Government Contracts Monitor

Legislation Equalizes All Small Businesses for Contract Set-Asides

January 24, 2011

The newly enacted 2010 Small Business Jobs Act, among other things, puts all small business categories on equal footing when competing for government contracts. Before the 2010 Act, the 1953 Small Business Act said that government agencies “shall” set-aside contract awards for small businesses in Historically Underutilized Business Zones (HUBZone), while statutes for other categories of small businesses used the word “may,” instead.

Both the Government Accountability Office (GAO) and the U.S. Court of Federal Claims have reasoned that the difference in the “may” and “shall” language means that government agencies must give preferential treatment to HUBZone businesses over other businesses like minority-owned, service-disabled veteran-owned or women-owned small businesses. The 2010 Act changed the word “shall” in the 1953 Act to the word “may,” thereby eliminating the preferential language. 

The Small Business Administration lobbied lawmakers for months to make this change. The SBA argued that restoring equality among the small business categories will help the government reach its overall small business contracting goals. Critics of the new law believe it may end the HUBZone program because, with this change, HUBZone businesses will see substantially fewer contract awards. Even with the existing preferential treatment, the federal government has not met its goal of awarding 3% of contracting dollars to HUBZone small businesses, but tends to meet its goals with respect to other small business categories. 

Now that this change is in place, the SBA is working with the Federal Acquisition Regulatory Council to implement preference parity among all small business categories.