How SDVOSB Set-Asides Work: A Guide for Veteran Business Owners

SDVOSB certification is obtained through the SBA VetCert program at veterans.certify.sba.gov. The application requires documentation of the veteran owner service-connected disability rating from the VA, proof of majority ownership and control by the service-disabled veteran, business formation documents, and financial statements. SBA reviews applications and may request additional documentation. Certification must be renewed annually and the business must remain eligible at the time of each contract award.

The federal government has a statutory goal of awarding 3% of prime contract dollars to SDVOSBs across all agencies. The VA has a higher requirement, mandating that at least 10% of its contract dollars go to SDVOSBs under the Veterans First Contracting Program. In FY2024 the VA awarded $10.2 billion, approximately 23% of its prime contract dollars, to SDVOSBs — significantly exceeding the statutory floor. Other agencies vary in their SDVOSB award rates.

A VOSB (Veteran-Owned Small Business) is owned and controlled by any veteran, while an SDVOSB is specifically owned and controlled by a veteran with a service-connected disability rating from the VA. SDVOSBs receive preferential treatment over VOSBs in federal contracting. The VA Veterans First Contracting Program requires contracting officers to consider SDVOSB sources before VOSB sources, and VOSB sources before other small businesses. Both require SBA VetCert certification.

Yes, an SDVOSB prime contractor can subcontract work to non-veteran businesses, subject to the limitations on subcontracting rules. For service contracts, the SDVOSB must perform at least 50% of the cost of the contract incurred for personnel with its own employees. For general construction, at least 15%. Violating these limitations can result in contract termination and suspension from federal contracting. SDVOSBs should track and document their performance percentage throughout contract execution.

A sole-source SDVOSB contract is an award made to a single SDVOSB without competition when the contracting officer has a reasonable expectation that only one SDVOSB can satisfy the requirement. The simplified acquisition threshold for sole-source SDVOSB awards is $4 million for most contracts and $7 million for manufacturing. Above these thresholds, competitive set-asides are required. Sole-source awards are one of the fastest paths to a first federal contract for newly certified SDVOSBs.

Past performance is the documented record of a contractor completing prior federal contracts successfully. It is evaluated in most competitive federal procurements and is often the decisive factor separating qualified vendors. New SDVOSBs without past performance can build their record through subcontracting to prime contractors, GSA Schedule task orders, simplified acquisition purchases under $250,000, and state or local government contracts. The first federal contract is the hardest to win precisely because past performance is required to win it.

Subcontracting under a prime contractor allows a new SDVOSB to gain documented federal work experience without winning a prime contract first. The sub performs work, receives payment, and can reference the engagement in future proposals as relevant experience. When the prime reports to FPDS and CPARs, the sub may appear in contract data. Subcontracting is the recommended first step for SDVOSBs that need past performance but cannot win prime contracts without it — the standard chicken-and-egg problem in federal contracting.