Alert
Alert
11.01.24
On October 25, 2024, the Small Business Administration (SBA) issued a proposed rule that would expand the applicability of the “Rule of Two.” Under the proposed rule, the Rule of Two would apply to orders issued under multiple award contracts, with certain exceptions.
The Rule of Two has been integral to the federal government’s support of small businesses since it was first adopted by the Department of the Navy in 1964. The rule requires that the procuring agency conduct market research, and where the market research reveals that the agency has a reasonable expectation of receiving offers from two or more responsible small business concerns, the agency must set aside the procurement for small businesses.
In Tolliver Grp. v. United States, 151 Fed. Cl. 70, 104 (2020), the Court of Federal Claims (COFC) held that an agency must conduct the Rule of Two analysis before deciding the contract vehicle to acquire goods or services. Accordingly, COFC applies the Rule of Two to orders issued under multiple award contracts. The Government Accountability Office (GAO), on the other hand, has maintained that Congress delineated a clear distinction between an agency's mandatory set aside obligations when establishing a contract, and an agency's discretion to setting aside task or delivery orders under a multiple award contract. As illustrated in ITility, LLC, B-419167, Dec. 23, 2020, 2020 CPD ¶ 412 at 18, GAO does not apply the Rule of Two to orders issued under multiple award contracts.
The proposed rule would resolve this disagreement and provide that the Rule of Two applies to all procurements, including orders issued under multiple award contracts, except in certain limited circumstances. The Rule of Two would not apply to (1) orders issued under Federal Supply Schedule contracts; (2) orders issued pursuant to an exception to the fair opportunity requirements of Subpart 16.5 the Federal Acquisition Regulation; and (3) acquisitions conducted under agency procedures containing an exception to the Rule of Two. SBA estimates that the efforts to increase opportunities for small businesses could advance diversity and resilience by adding up to $6 billion per year in contract awards to small businesses.
If implemented, the proposed rule will apply to all new multiple award contracts, orders placed under those contracts, and new orders on existing multiple award contracts which allow for a set aside. The proposed rule would not affect existing task and delivery orders.
Comments on the proposed rule must be received on or before December 24, 2024.