Small Business Set-Aside

A small business set-aside is a procurement mechanism that limits competition for all or part of a government requirement to eligible small businesses. Suppliers that do not meet the eligibility criteria in the solicitation cannot bid as the main contractor.

In Canada, the Office of Procurement Ombudsman describes set-asides as mechanisms that reserve or limit competition to the businesses identified in the applicable set-aside provisions. The term is also widely used in United States federal procurement, where it has a more detailed and rule-driven meaning that matters to Canadian firms selling south of the border.

How the Canadian Free Trade Agreement treats small business set-asides

The Office of Procurement Ombudsman states that the Canadian Free Trade Agreement (CFTA) permits set-asides for small and medium-sized enterprises. The condition is that the set-aside forms part of a small-business set-aside program and is conducted fairly, openly and transparently. Details are in the Ombudsman's guidance.

Public Services and Procurement Canada (PSPC) explains that set-asides and other trade-agreement exceptions can allow contracting officers to depart from some trade-agreement procedural rules for the purpose of that set-aside or exception. This is covered in PSPC's briefing material on purchasing goods and services.

Federal small business initiatives in Canada

PSPC has described a proposed small business set-aside program intended to increase Canadian small-business participation in federal contracting. The proposal would reserve certain procurements for Canadian small businesses, subject to trade-agreement obligations and the availability of Canadian suppliers. It is set out in the March 2025 transition briefing, Book 2.

PSPC's Buy Canadian page identifies the Small Business Procurement Program (SBPP) as an initiative intended to increase Canadian small-business participation in federal contracting.

Indigenous business set-asides in Canada

Set-asides in Canada are not limited to small businesses. The Procurement Strategy for Indigenous Business (PSIB) includes a Set-Aside Program for Indigenous Business. Defence Construction Canada identifies it as one of its approaches to maximize the value of contracts awarded to Indigenous businesses, as described on its Indigenous business page.

U.S. small business set-asides and Canadian firms

In U.S. federal procurement, a total set-aside reserves the whole requirement for small businesses, while a partial set-aside reserves a separable portion. U.S. defence procurements use set-asides under Federal Acquisition Regulation (FAR) Subpart 19.5, as noted in the Trade Commissioner Service's defence contracts guidance.

The Trade Commissioner Service states that U.S. small-business set-asides can remove a procurement from the nondiscrimination provisions that would otherwise let Canadian firms compete as prime contractors. Canadian firms may still take part as subcontractors. The same guidance on other barriers states that U.S. procurements above US$3,500 and below US$150,000 are automatically set aside for small businesses. The exception is where the contracting officer finds no reasonable expectation of competitive offers from small businesses.

The U.S. "rule of two" applies more broadly. It requires a set-aside when the contracting officer expects offers from at least two responsible small businesses at fair market prices.

What a small business set-aside means for your bid

• Check first whether the solicitation is restricted to a defined eligible group.
• Confirm that you meet the eligibility, ownership, size, registration, certification and subcontracting requirements in the solicitation.
• For Canadian set-asides, follow the terms of the specific program or solicitation, since eligibility is set by those terms.
• For U.S. set-asides restricted to U.S. small businesses, pursue subcontracting opportunities with eligible prime contractors, because a Canadian firm cannot bid as prime.