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The Looming Threat to Small Business Federal Contracts: OMB’s Proposed Revisions to the Rule of Two
Concerns are growing that the vital “Rule of Two,” a cornerstone of small business participation in federal contracting, is under threat. Not only is the Revolutionary FAR Overhaul raising questions about the future of the regulatory Rule of Two, but the Office of Management and Budget (OMB) is also proposing significant changes that could drastically limit opportunities for small businesses.
Understanding the Rule of Two
At its heart, the Rule of Two is a powerful mechanism designed to ensure small businesses can compete for federal contracts. It mandates that federal agencies set aside contracts specifically for small businesses when, based on thorough market research, at least two responsible small businesses are expected to submit offers at fair market prices.
There are currently three key versions of this rule:
- The Statutory Rule of Two: This version, embedded in the Small Business Act, requires agencies to apply the Rule of Two for all purchases under the Simplified Acquisition Threshold (SAT), which is currently set at $250,000.
- The VA Rule of Two: A distinct statutory rule specifically for Department of Veterans Affairs procurements, this version prioritizes Veteran-Owned and Service-Disabled Veteran-Owned Small Businesses.
- The Regulatory Rule of Two: Found in FAR Part 19, this rule requires agencies to apply the Rule of Two for various socio-economic small business programs—such as 8(a), HUBZone, Service-Disabled Veteran-Owned Small Business (SDVOSB), and Women-Owned Small Business (WOSB)—before general small business set-asides for procurements over the SAT. Unlike its statutory counterparts, this regulatory version could be eliminated by the FAR Council without congressional intervention.
OMB’s Proposed Changes: A Double Whammy for Small Business
OMB is proposing a significant shift that could severely impact the statutory Rule of Two. They aim to cap the Rule of Two at $250,000, making it applicable only to purchases below this amount, regardless of how high the SAT might rise. This is a sharp departure from current law, which directly links the Rule of Two to the SAT.
Compounding this, OMB also proposes a dramatic increase to the SAT, suggesting it be raised to $10 Million by 2030. For context, the FAR Council recently increased the SAT for inflation to $350,000 (effective October 1, 2025), and the House of Representatives’ version of the National Defense Authorization Act for Fiscal Year 2026 proposes raising it to $500,000.
The combined effect of OMB’s proposal would be devastating: decoupling the Rule of Two from a rising SAT would effectively shut small businesses out of billions of dollars in federal contracting opportunities.
Why This Matters to Every Small Business
The Rule of Two stands as one of the most robust tools guaranteeing small businesses a fair chance to compete for and secure federal contracts. Any move to curtail it—whether by removing the FAR’s regulatory requirement or by freezing the statutory version at an outdated dollar amount—would deliver a substantial blow to small business participation in the federal procurement landscape. This isn’t just about dollar figures; it’s about equitable access, fostering competition, and supporting the engine of the American economy.
What You Can Do
The future of small business contracting hangs in the balance. It is crucial to:
- Contact your Representatives: Urge them to oppose any legislation reflecting OMB’s proposed changes to the Small Business Act. Emphasize the critical importance of keeping the Rule of Two directly tied to the SAT.
- Support Key Legislation: Encourage your representatives to back the Protecting Small Business Competitions Act of 2025 (H.R. 2804 in the House and S. 2656 in the Senate). These bills would codify the regulatory Rule of Two, helping to ensure small businesses continue to have access to meaningful contracting opportunities across the federal government.
Stay informed and make your voice heard to protect these vital protections for small businesses.
Tags: Rule of Two, Small Business Act, Federal Contracts, Government Procurement, SAT, OMB, FAR, Small Business Opportunities, Set-Asides, H.R. 2804, S. 2656, MarketUS