Notice of SBA Proposed Rule—Rule of Two
The Notice of Proposed Rule (NPR)—Rule of Two—came out from the SBA today. SBA has been talking about this proposed rule for a bit, so this is not a surprise. The proposed Rule should come out in the FAR tomorrow.
Background and FAR. If you are not familiar with the Rule of Two and the Federal Acquisition Regulations (FAR), here is a brief summary. If you are familiar, you can skip to the next section for the summary of the Rule of Two. The FAR 19.502-2 deals with the Rule of Two. It was issued under FAC Number: 2024-07, with an Effective Date: 09/30/2024.
The rule of two is a federal contracting principle that requires agencies to set aside contracts for small businesses when certain conditions are met:
There is a reasonable expectation that at least two small businesses can perform the work
The work can be awarded at fair market prices
The rule of two is codified in the Federal Acquisition Regulation (FAR) 19.502-2. It applies to acquisitions that are valued above the micro-purchase threshold but below the simplified acquisition threshold. For acquisitions above the simplified acquisition threshold, the rule of two is mandatory.
Proposed Regulation SBA
Housekeeping—submitting comments 60 days from the final proposed rule (should come out tomorrow). The full information for submitting comments is contained in the proposed rulemaking and will be contained in the final proposed rule.
This proposed rule would clarify the applicability of the Rule of Two to multiple-award contracts by directing that an agency set aside an order under a multiple-award contract for small business contract holders when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contract that are competitive in terms of market prices, quality, and delivery. If the agency does not award, it has to justify to both the agency small business department and the SBA’s Procurement Center Representative who may suggest ideas.
The Small Business Act specifies that a fair proportion of the total “purchase and contracts” for goods and services shall be awarded to small business concerns. The statute does not limit the fair proportion language only to contracts. Rather, it applies it to both “purchase[s] and contracts.” The Federal Government is directed to assure that a fair proportion of purchases and contracts are awarded to small businesses. SBA is trying to make it explicit that this Rule of Two applies to purchases as well as contracts.
The proposed rule would provide certainty on how to apply the Rule of Two to task and delivery orders under multiple-award contracts and eliminate confusion created by an unresolved question in dispute between the Court of Federal Claims and the Government Accountability Office (GAO). The Court of Federal Claims agreed with the small-business plaintiffs in Tolliver Group that “an agency must apply the Rule of Two before an agency can even identify the possible universe of procurement vehicles which may be utilized for a particular scope of work.” 151 Fed. Cl. at 104. In a GAO protest decided after the court’s ruling, GAO maintained its longstanding interpretation, which differs from the Court’s position, that, in 15 U.S.C. 644(r), Congress intended to clearly delineate a distinction between a procuring agency’s mandatory set-aside obligations when establishing a contract, and an agency’s discretion with respect to setting aside task or delivery orders under a multiple-award contracts, i.e., indefinite delivery indefinite quantity (IDIQ) contracts. Itility, LLC, B-419167, Dec. 23, 2020, 2020 CPD P412 at 18. The proposed change to require application of the Rule of Two to task and delivery orders under multiple-award contracts, with certain exceptions, should eliminate lingering confusion.
For similar reasons as those described in the OFPP memorandum, the proposed rule advances equity in Federal procurement practices. This rule is expected to create more contract opportunities for small businesses, particularly small disadvantaged businesses (SDBs). Executive Order 14091 established a government-wide goal of awarding 15 percent of Federal contract spending to SDBs in FY 2025, and this proposed rule would put the government in a better position to achieve that goal.
Look for more to come on the Proposed Rule.