For decades, the "Rule of Two" has been the bedrock of small business federal contracting. It dictates that if two or more capable small businesses can compete for a requirement at a fair and reasonable price, the agency is supposed to set it aside for small business competition. However, this rule has historically operated as a regulatory compromise derived from Section 15 of the Small Business Act, which affords contracting officers a degree of administrative discretion.

This dynamic may soon change. Driven by growing concerns from the small business community regarding the preservation of these critical set-asides, the House Small Business Committee recently advanced H.R. 2804, the Protecting Small Business Competitions Act of 2025. This legislation attempts to codify the Rule of Two directly into federal statute. According to former GSA administrator Emily Murphy, elevating this rule to a mandatory "statutory backstop" could significantly alter the landscape by removing contracting officer discretion and introducing new avenues for bid protests.

However, there is a notable limitation regarding task orders. While the original bill introduced by Congresswoman Velazquez applied the statutory Rule of Two to task and delivery orders above the simplified acquisition threshold, the marked-up version that passed committee removed this requirement. This compromise reflects the government's need for speed in modern procurement, meaning administrations will retain the flexibility to decide whether or not to mandate set-asides on individual task orders.

In a broader push to accelerate defense acquisitions, Congress is also advancing provisions within the upcoming NDAA that would mandate evaluating and increasing micro-purchase and simplified acquisition thresholds every three years instead of five. The NDAA also seeks to restrict the DoD from inventing special contract clauses for commercial items unless they already exist in the FAR or DFARS.

STRATEGIC ACTION PLAN FOR YOUR BUSINESS

As your advisor, I see the potential codification of the Rule of Two as a massive win for small business prime contractors, provided you know how to leverage the legal shift. Here is how you should prepare:

• Prepare for Enhanced Protest Leverage: If this becomes statute, it will closely mirror the landmark Kingdomware Supreme Court case for veteran-owned businesses, transforming the Rule of Two from a regulatory guideline into a strict legal mandate. If an agency attempts to issue a full-and-open solicitation when you know two capable small businesses exist, you will have significantly stronger legal grounds to file a pre-award protest to force a set-aside.
• Prioritize Seats on Multiple-Award Contracts: Because the marked-up legislation intentionally omits task and delivery orders, agencies will continue to have broad discretion on whether to set aside task orders. This means winning a prime seat on major multiple-award IDIQs and GSA Schedules is more critical than ever, as the statutory Rule of Two will not guarantee a set-aside once a requirement drops down to the task-order level.
• Monitor Threshold Changes for Sole-Source Wins: The NDAA’s push to increase the simplified acquisition and micro-purchase thresholds every three years could dramatically expand the volume of work agencies can award quickly. Ensure your business development team is continually building direct relationships with program managers to position for these faster, lower-dollar awards before they ever hit SAM.gov.

Credits & Further Reading: This analysis is based on an interview with Emily Murphy, senior fellow at the George Mason University Baroni Center for Government Contracting and former GSA administrator, hosted by Terry Gerton on The Federal Drive.

• Read or listen to the full interview here: Two changes moving through the House would reshape how agencies buy | Federal News Network