When must a Contracting Officer award a federal government contract to a small business?

Federal government contracting officers hold the key to unlocking opportunities for small businesses. Their decisions have a direct impact on small business involvement in government contracts, and they are driven by a comprehensive set of norms and goals.

The process of awarding a federal government contract to a small business is not arbitrary but follows a structured approach. At the forefront is the "Rule of Two," a principle that requires a contract to be reserved for small businesses if at least two qualified small firms are likely to submit competitive bids at fair market prices. This rule assures that small businesses have an equal opportunity to compete in the federal marketplace.

For contracts valued between $10,000 and $250,000, a mandatory small business set-aside is enforced, ensuring that these opportunities are exclusively reserved for small businesses. If the Rule of Two is satisfied, contracts above $250,000 must be put aside for small businesses, with socioeconomic programs such as 8(a), HUBZone, SDVOSB, and WOSB taking precedence over general small company set-asides. See FAR 19.501, et seq.

Furthermore, regardless of the value of GSA Schedule Orders and Blanket Purchase Agreements (BPAs), the contracting officer has the ability to set aside, assuming there exist at least three capable small firms. See FAR 8.405-5. Similarly, for Non-GSA Multiple Award Contract Orders valued between $10,000 and $250,000, as well as those valued beyond $250,000, the set-aside decision is discretionary, with the Rule of Two playing an important role and a preference for taking socioeconomic programs into account.

The SBA's FY2022 scorecard reflects the government's progress toward its small business contracting targets. The federal government exceeded its total goal by giving 27.2% of contract funds to small firms. While certain targets were met, such as those for SDBs and WOSBs, others, such as the HUBZone aim, fell short, highlighting areas where contracting officers might concentrate their efforts to increase small business involvement.

The Small Business Administration's (SBA) Government-Wide Performance FY2022 Small Business Procurement Scorecard assesses how successfully federal agencies meet their small business and socioeconomic prime contracting and subcontracting objectives. Below is a summary of the important findings from the FY2022 scorecard:

1. Overall Small Business Contracting: The federal government awarded 27.2% of its contract dollars to small firms, exceeding the 23% target. This amounted to $154.2 billion, a $8 billion rise over the previous year.

2. Small Disadvantaged Business (SDB) Contracting: The government allocated 11.1% of contract dollars to SDBs, exceeding the 5% goal. This totaled $66.2 billion, an increase from $59.3 billion in FY2021.

3. Women-Owned Small Business (WOSB) Contracting: WOSBs won 5.6% of federal contract dollars, surpassing the 5% target. The overall value was $33.3 billion, up from $27.8 billion in the previous year.

4. Service-Disabled Veteran-Owned Small Business (SDVOSB) Contracting: SDVOSBs received 4.5% of contract dollars, surpassing the 3% goal. This amounted to $26.9 billion, an increase from $22.4 billion in FY2021.

5. HUBZone Contracting: The government fell short of its 3% target for HUBZone contracting, giving only 2.2% of contract dollars to HUBZone firms. This totaled $13.2 billion, up slightly from $12.2 billion the previous year.

6. Agency Performance: The majority of federal agencies met or surpassed their contracting goals for small businesses and socioeconomic categories. The scorecard provided letter grades to each agency based on their performance, with several obtaining "A" or "A+" ratings.

7. Subcontracting Performance: The scorecard also assessed agencies' progress in meeting their small business subcontracting objectives. The outcomes varied, with some agencies attaining or exceeding their objectives and others falling short.

The Small Business Administration (SBA) regularly posts the Small Business Procurement Scorecard on its website. The most recent scorecards, including the FY2022 scorecard, are available at the following link. Please be aware that the precise link to the FY2022 scorecard may be amended or altered as fresh scorecards are produced in the future.

Contracting officers are also responsible for verifying compliance with subcontracting restrictions, which require that a large amount of the work be performed by the small firm given the contract. This rule prevents larger businesses from unfairly benefiting from opportunities designed for small businesses.

Certification is crucial in the set-aside process. Small businesses must be self certified as "small" according to the SBA's size standards, and for certain set-aside categories, additional certifications are required to verify eligibility. Your registration in SAM will be critical for this purpose. To participate in set-aside contracts, WOSBs and SDVOSBs must first be certified by the SBA or an approved third-party certifier. The link to SBA certification can be found here.

The decision to award a contract to a small firm goes beyond just the initial contract award. Contracting officers must ensure that set-aside standards are met during the contract's life. This includes ensuring that the small firm remains eligible and follows the subcontracting rules.

Finally, contracting officers play a critical role in increasing small company participation in government procurement. Their judgments are governed by a complicated set of criteria and objectives established in the SBA's performance scorecard and set-aside regulations. By following these requirements and actively exploring opportunities for small businesses, contracting officers can help to build a diverse and dynamic small company community that drives economic growth and innovation in the federal marketplace.

If you are a small business looking to do business with the federal government, you could take the following actions:

1. Register Your Business: Obtain a Dun & Bradstreet D-U-N-S Number and register your business in the System for Award Management (SAM).

2. Understand Your NAICS Code: Identify and understand your North American Industry Classification System (NAICS) code, which gives the applicable size standard for that procurement.  Size standards vary by industry and are based on the number of employees, or annual receipts.  Standards are re-reviewed every 5 years.

• Need help navigating the NAICS codes? Consider our 1:1 coaching.

3. Get Certified: If applicable, apply for certifications such as 8(a), Women-Owned Small Business (WOSB), Service-Disabled Veteran-Owned Small Business (SDVOSB), or HUBZone certification through the Small Business Administration (SBA).

• We are ready to help you write your certification applications.

4. Market Research: Conduct market research to identify federal agencies that purchase your products or services. Utilize the Federal Procurement Data System to research past contracts.

5. Network and Build Relationships: Attend government contracting events, industry days, and matchmaking sessions to network with government agencies and prime contractors.

6. Explore Subcontracting Opportunities: Consider subcontracting with prime contractors as a way to gain experience and build a track record with the federal government.

• Consider reading our article on the formation of joint ventures.

7. Bid on Contracts: Look for contract opportunities on [SAM.gov](https://sam.gov) and other government portals. Carefully review solicitation documents and submit competitive proposals.

• Consider reading our article on crafting a white paper, writing a successful proposal and the art of costing and pricing.

• Consider our professional courses on mastering government proposals and understanding federal acquisition planning.

8. Stay Compliant: Ensure that you comply with all federal contracting regulations and requirements, including those related to small business set-asides.

• Consider reading our article on a FAR Compliance Plan

 9. Continuous Improvement: Continuously evaluate and improve your business processes, capabilities, and offerings to remain competitive in the government contracting marketplace.

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