The Set-Aside Decision
Also known as: Rule of two, set-aside determination, acquisition method decision
Your role here: This is the decision that determines whether you can compete at all
At a Glance
- Phase
- 4 of 10 — decides your eligibility to bid
- Who leads it
- The contracting officer, reviewed by the small-business specialist and SBA PCR
- What happens
- The buy is designated set-aside, full-and-open, or sole-source
- You…
- Confirm your eligibility for the set-aside designation and NAICS size status
- Governing authority
- FAR Subpart 19.5 and FAR 19.1405–19.1406 (SDVOSB set-aside / sole source)
What It Is
The set-aside decision is the pivot point of the whole lifecycle: it determines the universe of firms that may compete. Based on market research and the acquisition strategy, the contracting officer decides whether to reserve the buy for small business generally or for a specific socioeconomic program, compete it full-and-open, or (in narrow circumstances) award it sole-source. Two rules dominate for SDVOSBs. First, the small-business reserve: under FAR 19.203 and the automatic reserve, acquisitions between the micro-purchase threshold and the simplified acquisition threshold are reserved for small business, and larger acquisitions can be set aside when the rule of two is met. Second, the rule of two for SDVOSBs (FAR 19.1405): the CO must set an acquisition aside for SDVOSB competition when there is a reasonable expectation that offers will be received from two or more responsible SDVOSBs and that award will be made at a fair market price. Where only one capable SDVOSB is expected, FAR 19.1406 permits an SDVOSB sole-source award below the applicable dollar ceiling. The designation is announced in the synopsis and stated on the solicitation cover form and set-aside clause.
What Happens
- The CO evaluates market research against the rule of two for each applicable set-aside program.
- A set-aside designation is chosen — total or partial set-aside, a specific program, full-and-open, or sole-source.
- The small-business specialist and, on many buys, the SBA procurement center representative review the decision.
- The applicable NAICS code and size standard are assigned, fixing which firms count as 'small'.
- The designation is published in the synopsis and carried into the solicitation's cover form and set-aside clause.
Key Activities
| Activity | What It Means |
|---|---|
| Apply the rule of two | If two or more capable, responsible SDVOSBs are expected to bid at a fair price, the buy must be set aside for SDVOSBs (FAR 19.1405). |
| Assign the NAICS code | The NAICS code and its size standard decide who is 'small' for this buy — and it is appealable to SBA OHA if you believe it is wrong. |
| Consider sole-source | Where only one capable SDVOSB is expected and the value is under the ceiling, FAR 19.1406 allows an SDVOSB sole-source award instead of a competition. |
| PCR / small-business review | The SBA procurement center representative can challenge a decision not to set a requirement aside, protecting the small-business share of the work. |
What It Means for an SDVOSB
This is the phase that decides whether you are even in the game. If the buy is set aside for SDVOSBs, your certification is your ticket; if it is full-and-open, you are competing against firms of every size. So two things matter. First, be certain of your eligibility for the designation the CO chose — SDVOSB status via SBA VetCert, and your size under the assigned NAICS code — because you certify to it and can be protested on it. Second, if you believe the assigned NAICS code is wrong (its size standard is too low, wrongly excluding your firm, or mischaracterizes the work), you can file a NAICS code appeal with SBA's Office of Hearings and Appeals — but the deadline is short, generally within 10 calendar days after the solicitation is issued. Use the set-aside eligibility checker and size-standard calculator to confirm where you stand before you invest in a proposal.
What to Do in This Phase
- Confirm your SDVOSB certification and your size status under the assigned NAICS code before bidding.
- If the NAICS code looks wrong, file a NAICS code appeal with SBA OHA within the short deadline (generally 10 days of issuance).
- Check whether the buy is a total or partial set-aside — a partial set-aside reserves only part of the requirement.
- If you are the only capable SDVOSB, understand the sole-source path under FAR 19.1406 and the applicable dollar ceiling.
Watch Out For
- Bidding a set-aside you are not actually eligible for — a mistaken self-certification invites a status or size protest.
- Missing the short NAICS-code-appeal window, after which the assigned code and size standard stand for the buy.
- Confusing the SDVOSB rule of two with full-and-open — on a full-and-open buy your certification gives no bidding preference.
Run the Numbers
Frequently Asked
When must a contracting officer set a contract aside for SDVOSBs?
Under FAR 19.1405, a contracting officer must set an acquisition aside for competition restricted to SDVOSBs when there is a reasonable expectation that (1) offers will be received from two or more responsible SDVOSB concerns, and (2) award will be made at a fair market price — the SDVOSB rule of two. The reasonable expectation is built from market research, including responses to sources-sought notices. Separately, acquisitions between the micro-purchase and simplified acquisition thresholds are generally reserved for small business under FAR 19.203. If only one capable SDVOSB is expected and the value is under the ceiling, the CO may instead make a sole-source SDVOSB award under FAR 19.1406.
Can I appeal the NAICS code assigned to a solicitation?
Yes. The contracting officer assigns a single NAICS code and its corresponding size standard to each solicitation, and if you believe the assignment is wrong you can file a NAICS code appeal with SBA's Office of Hearings and Appeals (OHA). The deadline is short — generally within 10 calendar days after the solicitation is issued (or amended to change the code) — so you must act quickly. A successful appeal can change the size standard, which affects which firms qualify as small and therefore who you compete against. This is a distinct process from a size protest, which challenges a specific firm's size after offers are in.
Primary Sources
- FAR 19.203 — Relationship among small business programs
- FAR 19.1405 — Service-disabled veteran-owned small business set-aside procedures
- FAR 19.1406 — Sole source awards to SDVOSB concerns
Plain-English reference, not legal advice. The phases of a federal acquisition are tailored to each buy, and the FAR is amended from time to time — always read the actual solicitation and confirm the applicable procedures with the contracting officer, and consult qualified counsel for your specific situation before relying on this.
Change log (1)
- LaunchedPublished the federal acquisition lifecycle phases reference covering the ten phases a federal contract moves through — acquisition planning (FAR Subpart 7.1), market research (FAR Part 10), requirements definition (FAR Part 11 / 37.6), the set-aside decision and the rule of two (FAR Subpart 19.5 / 19.1405 / 19.1406), the synopsis and solicitation (FAR Part 5 / Parts 12–15), proposal preparation and submission (FAR 15.208), evaluation and source selection (FAR Subpart 15.3), award and debriefing (FAR Subpart 15.5 / Part 33), contract administration (FAR Part 42), and contract closeout (FAR Subpart 4.8) — each with an at-a-glance quick-facts card, a what-happens list, a key-activities table, an SDVOSB-specific angle, a what-to-do checklist, watch-outs, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source FAR citations, and cross-links into the glossary, how-to guides, FAQ, solicitation types, source-selection methods, roles, forms, clauses, protest forums, and the set-aside eligibility, size-standard, win-probability, price-to-win, limitations-on-subcontracting, and subcontracting-goal calculators.