percentage goals for subcontracting with small, small disadvantaged AND women-owned small businesses.
  • large contractors and subcontractors describe the efforts they will make to assure that such businesses have an equitable opportunity to compete for subcontracts.
  • the SBA reviews the subcontracting plan; if the large contractor or subcontractor fails to comply in good faith with the approved plan, the contractor may be terminated for default.

Sell your capabilities to prime contractors. Help them meet their small business contracting goals. To find primes by state, take a look at DoD's Subcontracting Directory, Another one to check out: SBA's Subcontracting Directory,

State and Local Programs

Programs at the state and local levels are similar to those at the federal level. California is a good example. Small businesses in California:

  • Qualify for a 5% bid preference on applicable state contracts.
  • Are eligible for benefits under the Prompt Payment Act including higher interest penalties for late, undisputed invoice payments.
  • Are listed in the state's Internet Certified Firm Listing, giving firms some visibility.

To be eligible as a small business in California a company:

  • Must be independently owned and operated;
  • Cannot be dominant in its field of operation;
  • Must have its principal office located in California;
  • Must have its owners (or officers in the case of a corporation) domiciled in California; and
  • Together with its affiliates, be either a business with 100 or fewer employees, and an average annual gross receipts of $10 million or less over the previous three tax years, or a manufacturer with 100 or fewer employees.

As at the federal level, there is no shortage of state and local resources available to small businesses. For example, the state of Maryland maintains a network of 15 Small Business Development Center offices across the state, in four major regions.

Also, as at the federal level, the key is to locate your target agencies first, make solid contacts, then learn about the small business programs that are available to you. Don't rely solely on these programs or expect sudden miracles, but certainly use them to your advantage. That's why they're there.


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