Examining Small Business Set Asides: Evidence and Implications for Small and Mid-Sized Suppliers in Federal Procurement

Abstract

Our study of the federal small business set aside program assesses the impact of small business set asides on supplier competitiveness, program participation, and firm growth. Federal procurement policy distinguishes suppliers as either small or not small. Small businesses benefit from set asides and other programs offered by the U.S. Small Business Administration (SBA), whereas large companies have internal capacity, scale, and extensive past performance history to compete for procurements. Mid-sized suppliers are too big to qualify for set asides, yet do not have parity with large firms. We focus our research on suppliers utilizing the small business set aside program and are particularly interested in firms that are advanced small or recently graduated suppliers (i.e., grew beyond the size standard prescribed by the SBA). We examine the federal small business set aside program and assess the impact of small business set asides on supplier competitiveness, program participation, and firm growth. We analyze 977 suppliers that participate or had participated in small business set aside procurements. We find the majority of suppliers stay small, and approximately 5% of small businesses grow to mid-sized.