Installment 15: Small Business Preference Programs

Outsider Perception: The federal government likes to do business with small businesses.

Reality: Federal buyers need incentives in order to convince them to contract with small businesses because the same buyers perceive that there's more risk with small companies.

Lesson: If available to your company, use any and all small business preference programs to help you close business with the government.


Federal purchases of less than $100,000 are, in most instances, set aside for small businesses. This program helps small businesses considerably but keep in mind that there is competition for set-asides. As discussed in previous newsletters, you must pre-sell these opportunities rather than bid on them blindly.

A similar program requires that federal prime contractors subcontract a percentage of their federal contracts in excess of $550,000 to small businesses. Like set-asides, this program helps small businesses. However, your company still must sell itself to a federal buyer before it will be considered as a subcontractor. Or you have to become a favorite in a prime contractor's stable of small businesses which requires direct sales efforts to prime contractors just like your current market.

It is not uncommon for a large prime contractor to use small businesses programs as a way to close a federal sale if they can't close it in a better way. Under this scenario, the prime contractor becomes a subcontractor to the small business with preference status. The terms of the federal contract will most likely specify that at least fifty percent of the contract's personnel costs must be spent on work performed by employees of the prime contractor (the small business) or personnel of other small businesses. This stipulation is in place to keep prime contractors from using small businesses and preference programs as fronts when closing sales. Large prime contractors may legally participate in small business preference contracts as long as they closely adhere to this stipulation. Detractors say that in spite of the fifty-percent rule, the small business is still a front for a large business. In the final analysis, the practice works in favor of small businesses so the rules are not likely to change.

The most significant small business programs are the "preference programs" for special types of small businesses. These are the programs that have the greatest potential to increase the sales of a small business quickly. The major preference programs are for (i) small disadvantaged businesses, (ii) disabled-veteran small businesses, and (iii) small businesses operating in a historically underutilized business zones (HUBZones). These programs allow sole-source awards for contracts under $ 3 million. Such programs give businesses which qualify a significant edge and these programs have been used to build multi-million dollar companies. Qualification requirements for these programs are available at

It goes without saying that you should jump on these band wagons if you qualify. The qualification requirements are very specific and should be carefully researched. In the case of small disadvantaged businesses hoping for an 8(a) certification, an actual application for certification must be filed with the SBA. The application is less tedious than that for a GSA Schedule contract and companies, including ours, will assist you in completing the application.

Preference ProgramsLeverage your status, let us show you how.

Installment Series:

Installment 1: The Best Offense is a Good Defense
Installment 2: Make the World's Biggest Customer Your Own
Installment 3: Market Research in the Federal Sector
Installment 4: Become an Insider in the Federal Market
Installment 5: Competition and Price Sensitivity in the Federal Market
Installment 6: Are Federal Bids Wired?
Installment 7: Fundamentals of Federal Contracting
Installment 8: Making a Federal Sale
Installment 9: Closing a Federal Sale
Installment 10: Start with the Credit Card and Quick Buy Markets for Smaller Transactions
Installment 11: Consider Starting as a Subcontractor to a Prime
Installment 12: Selling Directly to Prime Contractors
Installment 13: Pre-approved Government Price Lists
Installment 14: Getting a Pre-approved Federal Price List for Your Company
Installment 15: Small Business Preference Programs
Installment 16: Distinguishing Messages Win in the Federal Market
Installment 17: Selling to Federal Agencies Located in Your Backyard
Installment 18: Getting Started in Federal Sales
Installment 19: Don't Get Caught Up in Red Tape
Installment 20: Steps to Take After Winning Your First Federal Contract 
Installment 21: Learn How to Write Federal Proposals
Installment 22: Prosper in the Federal Market

Fedmarket has been helping companies win government business since 1995. We have been featured in the Wall Street Journal, the Washington Post, and other trade publications. Our customer testimonials speak to our competence and expertise in helping customers win federal business. We have been singled out by public and private organizations -- including the Small Business Administration and federally-funded Procurement Technical Assistance Centers -- as the most comprehensive government contracting resource in the industry. Our web site's free content includes informative newsletters on GSA Schedules, Proposal Writing and Federal Business Development.

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