The Rule of Two May Be on the Chopping Block—Here’s What Small Contractors Need to Know
In a June 2025 update, legal powerhouse PilieroMazza dropped a bombshell that every small federal contractor should be paying attention to: the FAR Council is weighing a rollback of the long-standing “Rule of Two.” This foundational policy requires agencies to set aside contracts for small businesses when at least two qualified firms can bid at a fair market price. If the rollback proceeds, it could dramatically reduce the number of set-aside opportunities in the federal marketplace.
Let’s unpack what’s going on, why it matters, and what you can do to protect your pipeline.
Quick Summary: What’s Changing and Why
The Rule of Two isn’t written into law (except for the VA); it’s a policy baked into the FAR. Under pressure to streamline procurement and cut red tape, the FAR Council—spurred by Executive Order 14275 (“Restoring Common Sense”)—is now revisiting several long-standing provisions, including this one. While large-scale deregulation might be good news for agency buyers and major primes, it could spell serious trouble for small and disadvantaged businesses.
To push back, lawmakers have introduced H.R. 2804, the “Protecting Small Business Competitions Act of 2025,” which would codify the Rule of Two across all agencies.
Why Small Businesses Should Care—Deeply
Without the Rule of Two, federal buyers would no longer be required to reserve contracts for small businesses—even when multiple qualified firms exist. That means:
Fewer 8a contracts services awards
Less traction for women owned small business certification firms and disabled veteran small business certification holders
More competition against entrenched incumbents or large primes
Greater difficulty justifying sba 8a certification services and other federal contracting certifications investments
In short, this one policy has enabled thousands of small firms to enter and stay in the government contracting space. Its removal would undermine decades of progress.
What You Should Do Now: Action Steps
To stay ahead, here’s a focused to-do list:
Support H.R. 2804. Contact your representatives. Share how your firm relies on small-business set-asides to grow and create jobs. Use examples from your past wins or near-misses.
Track FAR Council changes. EO 14275 is pushing rapid updates to FAR Parts 1, 34, and 52. Stay plugged into Acquisition.gov and submit public comments by the September 30, 2025 deadline.
Document your impact. If losing set-aside opportunities would gut your BD pipeline, now’s the time to gather data. Show how many contracts in your portfolio were won through small-business set-asides—or would have been unachievable without them.
Update your strategy. Diversify by exploring government contracting opportunities beyond your usual agencies. Consider forming joint ventures or mentor-protégé agreements to remain competitive in full-and-open competitions.
Reassess your certifications. If you’re investing in women business certification, disabled veteran government contracts, or 8a certification assistance, make sure the ROI is still justified. These certifications are powerful—but only if set-aside policies remain strong.
Zooming Out: It’s Not Just the Rule of Two
This issue is part of a broader federal shift. Executive Order 14275 is triggering sweeping class deviations from the FAR to “simplify” acquisition. HHS and the Department of Education are already piloting these changes, removing traditional clauses and prioritizing speed and commercial practices.
For small contractors, this means more than just fighting to preserve set-asides—it’s time to rethink compliance, pricing, and positioning. Agencies are adopting Transactional Data Reporting (TDR), embracing centralized IT procurement, and even challenging the value of resellers in favor of direct OEM deals (see GSA’s OneGov strategy).
Your playbook must evolve.
Final Word: Don’t Wait to React—Engage Proactively
Whether you’re pursuing SBIR Grant Assistance, deep into Government Contract Proposal Writing, or just refining your contractor NAICS code strategy, the threat to the Rule of Two could impact your entire approach to the federal market. The good news? There’s still time to speak up, adapt, and reposition.
Reach out to trade associations, join webinars, and stay close to resources like PilieroMazza’s weekly updates or SBA's Procurement Scorecard. This is one of those moments that separates the passive observers from the proactive builders.
Want to see how other trends are shaping the small business contracting landscape? Check out The Pentagon’s New SWFT Program Could Be a Game-Changer for Software Vendors—a must-read if you sell software or tech solutions.
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.
