The term "set-aside" is commonly used to refer to a competition in which only small businesses may compete. In support of this policy, Congress has authorized agencies to conduct set-asides and make sole-source awards to small businesses, among other things. Specifically, with various provisions of the Small Business Act of 1958, as amended, Congress has permitted 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," 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 federal agencies to make sole-source awards to 8(a) participants, HUBZone small businesses, SDVOSBs, and WOSBs in certain circumstances, as well as grant price evaluation adjustment preferences to HUBZone small businesses in unrestricted competitions. 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). The 112 th Congress enacted legislation that expands agencies' authority to conduct competitive set-asides for WOSBs, while the 113 th Congress enacted legislation that permits sole-source awards to such firms. Specifically, on February 22, 2016, the Court is scheduled to hear oral arguments in Kingdomware Technologies, Inc. v. United States , a case in which a SDVOSB challenges the Department of Veterans Affairs' procurement of certain supplies and services through the Federal Supply Schedules, rather than through a set-aside for SDVOSBs or VOSBs. Then, it turns to the legal issues, including (1) the implementation of the "Rule of Two," which permits or, in some cases, requires that agencies use set-asides when offers can reasonably be expected from at least two small businesses, and the award made at a fair price; (2) when agencies may be required to use set-asides for small businesses; (3) partial set-asides of contracts that cannot be totally set aside for small businesses; (4) set-asides under certain indefinite-delivery/indefinite-quantity (ID/IQ) contracts (i.e., contracts that call for the contractor to supply quantities of goods or services that are unknown at the time of contracting to the government upon the government's order); (5) priority of and among the set-aside programs; and (6) limitations on the use of small business set-asides. The Small Business Act does not expressly contemplate such exclusions. Small Purchases "Reserved" Under the Small Business Act

Congress amended the Small Business Act in 1978 to address agencies' use of small businesses when making "small purchases." However, larger purchases differ in that agencies may not use simplified acquisition procedures, but instead must use either sealed bidding or contracting by negotiation when conducting a competitive set-aside. Contracts whose value exceeds the competitive threshold must generally be competed whenever the Rule of Two is satisfied (i.e., the contracting officer reasonably expects offers from at least two responsible 8(a) firms, and the award can be made at fair market price).
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 can 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 $3,500 and $150,000 are "reserved exclusively" for small businesses and are generally made using simplified acquisition procedures (e.g., purchase orders, blanket purchase agreements), sealed bidding, or contracting by negotiation. Contracts whose value exceeds $150,000 can 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 can, 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.
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, SDVOSBs, and WOSBs 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 112th Congress enacted legislation (P.L. 112-239) that expanded agencies' authority to conduct competitive set-asides for WOSBs, while the 113th Congress enacted legislation that permits sole-source awards to such businesses (P.L. 113-291). In addition, on February 22, 2016, the Supreme Court is scheduled to hear oral arguments in Kingdomware Technologies, Inc. v. United States, a case in which a SDVOSB challenges the Department of Veterans Affairs' procurement of certain supplies and services through the Federal Supply Schedules, rather than through a set-aside for SDVOSBs or VOSBs. For more information on this case, see CRS Legal Sidebar WSLG1322, UPDATED: Supreme Court Postpones Oral Arguments in Challenge to the Department of Veterans Affairs' Practices as to Contracting "Set-Asides" for Veteran-Owned Small Businesses, by [author name scrubbed].