In a significant development for the small business federal contracting community, the House Small Business Committee unanimously approved an amended version of H.R. 2804, the Protecting Small Business Competitions Act of 2025, advancing legislation that would codify the longstanding Rule of Two into statute. The bill now moves to the full House of Representatives for consideration.
This milestone marks a major step toward placing one of the federal procurement system’s foundational small business protections on firmer legal footing. The Rule of Two helps ensure small businesses have meaningful access to federal contracting opportunities, and codifying it would provide greater certainty and protect those opportunities from being weakened or eliminated through future regulatory changes. Despite this positive step, passage is not guaranteed, and continued industry advocacy will be essential to ensuring the bill becomes law.
Notable Developments from Committee Consideration
The Committee’s markup and approval of H.R. 2804 underscore several important legislative and policy dynamics:
- Codification of the Rule of Two—as Amended to Limit the Scope: As discussed in our prior client alert, H.R. 2804 would codify the Rule of Two, a cornerstone acquisition principle requiring agencies to reserve contracts for small businesses when certain conditions are met. The legislation, as originally written, would require that contracts, task orders, and delivery orders above the simplified acquisition threshold be set aside for small businesses when the contracting officer reasonably expects two or more responsible small businesses will submit offers and award can be made at a fair market price. The amendment, introduced by Ranking Member Nydia Velázquez (D-NY), provides that the Rule of Two does not apply to task orders and delivery orders. The amended version passed by the Committee signals continued negotiation over how the Rule of Two should apply across increasingly complex acquisition vehicles.
- Bipartisan Alignment on Small Business Contracting: The bill’s unanimous advancement (23 Yea, 0 Nay) reflects broad bipartisan agreement that the Rule of Two is essential to maintaining a competitive and accessible federal marketplace for small businesses. This bipartisan support signals strong momentum as the bill now proceeds to a full House vote.
- Parallel Senate Effort: Companion legislation ( 2656) was introduced in the Senate, reflecting House and Senate interest in preserving small business set-aside opportunities. Unlike the House Committee’s amended version of the bill, the bill pending before the Senate would apply to task orders and delivery orders. The different versions will need to be reconciled between the House and Senate, assuming each passes its own version, so further negotiations between the chambers can be expected.
Continued Focus on FAR Reform Implications
By incorporating the Rule of Two directly into the Small Business Act, Congress aims to protect against potential regulatory rollback. Committee members highlighted that ongoing FAR reform efforts—particularly initiatives targeting elimination of non-statutory provisions—have heightened the urgency of codifying key small business protections in statute.
Why This Matters for Government Contractors
The Committee’s unanimous approval of H.R. 2804 represents a major step toward addressing a long-standing vulnerability in the federal procurement framework. While the Rule of Two has been consistently applied in practice, its regulatory basis has left it exposed during deregulatory initiatives.
Codification would not fundamentally change how the Rule operates but would significantly strengthen its durability, providing contractors and agencies with greater predictability and reducing the risk of future erosion. Increased certainty of access to set-aside opportunities will incentivize small businesses to participate in the federal marketplace, which strengthens our nation’s industrial base overall.
Despite the bill’s momentum, the small business community should remain actively engaged. Committee passage does not ensure final enactment, and scope and application issues may continue to evolve. Continued engagement by contractors, industry groups, and stakeholders will be critical to converting momentum into enactment.
For questions about the Rule of Two, its application in federal procurements, or the potential implications of H.R. 2804, please contact Tony Franco, Jackie Unger, or another member of PilieroMazza’s Government Contracts practice group.
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