This month, October 2024, the Small Business Administration (SBA) published a proposed rule change to the “Rule of Two” designed to foster increased opportunities for small businesses in government contracting. This significant proposal aims to apply the Rule of Two across multiple-award contract task and delivery orders. In this article, we’ll explore what the Rule of Two entails, the motivation behind expanding it to cover multiple-award contracts, and, most importantly, what this means for small business contractors looking to secure government work.

What Is the Rule of Two?

The Rule of Two has been a fundamental part of small business federal contracting policy since the 1960s, aiming to ensure that small businesses receive a fair share of government contracts. Under the Rule of Two, an acquisition must be set aside for small business contractors if there’s a reasonable expectation of receiving offers from at least two small businesses that are competitive in terms of price, quality, and delivery.

This rule was implemented across all federal agencies through the Federal Acquisition Regulation (FAR) in 1984, significantly impacting the share of contracts awarded to small businesses. By setting a government-wide standard, the rule effectively grew small business participation in federal procurement. Today, about 28.4% of federal contracting dollars, amounting to $178 billion in FY2023, go to small business contractors, reflecting the success of set-aside awards.

Expanding the Rule of Two: The Proposed Changes

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In this latest proposed rule, the SBA suggests expanding the Rule of Two to apply not only to full contracts but also to task and delivery orders issued under multiple-award contracts. A multiple-award contract (MAC) allows various contractors to bid on task or delivery orders within a single, overarching contract framework. These changes aim to give small businesses more access to MACs and clarify procedures that previously led to inconsistent applications of the Rule of Two across federal agencies.

The SBA’s proposal comes as part of a larger effort, led by the Office of Federal Procurement Policy (OFPP), to encourage small business participation on MACs. The proposed changes align with federal initiatives to boost contracting opportunities for small businesses, particularly small disadvantaged businesses (SDBs), in line with goals set by Executive Order 14091. By FY2025, the government aims to award 15% of its federal contract spending to SDBs.

What Are the Specific Changes Proposed?

The SBA’s proposed rule introduces several key requirements and exceptions to streamline the Rule of Two’s application in the context of MACs. Here’s a closer look at these changes:

Set-Aside Requirement for Task and Delivery Orders:
- Contracting officers must set aside a task or delivery order for small businesses if the Rule of Two is satisfied within the MAC. In other words, if there’s a reasonable expectation of receiving offers from two or more small business contractors within the MAC, the task or delivery order must be reserved for small businesses.
Exceptions for Certain Contracts:
- Notably, the rule does not apply to all MACs. Orders under the Federal Supply Schedule, contracts with a valid exception to fair opportunity, and agency-specific exceptions are exempt from the Rule of Two. This ensures the rule’s applicability is feasible and focused, aligning with market dynamics and mission needs.
Documentation Requirements:
- When an agency decides not to apply the Rule of Two for an order above the micro-purchase threshold, it must document the rationale and share this with the agency’s small business specialist. The documentation is designed to increase transparency and ensure that contracting officers consider small business opportunities wherever possible. This measure aligns with OFPP’s recommendations for accountability and transparency in federal procurement.

Why Expand the Rule of Two Now?

The timing of the proposal is strategic, addressing several critical motivations behind the expansion:

Clarity in Contracting:
- Confusion has arisen due to differing interpretations of the Rule of Two by courts and the Government Accountability Office (GAO). In a 2020 ruling, the GAO indicated that agencies had some discretion in applying the Rule of Two under MACs, while the U.S. Court of Federal Claims in Tolliver Group Inc. v. United States required that the Rule of Two be applied prior to selecting a MAC. The proposed rule, by standardizing the Rule of Two for task and delivery orders, would resolve this ambiguity, providing contracting officers with a clearer framework.
Enhancing Equity and Access for Small Businesses:
- Small businesses, especially SDBs, often struggle to compete with large companies on MACs due to fewer resources and lesser economies of scale. The SBA’s proposal is a step toward leveling the playing field by mandating small business set-asides where feasible. This ensures that small businesses have a fair opportunity to compete for federal contracts, reinforcing the government’s commitment to equity in procurement.
Addressing the “Participation Gap”:
- SBA’s data analysis reveals that small businesses receive fewer dollars on MACs when compared to their large counterparts. By expanding the Rule of Two, the SBA estimates an increase of up to $6 billion in annual contracting opportunities for small businesses. This represents a tangible shift that would allow more small businesses to secure meaningful government contracts.

How Will the Proposed Rule Impact Small Business Contractors?

If implemented, the new Rule of Two application will profoundly impact small businesses across various sectors. Here’s how:

Greater Access to Task and Delivery Orders:
- Small businesses will find it easier to secure orders within MACs that might otherwise go to larger companies. Task and delivery orders represent a significant portion of MAC spending, so increased access here is a win for small business contractors.
Increased Transparency and Advocacy:
- The new documentation requirements mean that contracting officers must justify their decisions not to set aside an order for small businesses. Small business specialists will have more influence in these decisions, providing a dedicated advocate for small businesses within federal agencies.
Higher Potential Revenue:
- As the SBA’s impact analysis shows, applying the Rule of Two more consistently could close the participation gap and add up to $6 billion annually in contracts awarded to small businesses. For individual small business contractors, this means the potential for more steady revenue streams from government work.
Opportunities in Specialized Areas:
- Small business contractors often specialize in niche services that large contractors may overlook or undervalue. By applying the Rule of Two, agencies can better tap into the unique offerings of small businesses, which may ultimately lead to more specialized task and delivery orders within MACs.
Positive Impact on Small Disadvantaged Businesses:
- The proposal aims to support federal goals for increasing spending with SDBs, a category that has historically been underserved. With the government-wide SDB spending goal of 15%, the SBA’s proposed rule should bring SDBs closer to realizing a proportional share of federal contracting dollars.

What to Expect Moving Forward

As with any proposed rule, there is a comment period during which stakeholders, including small businesses, can provide feedback. This period will close on December 24, 2024, with the final rule expected to follow after public feedback and any necessary adjustments. If the rule is implemented, small businesses can anticipate more access to task and delivery orders on MACs, though it will be essential to stay updated on any changes as the rule progresses toward finalization.

Working with FedBiz Access as a Small Business

As a small business contractor navigating these changing regulations, you might wonder how to leverage this expanded Rule of Two to grow your business. That’s where FedBiz Access comes in. We’re the nation’s leading government business development firm, specializing in assisting small businesses in the federal marketplace for over 23 years. Throughout this time, we’ve helped businesses secure over $35.8 billion in government awards.

Our services go beyond registration and socio-economic certifications; we provide strategic support through every step of the government contracting process, including direct marketing, capability statement design, and comprehensive market research. Our experts are here to help you understand how the new Rule of Two can increase your chances of success in the federal marketplace.

Schedule a Complimentary Consultation

Are you ready to make the most of the new opportunities emerging for small businesses in government contracting? Schedule a complimentary consultation with a FedBiz Specialist today to learn how we can support your success in the government marketplace. Whether you’re new to federal contracting or looking to expand, FedBiz Access is here to help you navigate and succeed in this evolving landscape.

With these proposed changes, the Rule of Two could become an even more powerful tool for small businesses looking to break into federal contracting or expand their existing government portfolios. Stay informed, prepare, and consider how FedBiz Access can be your partner in capitalizing on this significant opportunity.