Understanding Set Asides at the Federal, State and Local Levels
The U.S. Federal Government has pointedly set aside or “earmarked” money for businesses that meet certain criteria. At the federal level, the government tries to spend at least 23% of its budget on contracts with small businesses. In 2013, Federal agencies exceeded this goal (averaging 23.39% of eligible contract dollars). However, according to Government Executive, it was the first time in eight years that the federal contracting goal reached the 23% target.
The good news is that there’s a lot of money on the table at the state and local levels. Total government spending at all levels, including state and local agencies, represents about 28% of the US GDP, or roughly $3.3 trillion (estimated for 2015).
For reference, the federal categories and percentages for set asides are:
- 5% or more of prime and subcontracts for women-owned businesses
- 5% or more of prime and subcontracts for 8(a) small, disadvantaged businesses
- 3% or more of prime and subcontracts for HUBZone small businesses
- 3% or more of prime and subcontracts for service-disabled veteran-owned businesses
Spending averages about $66 billion/state. Of course, in actuality the range is extremely wide, from a high of $432.8 billion (California) to a low of $7.3 billion (South Dakota). That money, in turn, is spent roughly 50/50 between state and local agencies.
It’s important to know that all states set their own goals and set aside targets which may or may not be in line with federal set aside standards.
In fact, states demonstrate their preference in different ways including official set asides (Connecticut, Illinois, Ohio) and price preferences (Alaska, Kansas, Minnesota).
According to Onvia research, the top three states for set asides are New York, with the highest stated target -- 30% MWBE State-wide Contracting [minority and women owned] and then tied for second place are New Jersey and Connecticut, with small business set asides of 25% each. New York has also committed to a six percent goal of spending on Disabled Veteran Owned-businesses (double the Federal Government goal of 3%).
State Budgets and the Definition of "Small"
In order to calculate the total amount each state has declared as set asides, contractors should look at individual state budgets.
- New York has made public its spending target of $310.4 billion. If set aside goals are 30%, then the Empire State wants to spend over $93 billion with small businesses and others meeting certain qualifications.
- New Jersey’s budget is $110.6 billion making its 25% set aside goal $27.7 billion.
- Connecticut’s budget is $44.5 billion making its set aside goal of 25% worth $11 billion.
Contractors also need to know how their targeted states define “small” as it will not always align with the federal definition. Typically, a small business is defined by an employee count of 1 to 500 employees, but some states cap “small” at 50 employees. In addition to employee count, some states have maximum annual sales caps and/or other parameters.
Once you or your researchers have determined how your target states define set aside business categories, it won’t change from year to year for most states. One instance of a changing definition of set aside categories is in California where the state had carved out a “micro-business” sector to target businesses with five or fewer employees; now the program requires the state agency to award at least 25% of construction contracts (not all state business) to small businesses more broadly defined.
In short, while contractors already know the category of their own small business, “small” is determined with a sliding scale, so it’s worth discovering if your business qualifies as “small” in any of the states where you want to increase your government business.
To drill down even further and look at budgets by agency to define “small” in your target states and to calculate the size of your potential market, one comprehensive source is Onvia’s Agency Center.
Next Steps for Set Aside Contracts
After determining whether or not your business meets your targeted states requirements, the next step is to research each targeted agency’s spending habits.
The best way to do this is by researching agency procurement volume and past procurement activity. You can use:
- Public records
- State government websites
- State/local government intelligence tools
Onvia users of Agency Center, for instance, are able to search for contracts flagged with set aside codes.
Although states have no requirement to publish all awarded contracts, let alone what portion of that spend can be attributed to set asides, they will often note in their RFPs and bids if they are targeting any specific set aside markets.
The following step, depending on the state, would be registration and/or certification. In most cases registration establishes a permanent profile of the contractor which is accessible to state and local agency purchasers looking to do business, potentially leading to procurement officers contacting you.
Supporting Your Efforts
The closest thing to a one-stop-shop for small businesses that need guidance is the US Small Business Administration. Contrary to many people’s assumptions, the SBA does not limit itself to just the federal government level. It also provides numerous opportunities and references at the local level as well as information on becoming certified for 8(a) and HUBZone Status among the many other designations which may be eligible for set asides.
Joining local SBA groups and/or associations which fit the profile of your company are another way to learn about state and local opportunities. The SBA, for instance, maintains state- and in some cases metropolitan-based offices.
The benefit of joining local groups is support, networking and the opportunities to learn about various gateways to state- and local-level programs for contractors that match your profile.
Although they may not tout (or enumerate) specific set asides, many states, including Washington and Virginia, have programs not just about how to establish and finance a business, but how a small business can navigate to the states’ procurement system.
Using State Set Aside Goals in Your Marketing to Government Agencies
Marketing to your target agencies and contacts is an important part of winning more contracts.
Where states have been public about declaring set aside goals, you can safely assume they want to spend money with contractors that meet the category definitions.
If your business fits one of the small business criteria, then by all means be sure to trumpet that fact on your website, in your marketing materials and during communication with state agency purchasers.
Make sure agency decision makers, buyers and influences know early on in the buying process that by spending money with your company, the agency will not only get the product or service they need, but also that your company will help the agency achieve state set aside goals.
By understanding each states’ set aside goals, definitions, budgets and requirements, and by taking the right steps to influence and market to these agencies with set asides, your small business has an excellent opportunity to win more business.
Does your small business qualify for set asides? Learn more about how the Onvia Guide for Small Business can help you increase your government contract win-rates here.
For more information on effective marketing tactics to government agencies, please read:.
For more information about federal set asides and teaming relationships, please read:.