5.4 Small Business Programs & Set-Aside Rules (FAR Part 19)

5.4 Small Business Programs & Set-Aside Rules (FAR Part 19)

Federal policy mandates that small business concerns receive a fair proportion of total federal purchases and contracts. FAR Part 19 implements statutory small business preferences established under the Small Business Act (15 U.S.C. 631 et seq.). Contracting Officers (COs) are legally obligated to review all acquisitions exceeding the Micro-purchase Threshold ($15,000) to determine suitability for small business set-asides.

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The Small Business Rule of Two (FAR 19.502-2)

The Small Business Rule of Two is the fundamental legal doctrine governing federal set-asides.

Operational Rules

1. Acquisitions Above MPT up to SAT (FAR 19.502-2(a)): Each acquisition of supplies or services that has an anticipated dollar value exceeding the Micro-purchase Threshold ($15,000) but not exceeding the Simplified Acquisition Threshold ($350,000) is automatically reserved exclusively for small business concerns, unless the CO determines that there is no reasonable expectation of obtaining offers from two or more responsible small business concerns that will be competitive in terms of market price, quality, and delivery.
2. Acquisitions Exceeding SAT (FAR 19.502-2(b)): The CO SHALL set aside any acquisition exceeding $350,000 for small business participation when there is a reasonable expectation that:
   • Offers will be obtained from at least two responsible small business concerns; and
   • Award will be made at a fair market price.

[Acquisition > MPT] ➔ [CO Conducts Market Research] ➔ [Expectation of 2+ Responsible Small Businesses @ Fair Market Price?] 
                                                                 ├── YES ➔ [MANDATORY SMALL BUSINESS SET-ASIDE]
                                                                 └── NO  ➔ [FULL & OPEN COMPETITION]

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Socioeconomic Small Business Programs Overview

FAR Part 19 governs four distinct socioeconomic small business programs created by statute to assist targeted categories of small business owners:

Parity Among Socioeconomic Programs (FAR 19.201)

Historically, federal regulations prioritized certain programs over others. Under current FAR Part 19 rules, there is parity among the 8(a), HUBZone, SDVOSB, and WOSB programs. Contracting Officers have discretionary authority to decide which socioeconomic program to utilize for a set-aside, provided the Rule of Two is satisfied for that specific program category, aligning with agency small business goal achievements.

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The Non-Manufacturer Rule (NMR) (FAR 19.505 & 13 CFR 121.406)

When a small business set-aside contract for manufactured supplies is awarded, the prime contractor must provide the end item of a small business manufacturer.

Core Provisions of the Non-Manufacturer Rule

A small business offeror that is not itself the manufacturer of the offered product (a non-manufacturer/reseller) may submit a bid on a small business set-aside supply acquisition only if:

1. It does not exceed the size standard for non-manufacturers (500 employees);
2. It is primarily engaged in the wholesale or retail trade and normally sells the items;
3. It takes ownership or possession of the item with its personnel, equipment, or facilities; and
4. It supplies the end item of a small business manufacturer or producer manufactured in the United States.

SBA Waiver of the Non-Manufacturer Rule

If no small business domestic manufacturer exists in the marketplace, the SBA may grant a waiver to the NMR:

• Class Waiver: Granted by SBA across a broad category of items (NAICS codes) when no domestic small manufacturer exists.
• Individual Waiver: Granted by SBA for a specific acquisition upon written request of the CO.

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Certificate of Competency (COC) Program (FAR Subpart 19.6)

The Certificate of Competency (COC) Program empowers the Small Business Administration (SBA) to review and appeal a Contracting Officer's determination that a small business concern lacks responsibility.

Mandatory Referral Procedure (FAR 19.602-1)

If a Contracting Officer proposes to withhold a contract award from a small business offeror on the grounds of non-responsibility (e.g., lacking adequate financial resources, technical capability, perseverance, integrity, or past performance):

1. The CO SHALL NOT make an award to another firm.
2. The CO MUST refer the matter in writing to the cognizant SBA Area Office, forwarding a complete copy of the acquisition file.
3. The SBA notifies the small business, offering it 15 working days to apply for a Certificate of Competency.

Binding Legal Effect of SBA COC Issuance (FAR 19.602-2)

If the SBA issues a Certificate of Competency after independent evaluation, the Contracting Officer IS BOUND to accept the SBA's finding of responsibility and MUST award the contract to the small business concern without further delay (FAR 19.602-2). The CO cannot appeal an SBA COC decision except under rare, high-dollar executive level review protocols.