In a move that could significantly alter the landscape of federal contracting, the Small Business Administration (SBA) has put forth a proposed rule requiring federal agencies to apply the “rule of two” to task and delivery order procurements under multiple-award contracts. This long-standing rule mandates that contracts be set aside for small businesses if at least two such businesses are expected to submit offers at fair market prices.
Historically, the rule of two has been a crucial mechanism for promoting small business participation in government contracts, yet its application to task or delivery order procurements has remained legally ambiguous. The U.S. Court of Federal Claims (COFC) and the Government Accountability Office (GAO) have issued conflicting opinions in recent years. In 2020, Judge Matthew Solomson of the COFC ruled that the rule of two must be applied to these orders, while the GAO maintained its stance that the rule’s application is discretionary under a multiple-award contract.
The inconsistency has fueled confusion among both contractors and agencies, which often leverage multiple-award vehicles for procurement. Early in 2024, the Office of Federal Procurement Policy (OFPP) offered guidance urging agencies to adopt the rule of two for orders, effectively setting the stage for the SBA’s formal proposal. Should the rule become finalized after the comment period, scheduled to end on December 24, the SBA anticipates a $6 billion annual increase in small business contracts, which could bolster small business participation in federal procurement.
A key exception to this proposed mandate is for orders under Federal Supply Schedule contracts, overseen by the General Services Administration, where small business set-asides remain discretionary. Moreover, agencies might introduce “agency-specific” exceptions, subject to public rulemaking, to accommodate supply chain issues or national security concerns.
Although the Biden administration achieved record small business contract spending in 2023, the number of small business prime contractors continues to decrease. Expanding the application of the rule of two is part of a broader federal effort to attract new entrants into the market. However, this move could face opposition, as evidenced by potential challenges to its legal authority and concerns from larger businesses about diminishing opportunities.
Legal interest in this proposed rule is anticipated to be considerable. Currently, the COFC stands alone in enforcing the rule of two for orders, but finalization could offer small businesses new legal avenues to challenge lack of compliance in awarding contracts. For more detailed insights, refer to the primary article here.