Small business set-aside programs, explained

A small business set-aside limits a competition to small businesses, or to one program's eligible firms, so that only they may submit offers. The Small Business Act, at 15 U.S.C. 644(g), has the President set annual governmentwide goals. The small business goal is at least 23 percent of prime contract dollars. Four programs have their own rules in title 13 of the Code of Federal Regulations: 8(a), HUBZone, service-disabled veteran-owned, and women-owned. The Department of Defense (DoD) has applied the FAR Overhaul's Part 19 since February 1, 2026.

The goals in the statute

Section 644(g)(1)(A), current through Public Law 119-124, sets these floors:

• Small business: not less than 23 percent of all prime contract awards.
• Service-disabled veteran-owned small business (SDVOSB): not less than 5 percent of prime contract and subcontract awards. Public Law 118-31, enacted December 22, 2023, raised this from 3 percent.
• HUBZone small business: not less than 3 percent.
• Small disadvantaged business: not less than 5 percent.
• Women-owned small business (WOSB): not less than 5 percent.

Only the 23 percent goal is measured on prime awards alone; the other four count prime and subcontract awards. Each agency sets its own goals jointly with the Small Business Administration (SBA). The SBA's fiscal year 2025 scorecard release, dated June 25, 2026, reports nearly 28 percent of prime contract dollars to small businesses. It reports 11.6 percent to small disadvantaged businesses, down from 12.27 percent the year before, 3.7 percent to 8(a) firms, and $32.5 billion in prime contracts to SDVOSBs.

How a set-aside works

Overhaul section 19.104-1 sets a two-offer test. Above the micro-purchase threshold, the contracting officer must set a contract aside for small business when there is a reasonable expectation of offers from two or more responsible small businesses that are competitive in fair market prices, quality, and delivery. A decision not to set aside must be documented. A partial set-aside under 19.104-2 is allowed when a total set-aside is not appropriate and the work divides into distinct portions.

HUBZone and SDVOSB set-asides need a reasonable expectation of two or more eligible offers and award at a fair market price. If no acceptable offer arrives, the set-aside is withdrawn and the requirement, if still valid, may be set aside for small business generally. Performance limits apply too: an 8(a) participant on a services contract must spend at least 50 percent of the personnel cost on its own employees.

Ownership tests differ by program:

Program	Regulation	Ownership test
8(a) Business Development	13 CFR 124	Unconditionally owned and controlled by socially and economically disadvantaged individuals
HUBZone	13 CFR 126	At least 51 percent owned and controlled by U.S. citizens, or by listed entities
Women-owned (WOSB, EDWOSB)	13 CFR 127	At least 51 percent unconditionally and directly owned and controlled by women
Service-disabled veteran-owned	13 CFR 128	At least 51 percent owned and controlled by service-disabled veterans

The 8(a) program

Under 8(a), agencies contract with SBA, and an 8(a) participant performs the work as SBA's subcontractor. A firm receives a nine-year program term. An individual's net worth must be less than $850,000. A three-year average adjusted gross income above $400,000 creates a presumption against economic disadvantage, and assets above $6.5 million generally disqualify.

DoD's deviation 2026-O0037 adds one 8(a) detail: SBA has delegated to DoD contracting officers the signing of 8(a) contracts, while SBA remains the prime contractor and determines eligibility.

Section 124.103, amended in a rule published August 11, 2026, no longer presumes members of listed groups to be socially disadvantaged. An individual citizen must show that a government or private entity in the United States discriminated or was biased against a group the citizen belongs to, or favored a group the citizen does not belong to, and that this caused the citizen material harm. The citizen also self-certifies group membership and the harm.

Above $8.5 million for manufacturing or $5.5 million otherwise, an 8(a) contract is competed among participants when two are expected. Below those amounts, the overhaul text has contracting officers first try a competitive 8(a) order on an SBA-approved governmentwide contract before a sole-source award.

HUBZone, women-owned, and veteran-owned firms

HUBZone. The firm's principal office must be in a HUBZone, and at least 35 percent of its employees must live in one. In full and open competitions, HUBZone firms receive a price evaluation preference.

WOSB and EDWOSB. An economically disadvantaged women-owned small business (EDWOSB) meets the same $850,000, $400,000, and $6.5 million tests. A firm must be SBA-certified to receive a WOSB or EDWOSB set-aside, though other women-owned firms may self-certify and still count toward goals. EDWOSB set-asides are limited to industry codes in which SBA finds women-owned firms underrepresented, and WOSB set-asides to codes where they are substantially underrepresented.

SDVOSB. Ownership may run through the spouse or permanent caregiver of a veteran rated permanently and totally disabled. SBA certification is required for set-aside and sole-source awards. Firms that had not applied by December 31, 2023 lost self-certification for those awards on January 1, 2024. For goaling credit, the cutoff was December 22, 2024.

What to check

• Does the file document the two-offer market research, or the reason the acquisition was not set aside?
• Is the firm certified by SBA for the program the solicitation names, rather than self-certified?
• For a WOSB or EDWOSB set-aside, is the industry code one SBA designates as underrepresented or substantially underrepresented?
• Does a statement about goals give the statutory floors and say whether a figure counts prime awards only or subcontracts too?
• Does a description of 8(a) eligibility reflect section 124.103 as amended in August 2026?
• For an 8(a) award above $8.5 million for manufacturing or $5.5 million otherwise, was it competed among participants?

Sources

1. 115 U.S.C. 644: Awards or contracts · Office of the Law Revision Counsel, current through Public Law 119-124 (October 15, 2026)
2. 2FAR Overhaul - Part 19 · Acquisition.gov, FAR Overhaul (Part 19 issued September 26, 2025, updated February 20, 2026)
3. 3Class Deviation - Revolutionary Federal Acquisition Regulation (FAR) Overhaul Part 19, Defense FAR Supplement (DFARS) Part 219 (DARS Tracking Number 2026-O0037) · Defense Pricing, Contracting, and Acquisition Policy, effective February 1, 2026
4. 413 CFR Part 124 - 8(a) Business Development/Small Disadvantaged Business Status Determinations · eCFR, up to date as of October 20, 2026
5. 513 CFR Part 126 - HUBZone Program · eCFR, up to date as of October 20, 2026
6. 613 CFR Part 127 - Women-Owned Small Business Federal Contract Program · eCFR, up to date as of October 20, 2026
7. 713 CFR Part 128 - Veteran Small Business Certification Program · eCFR, up to date as of October 20, 2026
8. 8SBA Releases FY25 Scorecard for Small Business Contracting (News release 26-64) · U.S. Small Business Administration, June 25, 2026

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