Government Classification of Small Businesses

Classification of Small Businesses for purposes of bidding on Federal government Contracts.

There are several Classification of small businesses.
They are:

Small Business Size Determination  (FAR Subpart 19.102)

(a)  The SBA establishes small business size standards on an industry-by-industry basis. 

(b)  Small business size standards are applied by

  1. classifying the product or service being acquired in the industry whose definition, as found in the North American Industry Classification System (NAICS) Manual (available via the Internet at, best describes the principal nature of the product or service being acquired 

  2. identifying the size standard SBA established for that industry, and

  3. specifying the size standard in the solicitation so that offerors can appropriately represent themselves as small or large.

(c) For size standard purposes, a product or service shall be classified in only one industry, whose definition best describes the principal nature of the product or service being acquired even though for other purposes it could be classified in more than one.

(d) When acquiring a product or service that could be classified in two or more industries with different size standards, contracting officers shall apply the size standard for the industry accounting for the greatest percentage of the contract price.

(e) If a solicitation calls for more than one item and allows offers to be submitted on any or all of the items, an offeror must meet the size standard for each item it offers to furnish.  If a solicitation calling for more than one item requires offers on all or none of the items, an offeror may qualify as a small business by meeting the size standard for the item accounting for the greatest percentage of the total contract price.

(f)   Any concern which submits a bid or offer in its own name, other than on a construction or service contract, but which proposes to furnish a product which it did not itself manufacture, is deemed to be a small business when it has no more than 500 employees, and—

  1. Except as provided in paragraphs (f)(4) through (f)(7) of this section, in the case of Government acquisitions set-aside for small businesses, such nonmanufacturer must furnish in the performance of the contract, the product of a small business manufacturer or producer, which end product must be manufactured or produced in the United States. The term "nonmanufacturer" includes a concern which can manufacture or produce the product referred to in the specific acquisition but does not do so in connection with that acquisition. For size determination purposes there can be only one manufacturer of the end item being procured. The manufacturer of the end item being acquired is the concern which, with its own forces, transforms inorganic or organic substances including raw materials and/or miscellaneous parts or components into such end item. However, see the limitations on subcontracting at 52.219–14 which apply to any small business offeror other than a nonmanufacturer for purposes of set-asides and 8(a) awards.  

  2. A concern which purchases items and packages them into a kit is considered to be a nonmanufacturer small business and can qualify as such for a given acquisition if it meets the size qualifications of a small nonmanufacturer for the acquisition, and if more than 50 percent of the total value of the kit and its contents is accounted for by items manufactured by small business.  

  3. For the purpose of receiving a Certificate of Competency on an unrestricted acquisition, a small business nonmanufacturer may furnish any domestically produced or manufactured product. 

  4. (4)  In the case of acquisitions set aside for small business or awarded under section 8(a) of the Small Business Act, when the acquisition is for a specific product (or a product in a class of products) for which the SBA has determined that there are no small business manufacturers or processors in the Federal market, then the SBA may grant a class waiver so that a nonmanufacturer does not have to furnish the product of a small business. For the most current listing of classes for which SBA has granted a waiver, contact an SBA Office of Government Contracting. A listing is also available on SBA's Internet Homepage at  Contracting officers may request that the SBA waive the nonmanufacturer rule for a particular class of products. 

  5. For a specific solicitation, a contracting officer may request a waiver of that part of the nonmanufacturer rule which requires that the actual manufacturer or processor be a small business concern if no known domestic small business manufacturers or processors can reasonably be expected to offer a product meeting the requirements of the solicitation.

  1. The SBA provides for an exception to the nonmanufacturer rule where the procurement of a manufactured item processed under the procedures set forth in Part 13 is set aside for small business and where the anticipated cost of the procurement will not exceed $25,000. In those procurements, the offeror need not supply the end product of a small business concern as long as the product acquired is manufactured or produced in the United States.

Small Business Set-Asides (FAR Subpart 19.501)

Procurements may be set-aside for small businesses.  A "set-aside for small business" is the reserving of an acquisition exclusively for participation by small business concerns.  For a procurement to be totally set-aside, a contracting officer must have reasonable expectations that offers will be obtained from at least two responsible small businesses and awards will be made at reasonable or fair market prices.  When such conditions exist, the Small Business Act mandates the establishment of a set aside.


Small business set-asides may be open to all small businesses. A small business set-aside of a single acquisition or a class of acquisitions may be total or partial.


Except for those acquisitions set aside for very small business concerns (see FAR Subpart 19.9), each acquisition of supplies or services that has an anticipated dollar value exceeding $2,500 ($7,500 for acquisitions as described in FAR 13.201(g)(1)(i) or $15,000 for acquisitions as described in FAR 13.201(g)(1)(ii)), but not over $100,000 ($200,000 for acquisitions described in paragraph (2)(i) of the Simplified Acquisition Threshold definition at FAR 2.101), is automatically reserved exclusively for small business concerns and shall be set aside for small business unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality, and delivery.  If the contracting officer receives no acceptable offers from responsible small business concerns, the set-aside shall be withdrawn and the requirement, if still valid, shall be resolicited on an unrestricted basis.


