Concerns are mounting that the Revolutionary FAR Overhaul will eliminate the regulatory “Rule of Two” found in FAR Part 19. Now, the Office of Management and Budget (OMB) is going further—seeking to narrow the reach of the statutory Rule of Two by revising the Small Business Act. Specifically, OMB wants to change the requirement from applying to purchases “below the simplified acquisition threshold (SAT)” to applying only to purchases below “$250,000.” At the same time, OMB proposes raising the SAT to $10 Million by 2030. The combined effect would severely curtail the Rule of Two and diminish contracting opportunities for small business contractors.
The Rule of Two
The Rule of Two requires federal agencies to set aside contracts for small businesses when, based on market research, at least two responsible small businesses are likely to submit offers at fair market prices. There are currently three versions of the Rule of Two:
- Statutory Rule of Two: The Small Business Act requires agencies to apply the Rule of Two for all purchases under the SAT, currently set at $250,000.[1]
- VA Rule of Two: A separate statutory rule applies only to Department of Veterans Affairs procurements and prioritizes Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses.[2]
- Regulatory Rule of Two: FAR Part 19 requires agencies to apply the Rule of Two for socio-economic small business programs (8(a), HUBZone, SDVOSB, WOSB) before general small business set-asides for procurements over the SAT. Unlike the two statutory rules noted above, this version is regulatory only—meaning it could be eliminated by the FAR Council without congressional action.
To protect the regulatory Rule of Two, lawmakers introduced the Protecting Small Business Competitions Act of 2025—H.R. 2804 (Velázquez) in the House and S. 2656 (Markey) in the Senate—which, among other provisions, would codify the Rule of Two for all federal agencies.
The SAT Rule of Two
OMB’s proposed amendments would cap the Small Business Act’s Rule of Two at $250,000—even if the SAT rises. That is a sharp departure from current law, which ties the Rule of Two directly to the SAT. Emphasis on raising the SAT is not new. This past month, the FAR Council released a Final Rule, which increases the SAT for inflation to $350,000, effective October 1, 2025. The House of Representatives’ most recent version of the National Defense Authorization Act for Fiscal Year 2026 proposes to raise the SAT to $500,000. OMB, however, wants to raise the SAT much higher—to $10 Million by 2030—while freezing the Rule of Two at $250,000. If adopted, OMB’s revision would decouple the Rule of Two from the SAT and effectively shut small businesses out of billions of dollars in set-aside opportunities.
Why It Matters
The Rule of Two is one of the strongest tools ensuring small businesses can compete for and win federal contracts. Curtailing it—whether by removing the FAR’s regulatory requirement or capping the statutory version at $250,000—would deal a significant blow to small business participation in federal procurement.
Takeaways
- Contact your Representatives:
- Urge them to oppose any bill reflecting OMB’s proposed changes to the Small Business Act. Stress that the Rule of Two must remain tied to the SAT.
- Encourage them to support H.R. 2804 and S. 2656, which would codify the regulatory Rule of Two and ensure small businesses continue to have access to meaningful contracting opportunities.
- Decoding the FAR Part 6 Rewrite: Implications for Small Business Contracting and the Rule of Two: Join Cy Albaon September 18, 2025, for a live rundown of all the changes to the FAR, the SAT, and more. Register here. s
PilieroMazza continues to monitor shifts in the procurement marketplace. If you have questions related to the Rule of Two policy and its potential elimination, please contact Cy Alba, Krissy Crallé, or another member of PilieroMazza’s Government Contracts Group. Also, visit our Government Contract Executive Orders resource center for additional coverage.
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If you’re seeking practical insights to gain a competitive edge by understanding the government’s compliance requirements, tune into PilieroMazza’s podcasts: GovCon Live!, Clocking in with PilieroMazza, and Ex Rel. Radio.
[1] 15 U.S.C § 644(j).
[2] 38 U.S.C. § 8127.
