SBA’s Desired Rule Expansion: Unlocking Federal Contracting Opportunities for Small Businesses

The Small Business Administration’s (SBA) recent proposed expansion of the Rule of Two introduces substantial changes designed to expand small business opportunities in federal contracting. This rule would mandate the application of the Rule of Two to task and delivery orders under multiple-award contracts, creating promising prospects for small business contractors. Here’s an overview of how this rule impacts federal contracting and how contractors can make the most of it.

Key Takeaways for Small Business Contractors

Understanding the Rule of Two’s Expansion

The Rule of Two is a longstanding federal policy requiring agencies to set aside contracts for small businesses if there are at least two capable small business bidders. Historically, this rule applied mainly to full contracts, leaving task and delivery orders under multiple-award contracts optional. The proposed rule now extends this requirement to these orders, ensuring agencies actively consider small business participation whenever feasible.

Know When the Rule Applies

The Rule of Two will become mandatory for all task and delivery orders under multiple-award contracts, with specific exceptions. Federal Supply Schedule orders and instances where there is only one responsible source are exempt. Contractors should recognize that while the rule doesn’t cover every order type, it is broad enough to open new revenue opportunities.

Anticipate an Increase in Small Business Work

If finalized, this rule change is anticipated to drive an additional $6 billion annually in federal spending through small business contracts. For contractors, this means substantial market expansion, making it essential to prepare for increased bidding opportunities. Ensuring federal contracting compliance and maintaining updated registrations will be crucial for effective competition.

Prepare for Agency-Specific Exceptions

While the rule sets a standard, agencies may introduce their own exceptions through further rule making, potentially shaped by considerations such as national security, disaster response, or supply limitations. Contractors should monitor agency-specific rules that could impact competition, especially in sectors with unique supply chain needs.

Use the New Rule to Challenge Agency Non-Compliance

Small businesses could hold agencies accountable under the Rule of Two. The proposed rule enables small businesses to challenge agencies that do not apply the rule on task or delivery orders under multiple-award contracts. Small contractors can now file protests with the Government Accountability Office (GAO), expanding their legal options to address non-compliance and increasing transparency in federal contracting.

Monitor for Legal and Industry Pushback

Although small businesses stand to benefit, larger contractors may view the rule as restrictive. This perspective could lead some industry players to challenge the rule’s legal basis under the Small Business Act, possibly affecting its implementation. Contractors should stay updated on court decisions or legislative adjustments that might shape the final rule.

Preparing for a New Era of Small Business Contracting

The SBA’s proposed rule expansion signals a strategic move toward prioritizing small business involvement, potentially reversing the decline in small business contractors. If implemented, small businesses across sectors will gain enhanced growth opportunities in federal contracting. By understanding the rule’s scope, preparing for agency-specific exceptions, and leveraging their ability to challenge non-compliance, small contractors can position themselves advantageously.

As the public comment period closes in December 2024, this rule may reshape federal contracting by early 2025, offering small businesses increased access to the lucrative government market. Now is the time for small contractors to prepare to capitalize on these expanded opportunities and stay adaptable in the evolving landscape of federal procurement.

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