Government Contracts for Small Businesses: A Guide for Contractors

This article explains how small businesses qualify for government contracts, which SBA set-aside programs apply, and the steps to find, bid on, and win federal work.

Why it matters: Government contracts for small businesses represent billions in annual federal spending each year, but winning them requires meeting size standards, choosing the right certification, and staying compliant from bid to invoice.

Key Takeaways

• Federal size standards decide eligibility: The SBA classifies businesses as small using either average annual receipts or employee counts, depending on industry.
• Set-aside programs open doors: WOSB, 8(a), SDVOSB, and HUBZone certifications reserve contracting dollars specifically for qualifying small businesses each year.
• Market intelligence speeds the search: Tools like Deltek GovWin IQ help small businesses find, track, and prioritize the right small business opportunities.

What is a Government Contract for Small Business?

Government contracts for small businesses are federal, state, and local procurement awards set aside, partly or entirely, for companies that meet the U.S. Small Business Administration size standards. Programs such as 8(a), HUBZone, WOSB, and SDVOSB reserve a share of contracting dollars for qualifying firms, giving small businesses a more direct path to compete for public-sector work than they would have in the open market.

What Is Classed as a Small Business?

Small businesses are a major priority in the world of federal government contracting, but they must also fit a certain size standard to be classified as a small business for government contracting programs. The specific definition of a small business depends on the industry in which the business operates.

There are two primary methods the government uses to determine business size, depending on the business's industry.

1. Receipts Method for Service Industries

This is the total income plus the “cost of goods sold”. Receipts are calculated over either a three-year or a five-year average. For firms that have been in business for less than five years, you would use the total receipts for the period the company has been in business, divided by the number of weeks in business, multiplied by 52.

2. Number of Employees Method for Manufacturing Industries

This is the average number of employees over the business's last 12 calendar months. The number of employees includes the employees of its domestic and foreign affiliates as well as part-time and temporary employees, which are counted the same as full-time employees. Firms in business for less than one year should use the average number of employees for each of the pay periods during which they have been in business.

The results from either method 1 or 2 are then aligned with the business’s NAICS code, which represents the industry in which the business operates, to determine whether they qualify as a small business.

Types of Small Business Set-Asides

For those who qualify as small businesses, the U.S. Small Business Administration (SBA) offers a number of programs designed to help them win their share of federal government contracts.

For example, the U.S. federal government aims to award 23% of prime contracts and 30% of subcontractor contracts to small businesses. These small business set-aside opportunities can be either competitive or sole-sourced.

Below are definitions for several of the most commonly used socioeconomic categories these set-aside programs are designed to support:

Women-Owned Small Business

The SBA defines a Women-Owned Small Business (WOSB) as a small business in which women manage the day-to-day operations and make long-term decisions. The business must be at least 51% controlled and owned by women who are U.S. citizens. The government aims to award at least 5% of federal contracting dollars to qualifying WOSBs every year.

8(a) Small Disadvantaged Business

The 8(a) Program, sometimes stylized as 8a, is a business assistance program for small businesses owned by socially and economically disadvantaged individuals. Small disadvantaged business contracting goals — and 8(a) program funding specifically — have shifted under recent policy changes and increased federal scrutiny of the program.

“Small businesses, particularly those certified through SBA programs, are operating in a new environment where eligibility is no longer static. To stay protest-resilient, they must treat eligibility as a continuous, auditable program with consistent documentation and oversight.”

- Ed Delisle, Partner, Thompson Hine LLP
2026 Deltek Clarity GovCon Report

Service-Disabled Veteran-Owned Small Business

The definition of a Service-Disabled Veteran Owned Small Business (SDVOSB) is a small business that is 51% owned and controlled by one or more service-disabled veterans (who must have a service-connected disability), and that has one or more service-disabled veterans managing day-to-day operations who also make long-term decisions.

The government aims to award at least 3% of all federal prime and subcontracting dollars to qualifying SDVOSB firms every year.

HUBZone

First authorized in 1997, the SBA's HUBZone program provides contracting assistance to small businesses located in Historically Underutilized Business Zones (HUBZones), which are economically distressed communities, to spark economic activity, such as job creation.

The government aims to award at least 3% of federal contracting dollars to HUBZone-certified small businesses every year. Of the small business programs, it is the only program not focused on the ownership of the business, but rather the location of the business and its employees.

Many government agencies have offices of small and disadvantaged business utilization (OSDBUs) and/or small business programs focused on maximizing opportunities for small businesses, but to take advantage of them, contractors must have the proper small business and minority-owned certifications.

For a closer look at the certification process, see Deltek's guide on how minority-owned businesses can win government contracts.

