OMB Directs Agencies to Apply Small Business “Rule of Two” to Task & Delivery Orders – January 2024

Feb 28, 2024

In a memorandum issued on January 25, the Office of Management and Budget has ordered executive agencies to apply the FAR’s small business “rule of two” to task and delivery orders competed under multiple-award contracts. It’s a change that, when enacted, could–and probably should–mean billions more in federal prime contracting dollars for small businesses.

Let’s take a look at the existing state of the law and how the OMB directive will impact it.

What is the Small Business “Rule of Two”?

First things first–what exactly is the small business “rule of two” anyway?

The rule of two is the federal government’s primary mechanism for ensuring that small businesses receive a significant percentage of federal contracting dollars. Codified in FAR 19.502-2, the rule of two requires government Contracting Officers to set aside contracting opportunities exclusively for small businesses when certain conditions are met.

First, with respect to opportunities with an anticipated dollar value above the micro-purchase threshold but below the simplified acquisition threshold (both of which are defined in FAR 2.101), the rule of two requires, in relevant part:

Each acquisition of supplies or services that has an anticipated dollar value above the micro-purchase threshold, but not over the simplified acquisition threshold, shall be set aside for small business unless the contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery.

For acquisitions above the simplified acquisition threshold, a slightly looser–but still powerful–small business preference applies:

The contracting officer shall set aside any acquisition over the simplified acquisition threshold for small business participation when there is a reasonable expectation that- (1) Offers will be obtained from at least two responsible small business concerns; and (2) Award will be made at fair market prices.

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