Beacon Federal Partners is a government contracting firm affiliated with Boston Made, Inc., and set-aside programs are among the first topics newcomers to federal contracting need to understand. The federal government is one of the largest buyers of goods and services in the world, and by law a meaningful share of that spending is directed toward small businesses. This overview explains how set-asides work and summarizes the four best-known socioeconomic programs. It is general education, not legal advice; program rules change, and businesses should confirm current requirements with the U.S. Small Business Administration (SBA).

What a Set-Aside Is

A set-aside is a contract, or a portion of one, that an agency reserves for a particular category of business. Instead of competing against companies of every size, eligible firms compete only against each other, or in some cases may receive an award without competition, known as a sole-source award.

Set-asides exist because Congress established government-wide goals for contracting with small businesses. The statutory goal for small business prime contracts is 23 percent of federal contracting dollars, with additional goals for specific groups, including 5 percent for small disadvantaged businesses, 5 percent for women-owned small businesses, 3 percent for HUBZone businesses and 3 percent for service-disabled veteran-owned small businesses. Agencies track their performance against these goals each year.

First, Being “Small”

Every program below starts with one requirement: the business must qualify as small. The SBA sets size standards by industry, using North American Industry Classification System (NAICS) codes. Depending on the industry, the standard is usually based on average annual revenue or number of employees. A company may be small in one industry and not in another, so it is important to check the size standard for the specific NAICS code listed in each solicitation.

Small Business Set-Asides in General

Before considering the specialized programs, it helps to know that many contracts are simply set aside for small businesses of any kind. Under a principle often called the “rule of two,” a contracting officer generally sets aside an acquisition when there is a reasonable expectation that at least two responsible small businesses will submit offers at fair market prices. Many lower-dollar purchases are also reserved for small businesses by default.

The 8(a) Business Development Program

Who it is for: Small businesses that are at least 51 percent unconditionally owned and controlled by one or more U.S. citizens who are socially and economically disadvantaged, as defined by SBA rules. Economic disadvantage is assessed using limits on personal net worth, income and assets.

How it works: Participation lasts up to nine years, divided into a developmental stage and a transitional stage. Participants receive business development support and become eligible for set-aside contracts and, below certain dollar thresholds, sole-source awards. The program also emphasizes building capacity so firms can eventually compete without it.

Worth knowing: Court decisions and policy changes in recent years have affected how social disadvantage is established for applicants, so prospective participants should review the SBA’s current guidance carefully before applying.

HUBZone

Who it is for: Small businesses located in and employing people from Historically Underutilized Business Zones, areas designated based on factors such as income levels and unemployment. Key requirements include having the principal office in a HUBZone and having at least 35 percent of employees living in a HUBZone, along with ownership requirements.

How it works: Certified firms can compete for HUBZone set-asides and sole-source awards. In full and open competitions, they may also receive a price evaluation preference, which makes their offers more competitive relative to larger firms.

Worth knowing: HUBZone maps are updated periodically, and areas can gain or lose designation. Firms must also maintain the employee residency requirement over time, which takes careful tracking.

Women-Owned Small Business (WOSB) and EDWOSB

Who it is for: Small businesses at least 51 percent owned and controlled by one or more women who are U.S. citizens. An economically disadvantaged women-owned small business (EDWOSB) must also meet economic criteria.

How it works: The Women-Owned Small Business Federal Contract Program allows agencies to set aside contracts in specific industries, identified by NAICS codes, where women-owned businesses are underrepresented (for WOSBs) or substantially underrepresented (for EDWOSBs). Sole-source awards are possible below certain thresholds.

Worth knowing: Firms must be certified, either by the SBA or an SBA-approved third-party certifier, to compete for these set-asides. Self-certification is no longer sufficient for program set-asides.

Service-Disabled Veteran-Owned Small Business (SDVOSB)

Who it is for: Small businesses at least 51 percent owned and controlled by one or more veterans with a service-connected disability. In some circumstances, a spouse or caregiver may control the business on a veteran’s behalf, subject to specific rules.

How it works: Agencies can set aside contracts for SDVOSBs and make sole-source awards below certain thresholds. The Department of Veterans Affairs operates its own program that prioritizes service-disabled veteran-owned and veteran-owned small businesses in VA purchasing.

Worth knowing: Certification for SDVOSBs and veteran-owned small businesses moved to the SBA in 2023 through its veteran certification program. Firms should confirm current certification requirements for both VA and government-wide set-asides.

Comparing the Programs at a Glance

• 8(a): Ownership by socially and economically disadvantaged individuals; nine-year program; business development plus set-asides and sole-source awards.
• HUBZone: Location-based; principal office and 35 percent of employees in HUBZones; set-asides, sole-source awards and price preference.
• WOSB/EDWOSB: Ownership by women; set-asides in eligible industries; certification required.
• SDVOSB: Ownership by service-disabled veterans; government-wide set-asides plus VA priority; certification through SBA.

A business may qualify for more than one program. Holding multiple certifications can broaden the range of opportunities a firm can pursue.

Practical First Steps

1. Identify your NAICS codes and confirm you meet the size standards.
2. Register in SAM.gov, the government’s System for Award Management, which is required for most federal contracting.
3. Review eligibility for each program on the SBA’s website and its certification portal.
4. Gather documents, such as ownership records, tax returns and governing documents, before applying.
5. Keep certifications current and track ongoing requirements.

