Understanding the Rule of Two: A Key to Winning Government Contracts for Small Business Owners

For small business owners looking to break into the lucrative world of government contracting, understanding the "Rule of Two" is essential. This rule, particularly significant for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) and Veteran-Owned Small Businesses (VOSBs), can be a game-changer in securing contracts with federal agencies. In this article, we'll explore what the Rule of Two is, how it works, and how your small business can leverage it to win government contracts.

What is the Rule of Two?

The Rule of Two is a federal procurement policy that requires contracting officers at certain federal agencies to prioritize small businesses, especially SDVOSBs and VOSBs, when awarding contracts. The rule is most prominently applied within the Department of Veterans Affairs (VA), but it also has implications across other federal agencies.

How Does the Rule of Two Work?

The Rule of Two mandates that if a contracting officer determines there are at least two small businesses—specifically, SDVOSBs or VOSBs—that can perform the work required by a contract and can do so at a fair and reasonable price, the contract must be set aside exclusively for competition among these businesses.

Here’s how the Rule of Two typically unfolds:

1. Market Research: Before issuing a contract, the contracting officer conducts market research to determine if there are at least two qualified SDVOSBs or VOSBs capable of fulfilling the contract requirements.

2. Capability Assessment: The officer assesses whether these businesses can perform the work effectively and at a price that is fair and reasonable to the government.

3. Set-Aside Decision: If the officer finds that the Rule of Two is met—meaning there are at least two capable and competitive SDVOSBs or VOSBs—the contract must be set aside exclusively for these businesses. This means only SDVOSBs or VOSBs will be allowed to bid on the contract.

4. Contract Award: The contract is awarded to the SDVOSB or VOSB that offers the best value to the government, considering factors like price, technical capability, and past performance.

Why is the Rule of Two Important?

For small business owners, especially those who are service-disabled veterans or veterans, the Rule of Two is crucial because it creates opportunities for contracts that might otherwise be awarded to larger, more established companies. By setting aside contracts exclusively for SDVOSBs and VOSBs, the rule levels the playing field and provides a significant advantage in a highly competitive market.

Leveraging the Rule of Two to Win Contracts

As a small business owner, understanding and leveraging the Rule of Two can dramatically increase your chances of winning government contracts. Here’s how you can make the most of this rule:

1. Get Certified as an SDVOSB or VOSB:

   • Ensure your business is certified as an SDVOSB or VOSB. This certification is essential to qualify for set-aside contracts under the Rule of Two.

   • You can obtain certification through the VA's Office of Small and Disadvantaged Business Utilization (OSDBU).

2. Focus on VA Contracts:

   • The VA is required to apply the Rule of Two for all contracts, making it a prime target for SDVOSBs and VOSBs. Tailoring your business offerings to meet the needs of VA contracts can be a strategic move.

   • Keep an eye on VA contract solicitations and respond quickly to opportunities that match your capabilities.

3. Build Relationships with Contracting Officers:

   • Networking with contracting officers is vital. Attend industry days, procurement fairs, and other events where you can meet and establish relationships with these decision-makers.

   • A good relationship with a contracting officer can increase your visibility and the likelihood that your business will be considered during market research.

4. Demonstrate Capability:

   • Ensure your business has a strong track record of past performance. This could include government contracts or contracts with large private sector clients.

   • Highlight your business’s technical capabilities and financial stability to demonstrate that you can deliver on contracts reliably and efficiently.

5. Stay Competitive on Pricing:

   • While the Rule of Two gives SDVOSBs and VOSBs an advantage, your pricing still needs to be fair and reasonable. Conduct thorough market research to understand competitive pricing and structure your bids accordingly.

6. Leverage the Mentor-Protégé Program:

   • Consider participating in the SBA’s Mentor-Protégé Program, which allows smaller firms to partner with more experienced companies. This can enhance your capabilities and make you more competitive for set-aside contracts.

Bringing it All Together

The Rule of Two is a powerful tool for small businesses, particularly those owned by service-disabled veterans or veterans, to access federal contracting opportunities. By understanding how this rule works and strategically positioning your business to take advantage of it, you can open the door to a steady stream of government contracts, helping your business grow and thrive.

Remember, success in government contracting often hinges on preparation, networking, and persistence. Use the Rule of Two as a stepping stone to build your business’s presence in the federal marketplace, and you'll be well on your way to securing valuable government contracts.

If you aren't a Squared Compass partner, what are you waiting for? From getting your business set up with specific government set aside programs at both the State and Federal level, to being empowered by a Fractional Capture team to win government contracts, to receiving tailored government contract opportunities Squared Compass delivers immense value which helps propel our partners to success. Schedule a chat with our team today.