Any acquisition over $100,000 shall be set-aside for small business participation when there is a reasonable expectation that offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns, and award will be made at fair market prices.


For small business set-asides other than for construction or services, any concern proposing to furnish a product that it did not itself manufacture must furnish the product of a small business manufacturer unless the SBA has granted either a waiver or exception to the non-manufacturer rule.  In industries where the SBA finds that there are no small business manufacturers, it may issue a waiver to the non-manufacturer rule.

Responsible Offeror (FAR Subpart 9.104–1)

To be determined responsible, a prospective contractor must—

(a)  Have adequate financial resources to perform the contract, or the ability to obtain them (see   FAR 9.104–3(a)).

(b)  Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments.

(c)  Have a satisfactory performance record (see FAR 9.104–3(b) and Subpart 42.15).  A prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history, except as provided in 9.104–2.

(d)  Have a satisfactory record of integrity and business ethics.

(e)  Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them (including, as appropriate, such elements as production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors). (See 9.104–3(a).)

(f)  Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them (see 9.104–3(a)).

(g)  Be otherwise qualified and eligible to receive an award under applicable laws and regulations.

Determination of size

This Web site may be useful in determining the size of a business.

SBA Size Standard

Small Business

What qualifies you as a small business?

SBA defines a small business concern as one that is independently owned and operated, is organized for profit, and is not dominant in its field. Depending on the industry, size standard eligibility is based on the average number of employees for the preceding 12 months or on sales volume averaged over a 3-year period. Examples of SBA general size standards include the following:

  • Manufacturing: Maximum number of employees may range from 500 to 1500, depending on the type of product manufactured. 

  • Wholesaling: Maximum number of employees may range from 100 to 500 depending on the particular product being provided. 

  • Services: Annual receipts may not exceed $2.5 to $21.5 million, depending on the particular service being provided. 

  • Retailing: Annual receipts may not exceed $5.0 to $21.0 million, depending on the particular product being provided. 

  • General and Heavy Construction: General construction annual receipts may not exceed $13.5 to $17 million, depending on the type of construction. 

  • Special Trade Construction: Annual receipts may not exceed $7 million.

  • Agriculture: Annual receipts may not exceed $0.5 to $9.0 million, depending on the agricultural product.”

Subcontracting (FAR Subpart 19.702)

It is the intent of Congress that a fair proportion of the Government’s procurements be awarded to small businesses. To promote this effort, Congress enacted Public Law 95–507 which requires that all acquisitions exceeding $500,000 ($1,000,000 for construction) and are awarded to concerns with employees greater than 500 (including affiliates) provide subcontracting opportunities for small business enterprises.  Subcontracting offers small business firms an important means of participating in DLA purchasing; particularly, if your capabilities are such that prime contracts are not within your reach.

To be eligible as a subcontractor under the program, a concern must represent itself as a small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, or a woman-owned small business concern.

The Department of Defense (DoD) offers two markets for small business seeking defense contracting and defense subcontracting opportunities. The first market encompasses prime contracting opportunities; the second market encompasses defense subcontracting opportunities.

The DoD encourages small businesses to enter the defense subcontracting market. By entering the market, goods and services flow to strengthen national security and the defense industrial base.  This directory provides the names and addresses of DoD prime contractors and the names and telephone numbers of Small Business Liaison Officers (SBLOs), who are contractor employees responsible for the success of subcontracting programs at various plant sites. Also, this directory cites products and services supplied to the DoD. 

Prime contractors use SUB-Net to post subcontracting opportunities. These may or may not be reserved for small business, and they may include either solicitations or other notices, e.g., notices of sources sought for teaming partners and subcontractors on future contracts.

Small businesses can review this Web site to identify opportunities in their areas of expertise. While the Web site is designed primarily as a place for large businesses to post solicitations and notices, it is also used by Federal agencies, State and local governments, non-profit organizations, colleges and universities, and even foreign governments for the same purpose.

The new Web site has shifted the traditional marketing strategy from the shotgun approach to one that is more focused and sophisticated. Instead of marketing blindly to hundreds of prime contractors, with no certainty that any given company has a need for their product or service, small businesses can now use their limited resources to identify concrete, tangible opportunities and then bid on them.

Subcontractor Responsibility (FAR Subpart 9.104–4)

Generally, prospective prime contractors are responsible for determining the responsibility of their prospective subcontractors (but see FAR 9.405 and 9.405–2 regarding debarred, ineligible, or suspended firms).  Determinations of prospective subcontractor responsibility may affect the Government's determination of the prospective prime contractor's responsibility.  A prospective contractor may be required to provide written evidence of a proposed subcontractor's responsibility.

When it is in the Government's interest to do so, the contracting officer may directly determine a prospective subcontractor's responsibility (e.g., when the prospective contract involves medical supplies, urgent requirements, or substantial subcontracting).  In this case, the same standards used to determine a prime contractor's responsibility shall be used by the Government to determine subcontractor responsibility.

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