The U.S. Small Business Administration (SBA) issued a proposed rule on Oct. 24, 2024, expanding federal agencies’ ability to give preference to small businesses on task and delivery orders issued under multiple-award contracts (MACs). The proposed rule, which expands the “Rule of Two” with certain exceptions, is expected to boost small business contracting by up to $6 billion each year.
Rule of Two Expanded
The Rule of Two requires federal agencies to set aside a contract award for small businesses when there is a reasonable expectation of receiving offers from two or more small business contract holders that are competitive in terms of price, quality and delivery. 13 CFR 125.2(f); 48 CFR 19.502-2. The proposed rule extends the applicability of the Rule of Two to MACs. Once finalized, agencies planning to establish a MAC without a small business set-aside requirement will have to notify the SBA as early as possible.
The rule only impacts new MACs and new orders on existing contracts; it does not impact existing task and delivery orders. If an agency determines it is not able to set aside an order over the micro-purchase threshold and no exceptions apply, the agency’s contracting officer must document their rationale, providing the documentation to the agency’s small business specialist or the Office of Small and Disadvantaged Business Utilization (OSDBU) or, for the Department of Defense, the Office of Small Business Programs (OSBP). The proposed rule does not extend to orders made under the General Services Administration’s Federal Supply Schedule, nor in scenarios in which an exception to fair opportunity or an agency-specific exception applies. The comment period for the proposed rule is open for 60 days.
The proposed rule stems from the Office of Federal Procurement Policy (OFPP)’s January 2024 memorandum “Increasing Small Business Participation on Multiple-Award Contracts.” The SBA stated that the rule clarifies ambiguity at the Government Accountability Office (GAO) and the U.S. Court of Federal Claims regarding the applicability of the Rule of Two to task and delivery orders under MACs. The rule is related to an upcoming proposed rule from the Federal Acquisition Regulatory Counsel that will implement the SBA’s Rule of Two into the Federal Acquisition Regulation (FAR).
Next Steps for Contractors and Subcontractors
Contractors and subcontractors seeking opportunities on new MACs or fulfilling new orders on existing contracts should be aware of the proposed rule once it is fully implemented in the coming months. For questions related to this rule, other related proposed rules or government contracts generally, contact any of the authors or another member of the McGuireWoods government contracting team.