Basic Terms in Government Contracting
Award – the notification to a bidder or tenderer of acceptance of a bid or tender which brings a contract into existenceBid– a tender, proposal or quotation submitted in response to a solicitation from a contracting authorityBidders’ Conference – a meeting to discuss with potential bidders, technical, operational and performance specifications, and/or the full extend of financial, security and other contractual obligations related to a bid solicitationClosing Date – the deadline for all bid submissions

Competitive Bidding – offers submitted by individuals or firms competing for a contract, privilege or right to supply specified services or merchandise

Contract – obligation between competent parties up a legal consideration, to do or abstain from doing some act

Contract Amendment – an agreed addition to, deletion from, correction or modification of a contract

Contractor – one who contracts to perform work or furnish materials in accordance with a contract

Estimated Value – indicates the approximate value of the contract

Procurement – the process of obtaining material and services which includes the determination of requirements and acquisition from a supply system or by purchase from the trade

Proposal – an offer, submitted in response to a request from a contracting authority, that constitutes a solution to the problem, requirement or objective in the request

Invitation for Bid (IFB)an IFB is also referred to as a “sealed bid”. It is usually for requirements over $25,000, utilized to provide goods, services and construction for public use. It is competitive and the lowest bid will win

Request for Proposal (RFP) – a Request for Proposal, while generally used for requirements of $25,000 or more, is often employed for requirements where the selection of a supplier cannot be made solely on the basis of the lowest price. An RFP is used to procure the most cost-effective solution based upon evaluation criteria identified in the RFP

Request for Quotation (RFQ) – an RFQ is normally sent out when a requisition is received for goods and services valued at less than $25,000. The bid documents are kept simple so that the contract can be awarded quickly

Small Business Set-Aside Program

This first program is probably one of the oldest, if not the original, program set up to help small businesses win government contracts. The Small Business Set-Aside Program (SBSA) helps assure that small businesses are awarded a fair proportion of government contracts by reserving (i.e., “setting aside”) certain government purchases exclusively for participation by small business concerns.

The determination to make a small business set-aside is usually made unilaterally by the Contracting Officer. However, this determination may also be joint. In this case, it is recommended by the Small Business Administration procurement center representative (PCR) and agreed to by the Contracting Officer. The regulations specify that, to the extent practicable, unilateral determinations initiated by a Contracting Officer, rather than joint determinations, should be used as the basis for small business set-asides.

  • Contracts of $0-$2,500: No set-asides available.
  • Contracts of $2,500-$100,000: Under the set-aside program, every acquisition of supplies or services that has an anticipated dollar value between $2,500 and $100,000 (except for those acquisitions set aside for very small business concerns, as described below) is automatically reserved exclusively for small businesses. However, every set-aside must meet the “Rule of Two,” which requires that there must be a reasonable expectation that offers will be obtained from two or more small business concerns that are competitive in terms of market prices, quality, and delivery. If only one acceptable offer is received from a responsible small business concern in response to a set-aside, the Contracting Officer is required to make an award to that firm. If no acceptable offers are received from responsible small business concerns, the set-aside will be withdrawn and the product or service, if still valid, will be solicited on an unrestricted basis.
  • Contracts over $100,000: In addition, the Contracting Officer is required to set aside any contract over $100,000 for small businesses when there is a reasonable expectation that offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns and that award will be made at fair market prices.
  • Partial Set-Asides:A small business set-aside of a single acquisition or a class of acquisitions may be total or partial. The Contracting Officer is required to set aside a portion of an acquisition, except for construction, for exclusive small business participation when:
    • A total set-aside is not appropriate.
    • The government’s purchase requirement is severable into two or more economic production runs or reasonable lots.
    • One or more small business concerns are expected to have the technical competence and productive capacity to satisfy the set-aside portion of the requirement at a fair market price.
    • The acquisition is not subject to simplified acquisition procedures.
  • Qualified Products List (QPL): Any products on a QPL are not set-aside for small business.

What’s required to be awarded a set-aside contract? To get this type of contract, a business must perform at least a given percentage of the contract. This provision limits the amount of subcontracting a concern may enter into with other firms when performing these types of contracts. The provisions are as follow:

  • Construction — For general and heavy construction contractors, at least 15 percent of the cost of the contract, not including the cost of materials, must be performed by the prime contractor with its own employees. For special trade construction, such as plumbing, electrical, or tile work, this requirement is 25 percent.
  • Manufacturing — At least 50 percent of the cost of manufacturing, not including the cost of materials, must be done by the prime contractor.
  • Services — At least 50 percent of the contract cost for personnel must be performed by the prime contractor’s own employees.

