A government contract specifically reserved for one of the socioeconomic small business categories (such as HUBZone, women-owned, or veteran-owned businesses) where only eligible firms can compete for the award.
Set-asides exist because Congress decided that the open market alone doesn't allocate enough federal contracting dollars to historically disadvantaged business groups. A contracting officer can designate a solicitation as a set-aside, which immediately eliminates all the competitors who don't fit the eligibility criteria. This isn't a quota system—it's a restriction on who gets to submit proposals. If you don't meet the definition, you can't bid, period.
The federal government maintains a percentage target (currently 23%) for small business contracting, and within that, sub-targets for women-owned small businesses (5%), HUBZone firms (3%), and service-disabled veteran-owned small businesses (3%). Set-asides are one tool agencies use to hit those targets. A contracting officer looks at a procurement need and decides: should this go to all-comers, or should we reserve it for 8(a) firms, or WOSB, or HUBZone? That decision changes the competitive landscape dramatically.
For your business, set-asides can be either a tailwind or irrelevant. If you qualify for the category being set aside (and your capability matches the requirement), you face fewer competitors and better odds. But you need to get your certifications right—claiming to be HUBZone-eligible when you're not, or misrepresenting your ownership structure for an 8(a) set-aside, triggers fraud investigations and debarment. Set-asides reward legitimate compliance; they punish shortcuts.