Source: 2026 Deltek Clarity GovCon Study

How to Win Government Contracts for Small Businesses

Now that you understand common socioeconomic categories designed to help small businesses like yours thrive in the government contracting space, it's important to understand the specific steps your business can take to find and win more small business contracting opportunities.

Here are four tips that will make it easier to win government contracts for your small business.

• Subcontracting: As a way to demonstrate past experience, small businesses often break into government contracting by first seeking out subcontracting partnerships and serving as a member of a prime contractor's team. By teaming with a prime, your firm can gain valuable contracting experience while avoiding the complex compliance requirements and challenges alone.
• Mentoring: Small businesses can get valuable business development coaching and mentoring from an experienced government contractor through the SBA's Mentor-Protégé Program (MPP).
• Networking: Reach out to an agency's small-business office to secure contracts and learn about their small-business goals. Make sure that the agency has your firm's capability statements on hand to influence future procurements and increase your chances of being included in the bidder's pool for upcoming projects.
• Diversification: Keep a healthy mix of active opportunities so a single delay, cancellation, or lost customer doesn't stall your business. Track where each opportunity sits in the procurement lifecycle, and if possible, avoid letting any one customer or contract type represent the majority of your revenue.

If you want to find more specific steps you can take to grow your government sales in the public sector and win more small business opportunities, then Deltek's guide on Selling to the Government as a Small Business will help. It is designed to provide an understanding of government acquisition priorities and policies and to assist in building a small-business public-sector sales strategy.

Government Contracting Compliance for Small Businesses

One of the most important aspects when starting out in government contracting is complying with all the rules and regulations outlined in the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS).

The FAR gives federal agencies overarching guidance on audits – a set of consistent, uniform policies and procedures within the federal acquisition process. The CAS are meant to create consistency in pricing and accounting practices.

Contractors who hold any Department of Defense (DoD) contracts must also be in compliance with the Defense Contract Audit Agency (DCAA) and Defense Contract Management Agency (DCMA), which conduct a variety of audits to assure the government that your business is operating within approved parameters.

Furthermore, many businesses receiving funding from the DoD will need to meet various Cybersecurity Maturity Model Certification (CMMC) compliance levels.

As your small business grows, it's essential to reduce the risk of non-compliance by establishing consistent internal standards for timekeeping, travel, delegation of authority, accounting, estimating, billing, and labor.

“Our business needed to implement a system that supported not only our financial compliance requirements, but also the cybersecurity compliance regulations. Deltek's Costpoint project-based ERP solution is the whole package and continues to make investments in cybersecurity for its customers.”

- Hari Nallure, Vice President and Co-Founder, ePATHUSA

Getting Started with DCAA Compliance

If your business lacks a clear understanding of internal controls and project reporting, prepare to make the DCAA severely unhappy! Tracking project information and maintaining iron-clad financial accuracy is key to staying within the agency's good graces and to being considered for future contract needs.

Your accounting system should be able to track costs separately, such as direct and indirect costs, accounting costs, billing costs, and labor costs. Ideally, it should be fully integrated with your timekeeping system and be able to track all the reports the DCAA wants to see during an audit.

Accounting solutions that are not purpose-built for government contractors can fall short in the eyes of government agencies because of the depth, layers, and nuances required to meet the meticulous standards many contracts demand.

Additionally, as you deliver more contracts, your company will grow as you win more business and larger projects with more moving parts. Managing more work generally means adding more headcount to address a project's needs as quickly and efficiently as possible. It is not uncommon for a government contractor to go from a 20-person shop to an 80-, 90-, 100-, or even 200-person operation within 12 to 24 months, depending on contract needs and requirements. This is when accounting solutions that are not already purpose-built for compliance can become more limited in their capabilities and process management.

Selecting a Small Business Accounting Solution

Small businesses face unique challenges that require a careful balance of maximizing limited time and resources while running a project-based firm. To meet these challenges, start with government contracting solutions from Deltek, which have supported small businesses for over 30 years, with governance and control built in across the full project lifecycle: win, plan, execute, and analyze.

Deltek GovWin IQ, a market intelligence solution, and Deltek Costpoint, an enterprise resource planning (ERP) solution for government contractors, serve as strategic tools that provide competitive advantages, bringing together disparate processes to help your small business succeed.

“How we handle our project information, and our accounting, finances and reporting, requires the right partnerships with those that know how the government thinks. We need software that makes it easy for us to be efficient and connects the entire company to our project data for a single source of truth. And we have found that with Deltek."

- Debra Hadley, Chief Financial Officer, SAWTST, LLC