The federal government is actively trying to reduce its size and deregulate agencies across the Executive Branch. As noted in a previous Client Alert by Sam Finnerty, the Federal Acquisition Regulation (FAR) has not been exempt from these initiatives. On May 6, 2025, the FAR Council issued its first formal deregulation measure, signaling that any regulations not explicitly codified by statute may be subject to removal from the FAR and the Small Business Administration’s (SBA) regulations. As a result, the “Rule of Two”—a key policy designed to ensure small businesses have a fair opportunity to compete for federal contracts—faces potential elimination due to its lack of statutory foundation.
The “Rule of Two”
The Rule of Two requires federal agencies to set aside contracts for small businesses when, based on market research, the contracting officer reasonably expects to receive offers from at least two small businesses and that an award can be made at a fair market price.1 For acquisitions above the simplified acquisition threshold, contracting officers must first consider set-asides for socioeconomic small business programs—such as 8(a), HUBZone, Service-Disabled Veteran-Owned, and Woman-Owned Small Businesses—before contemplating a general small business set-aside.2
The Rule of Two is currently implemented in both the FAR (Part 19) and the SBA’s regulations (13 C.F.R. Part 125).3 However, the only Rule of Two currently codified in statute is the U.S. Department of Veterans Affairs’ (VA) Rule of Two, set forth at 38 U.S.C. § 8127, which applies exclusively to the VA and to Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses.
Save the Rule of Two: Support H.R. 2804
The Rule of Two is vital for ensuring that small businesses have a fair opportunity to enter, compete, and succeed within the federal procurement landscape. The potential removal of this rule is not a reflection of its importance or utility but rather a result of the administration’s initiative to eliminate non-statutory provisions from the FAR. Since the FAR Council has indicated that provisions not codified in the U.S. Code may be excluded from future versions of the FAR, it is imperative to codify the Rule of Two. To protect the Rule of Two, Ranking Member Nydia Velázquez has introduced H.R. 2804—The Protecting Small Business Competitions Act of 2025—which, among other provisions, aims to make the Rule of Two a mandatory requirement for all federal agencies. The Bill will:
- Maintain fair competition for small businesses by eliminating ambiguity in procurement practices, thereby enhancing their ability to succeed and remain active in the federal marketplace.
- Enhance innovation and government performance by allowing the government to recruit and retain small enterprises that bring new solutions, innovation, and talent to government missions.
- Promote economic growth by providing small businesses with predictability and stable revenue streams, helping them grow, hire, and contribute to their local economy.
What You Can Do
- Contact your Representatives: Explain the importance of passing H.R. 2804 to protect small business contractors and urge them to vote in favor of the bill.
- Sign the Letter of Support: Add your voice to the cause by clicking here or emailing Caitlin McNally. The deadline to sign the letter is Friday, June 20, 2025.
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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1See 13 C.F.R. § 125.1 (definition of “Rule of Two”).
2See FAR 19.203(c) and 13 C.F.R. § 125.2(f)(2).
3See FAR 19.502-2 and 19.203; 13 C.F.R. §§ 125.2(f) and 127.503.
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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.