Recertification Process for Long-Term Set-Asides. In an effort to improve small business contracting and make sure government goals are being met, the SBA is issuing a new regulation effective June 30, 2007, regarding size certification. For long-term contracts (more than five years), small businesses will have to recertify their size status after five years, and then before the execution of any contract option after that. In addition, companies that have undergone mergers or acquisitions will have to recertify their size status as well.

Originally, businesses only had to certify prior to receiving a contract. The problem was, sometimes businesses grow (or merge) into larger businesses over time. So a contract that was intended only for small businesses morphs into a contract for a regular business. But the government still recognizes the contract as a “small business” contract, counting it toward fulfilling the government’s procurement goals.

This misleading situation skewers the true level of contracts being awarded to actual small businesses.

According to the SBA, the only objective of the new regulation is to achieve better tracking of set-aside contracts, not to penalize growing businesses. In fact, if during the course of a contract your business grows out of its “small” size, there is no termination. All terms and conditions still apply. The only outcome is that the buying agency no longer gets credit for contracting with a small business, forcing the agency to work harder to meet its procurement goals. They also hope the improved record-keeping will increase opportunities for small businesses

Federal Government Small Business Set Aside Programs

By Michael Bame, Guide

Every federal government purchase anticipated to be valued from $2500 to $100,000 is automatically set-aside for small businesses as long as there are at least 2 companies that can provide the product/service. Contracts over $100,000 can be set aside if enough small businesses are able to do the work. Contracts over $500,000 have to include a small business subcontracting plan so that small businesses can get work under these large contracts.

Small Business

Contracts less than $100,000 or those where 2 or more small businesses can fulfill the contract can be set aside for small businesses. This is typically a contracting officer decision after they perform market research. Contracts can be fully set aside or partially set aside (large company and small company). The SBA’s definition of a small business varies based on industry but typically is less than 500 employees or less than $5,000,000 in revenue. The government has an overall goal of 23% of prime contracts flowing to small businesses and in 2006 the actual was 23.09%.

HUB Zone

The HUBZone program is to encourage small businesses located in designated high unemployment, low-income areas through set aside contracts. HUBZone stands for “Historically Underutilized Business Zone”. To qualify a company must be a small business, owned and controlled 51% by US citizens, have main office in a HUBZone and have at least 35% of employees living in a HUBZone. The governments contracting goal is 3% of all prime contract dollars being awarded to HUBZone businesses. There are also sole source contracts possible and 10% price preference (HUBZone company prices can be 10% higher and still be considered competitive). To become HUBZone qualified the company must submit an application and supporting documentation to the SBA. In 2007 $1.764 billion was spent on HUBZone contracts.


The SBIR/STTR program was established to provide small companies with funding to develop products which have government and commercial potential. SBIR’s are research grants to fund research and development efforts. In 2005 federal agencies spent $1.85 billion on SBIR awards. STTR is similar to SBIR except the company must partner with a university under an STTR. Federal agencies with R&D expenditures over $100 million per year set aside 2.5% of the R&D funds for the SBIR program. Twenty percent of the SBIR award companies were founded entirely or partly based on SBIR contracts (“An Assessment of the SBIR Program”). SBIR is a three phase program. Phase I is worth up to $100,000 and is to explore whether the proposed solution will work. Phase II can have a budget up to $750,000 and is to develop a proof of concept. Phase III is to commercialize the solution and has a mix of government and private funding.


Small disadvantaged businesses may apply to the SBA 8(a) program. To qualify a business must be owned by socially or economically disadvantaged people, in business for at least 2 years and owners must have a net worth under $250,000. Once certified by the SBA 8(a) companies have set aside contracts available.


There is no formal certification for women-owned small businesses – it is self certified. The government contracting goal is 5% to women-owned businesses but there are no specific set aside programs. In 2006 the government awarded 3.4% of contract dollars to women-owned businesses.

Service-Disabled Veteran-Owned (SDVO)

Veterans who are certified as service-disabled and own a company can be qualified as service-disabled veteran-owned company. There is no formal certification process (self certified) other than the Veteran’s Administration qualifying them as service disabled. The government wide contracting goal is 3% to SDVO. Just 0.12% of total prime contract dollars were to service-disabled veteran-owned businesses.


Veteran-owned companies is a self certifying designation when at least 51% of the company is owned by veterans. There are no specific set aside programs for veteran-owned. Just 0.6% of total prime contract dollars were to veteran-owned businesses.

Small Disadvantaged Business

Small disadvantaged businesses are 51% owned and controlled by African Americans, Hispanic Americans, Asian Pacific Americans, Subcontinent Asian Americans, and Native Americans. This designation is self certifying.

Native American

Native American (including Alaskan and Hawaiian) can have contracts set aside and sole sourced to them.