Examining the Effects of Set Aside Policies on Competition and Growth for Small and Mid-Sized Suppliers

Abstract

Small businesses benefit from set asides and other programs offered by the United States Small Business Administration, yet as they grow beyond federal size standards for small businesses they encounter a benefit cliff.� Firms considering the transition from small to mid-sized can face a disincentive to grow because they will enter a federal procurement market dominated by large firms with extensive past performance. This study tracks nearly 1,000 federal suppliers and their contracts over a decade and illustrates the potential impact of small business policies on supplier competitiveness, program participation, and growth. The descriptive analysis shows that suppliers participated in small business set aside procurements, but relied less on them over time. Suppliers grew in terms of the number of agencies with which they contract and the product and services they provided. Yet many suppliers left the federal procurement market or had intermittent prime contract activity. Supplementary exploration suggests that less than 5% of small businesses grew to mid-sized while remaining an active supplier to federal agencies.