The Rule of Two at Risk: Office of Management and Budget Proposed Changes to the Small Business Act
What You Need to Know: The Rule of Two Under Threat
Recent moves by the Office of Management and Budget (OMB) pose a significant risk to the “Rule of Two,” a key protection for small businesses in federal contracting. The Rule of Two requires federal agencies to set aside contracts for small businesses when at least two responsible small businesses are likely to bid. This rule supports millions in small business contract awards annually.
OMB proposes changing this rule by limiting its application only to contracts under $250,000. At the same time, the Simplified Acquisition Threshold (SAT) – the dollar amount determining simplified purchasing procedures – is expected to rise dramatically, potentially reaching $10 million by 2030. Decoupling the Rule of Two from the SAT would exclude small businesses from billions in contracting opportunities as many acquisitions above $250,000 would no longer guarantee small business set-asides.
Why This Matters for Small Businesses
- Reduced Access to Opportunities: Small businesses rely on the Rule of Two to access contracts large and small. If the rule’s reach is capped at $250,000 despite rising thresholds, many contract opportunities could be awarded without small business competition.
- Regulatory Uncertainty: The Federal Acquisition Regulation (FAR) Part 19 currently requires application of the Rule of Two in certain programs above the SAT. OMB’s changes threaten to remove or weaken this regulatory safeguard, reducing protections legislated by Congress.
- Impact on Socioeconomic Programs: Programs aimed at veteran-owned, women-owned, HUBZone, and disadvantaged small businesses could see diminished participation unless legislative action protects the Rule of Two.
What’s Happening in Policy?
- The FAR Council recently increased the SAT to $350,000 effective Oct 1, 2025; the House version of the FY2026 National Defense Authorization Act proposes raising it to $500,000. Despite this, OMB wants to freeze the Rule of Two at $250,000, limiting small business access.
- Congress has responded with bills such as H.R. 2804 and S. 2656 aiming to codify the Rule of Two firmly in law, preventing regulatory rollback.
- The Small Business Administration (SBA) is also proposing rules to expand Rule of Two application to task and delivery orders under multiple-award contracts, potentially increasing small business access to more contracting opportunities.
What Federal Contractors Should Do Now
- Stay Informed: Regulatory and legislative changes are evolving quickly; tracking developments is critical for strategic planning.
- Engage with Policymakers: Urge representatives to oppose any rule or law changes that weaken the Rule of Two and support legislation to protect small business contracting opportunities.
- Assess Your Pipeline: Contractors should evaluate upcoming opportunities and contract thresholds to anticipate the potential impact of these changes on their bidding strategies.
How Contragenix Can Help
Navigating these complex regulatory changes and maintaining a competitive edge for federal contracts requires expert guidance. Contragenix specializes in empowering government contractors with compliance solutions, proposal support, and strategic insights tailored to today’s evolving procurement environment.
Stay ahead. Stay confident. Partner with Contragenix.