A Realistic Perspective

A certification is a door, not a guarantee. Set-aside contracts are still competitive, and agencies expect strong past performance, capable staff and well-written proposals. Many small businesses also gain experience through subcontracting and teaming with established contractors before winning prime awards on their own. Understanding the programs is the first step; building the capability to deliver is what turns eligibility into contracts.

Beacon Federal Partners is an affiliated government contracting firm, and its field runs on classification. Anyone who works in federal contracting soon runs into two sets of codes that shape almost every opportunity: NAICS codes and Product and Service Codes, usually called PSCs. They can look like bureaucratic alphabet soup, but they are the main way the government classifies what businesses do and what agencies buy. This explainer covers what each code system is, how they differ and why choosing them carefully matters.

What Is a NAICS Code?

NAICS stands for the North American Industry Classification System. It was developed jointly by the United States, Canada and Mexico and replaced the older Standard Industrial Classification (SIC) system in the late 1990s. Statistical agencies use it to classify businesses by their primary type of economic activity, and the federal procurement system adopted it as well.

NAICS codes are hierarchical and can run up to six digits. The first two digits identify a broad sector, and each additional digit narrows the category. For example:

• 54 covers Professional, Scientific, and Technical Services.
• 5415 narrows to Computer Systems Design and Related Services.
• 541511 is Custom Computer Programming Services, while 541512 is Computer Systems Design Services.

Other familiar examples include 541611, Administrative Management and General Management Consulting Services, and 561720, Janitorial Services. The system is revised periodically, generally every five years, so codes and titles can change. Businesses should always check the current version.

How NAICS Codes Are Used in Contracting

NAICS codes play several roles in federal contracting:

1. Describing a business. When a company registers in SAM.gov, the government’s System for Award Management, it lists the NAICS codes that describe its work and designates a primary code.
2. Classifying a solicitation. When an agency issues a solicitation, the contracting officer assigns a single NAICS code that best describes the principal purpose of the purchase.
3. Setting size standards. The U.S. Small Business Administration assigns a size standard to each NAICS code, usually based on average annual receipts or number of employees. Whether a company counts as small for a particular contract depends on the size standard tied to the NAICS code on that solicitation.

That third role is crucial. A firm can be small under one NAICS code and not small under another. Because many contracts are set aside for small businesses, the assigned code can determine who is eligible to compete.

What Is a PSC?

Product and Service Codes describe what the government is buying, rather than what kind of business is selling it. The PSC system is maintained by the General Services Administration and documented in a PSC manual that is updated from time to time.

PSCs are four characters long. In general:

• Codes that begin with a number describe products, such as equipment, supplies and materials.
• Codes that begin with a letter describe services, grouped into categories such as research and development, professional support, construction, maintenance and information technology.

Every contract action reported in the federal procurement data system carries a PSC. That data feeds public spending information, which is why PSCs are useful for market research.

NAICS vs. PSC at a Glance

• NAICS classifies the industry; PSC classifies the specific product or service purchased.
• NAICS drives size standards and small business eligibility; PSC does not.
• A business lists NAICS codes in its registration; PSCs are assigned to contract actions and can also be listed in some vendor profiles.
• Both appear on many solicitations and in award data.

A single purchase might carry a NAICS code for computer systems design and a PSC for a particular category of IT services. Together they give a fuller picture.

How Agencies Use the Codes to Find Vendors

Contracting officers and program staff perform market research before many purchases. They might search SAM.gov or the Small Business Administration’s search tools for registered firms with a particular NAICS code, size status and location. They may also review past awards by PSC to see which companies have done similar work for other agencies.

If a company has not listed the right NAICS codes in its registration, it may simply not appear in these searches. Likewise, a firm that understands which PSCs describe its offerings can study who buys those services, how often and through which contract vehicles.

How Businesses Use the Codes

For a business, the codes are both a profile and a research tool:

• Opportunity searches. Contract opportunity listings on SAM.gov can be filtered by NAICS code and PSC, and saved searches can alert a firm to new postings.
• Market research. Public spending data searchable by NAICS and PSC shows which agencies buy what, from whom and in what amounts.
• Teaming. Larger firms looking for partners often search by NAICS code and small business status.
• Capability statements. Listing relevant codes makes it easier for buyers to match a firm to their needs.

Choosing Codes Wisely

A few practical principles help:

1. Be accurate. List codes that genuinely describe work the business can perform. Claiming unrelated codes adds noise and can raise questions.
2. Pick a primary code thoughtfully. It should reflect the main line of business.
3. Check size standards. Review the size standard for each code to understand where the business qualifies as small.
4. Revisit periodically. As services evolve and NAICS revisions take effect, update the registration.
5. Study real solicitations. Looking at the codes assigned to opportunities a business wants is often the best guide.

The Takeaway

NAICS codes tell the government what kind of business a company is; PSCs tell it what is being bought. Getting both right helps buyers find capable vendors and helps vendors find the right opportunities. This article is general educational information; businesses should consult official SBA and GSA resources or a qualified advisor for decisions about their own registrations.