Growth Strategies: Leveraging Set-Asides and Sole-Source Contracts

For veteran-owned aerospace startups, the federal procurement system provides two specific mechanisms designed to accelerate market entry: Set-Asides and Sole-Source Contracts. In 2025, these tools have become even more potent due to increased federal spending goals and updated statutory contract thresholds.

Understanding how to trigger these mechanisms is essential for transitioning from a "nontraditional" startup to a sustained federal contractor.

The 2025 Regulatory Landscape for SDVOSBs

As of October 1, 2025, several key thresholds and goals have shifted, providing a more favorable environment for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs):

• Increased Prime Contracting Goal: The federal government’s goal for prime contract awards to SDVOSBs has been officially raised to 5% (up from the previous 3%). This mandate forces agencies to look more aggressively for veteran-owned solutions.
• Mandatory SBA Certification: Self-certification is no longer sufficient for set-aside or sole-source credit. Startups must be certified through the SBA VetCert portal to compete for these opportunities.
• Simplified Acquisition Threshold (SAT): The SAT has been increased to $350,000. Contracts valued between the micro-purchase threshold ($15,000) and the SAT are generally reserved exclusively for small businesses.

1. Leveraging Set-Aside Contracts

Set-asides are the primary tool for "leveling the playing field." When an agency restricts a competition to SDVOSBs, they invoke the "Rule of Two."

The "Rule of Two"

Under FAR 19.14, a contracting officer must set aside a requirement for SDVOSBs if there is a reasonable expectation that:

1. At least two responsible SDVOSB concerns will submit offers.
2. The award can be made at a fair market price.

Startup Strategy: Aerospace founders should proactively provide market research to agencies before a solicitation is released. By demonstrating that your firm and at least one other veteran-owned competitor have the capability, you can effectively lobby the contracting officer to set the contract aside, significantly reducing your competitive field.

2. Utilizing Sole-Source Authority

A sole-source contract is awarded without a full and open competition. For aerospace startups with unique intellectual property or specialized hardware, this is the most direct path to revenue.

2025 Sole-Source Thresholds

Under current regulations, contracting officers can award sole-source contracts to SDVOSBs provided the anticipated award price (including options) does not exceed:

• $8.5 Million for manufacturing requirements (typical for aerospace hardware).
• $5.0 Million for all other requirements (typical for software or consulting).

Conditions for a Sole-Source Award

To justify a sole-source award to an SDVOSB, the contracting officer must determine that:

• The "Rule of Two" cannot be met (i.e., there are not two or more SDVOSBs expected to bid).
• The startup is a "responsible contractor" capable of performance.
• The price is fair and reasonable.

3. Advanced Growth: Joint Ventures and Mentors

Startups often lack the "Past Performance" required for massive aerospace contracts. The SBA Mentor-Protégé Program (MPP) is the solution to this hurdle.

• The Joint Venture (JV) Advantage: A certified SDVOSB startup can form a Joint Venture with a large "Mentor" firm.
• Status Inheritance: The JV inherits the SDVOSB status of the startup. This allows the startup to bid on large veteran-set-aside contracts while utilizing the Mentor's financial depth, facility clearances, and past performance history.
• Workshare Rules: The SDVOSB partner must perform at least 40% of the work performed by the Joint Venture, ensuring the startup gains the necessary technical and management experience for future independent bids.

Critical Compliance Check: Limitations on Subcontracting

While set-asides provide a protected environment, startups must adhere to FAR 52.219-14. For any set-aside or sole-source award, the veteran-owned firm must perform a minimum percentage of the work:

• Services: At least 50% of the cost of personnel.
• Supplies/Manufacturing: At least 50% of the cost of manufacturing the supplies (excluding the cost of materials).

Failure to monitor these percentages can lead to "affiliation" challenges from competitors, which could result in the loss of your small business status.

Operationalizing Your Veteran-Owned Advantage

The strategic deployment of set-aside and sole-source mechanisms represents a critical inflection point for veteran-owned aerospace startups. In the 2025 federal landscape, these tools are not merely passive benefits; they are active competitive levers that, when triggered correctly, can bypass the standard friction of open-market procurement.

Success requires a shift from a reactive to a proactive posture. By mastering the "Rule of Two," maximizing sole-source thresholds for proprietary technology, and utilizing Mentor-Protégé Joint Ventures to bridge experience gaps, veteran entrepreneurs can secure the revenue and past performance necessary for long-term scalability. However, the advantage of a protected competitive environment carries the weight of strict compliance—maintaining official SBA certification and adhering to the 50% workshare requirement is non-negotiable for protecting your firm’s status. Ultimately, these contracting vehicles provide a high-velocity path to transform innovative aerospace concepts into sustained federal programs, ensuring that mission-critical technology reaches the agencies that need it most.

*Disclaimer: The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. All images are AI-generated. If you are seeking legal advice, please contact our law firm directly.