“Rule of Two” Overview

In simple terms, the FAR states that the contracting officer shall set-aside any acquisition over the micro-purchase threshold for small business participation when there is a reasonable expectation that offers will be obtained from at least two responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery.

The “Rule of Two” plays a fundamental role in federal contracting. It is the baseline for securing goods and services on behalf of the government and an important tool for creating opportunities to grow America’s small business base. It also addresses the requirement to increase competition for federal spend dollars.

Role of Market Research

It is important that the CO start by determining whether a requirement can be met by a small business as this drives the acquisition strategy. While this can be time consuming, small business engagement is a necessary part of the acquisition lifecycle. Therefore, a CO should cast a wide net to where the potential bidders are.

“Rule of Two” and IDIQ Contracts

On November 30, 2020, the U.S. Court of Federal Claims (COFC) issued a decision, Tolliver Grp., Inc. v. United States, No. 20-1108C (Fed. Cl. Nov. 30, 2020), that supported the SBA’s position regarding the Rule of Two analysis. In question was whether the U.S. Army could cancel a FAR Part 8 SDVOSB set-aside procurement under the GSA Schedule and move the requirement to a multiple-award IDIQ contract vehicle that the plaintiff, The Tolliver Group, Inc., did not hold. In its protest, Tolliver argued, in part, that the Army’s actions violated the Rule of Two because the agency was required to determine whether two or more small businesses were capable of performing the requirement prior to choosing to put the procurement on the MAIDIQ contract. The COFC’s decision confirms that the Rule of Two analysis applies before an agency elects to procure a requirement from a multiple-award contract vehicle under FAR Part 16.5.

Currently, the GAO and the COFC are split as to whether the Rule of Two is mandatory for IDIQ contracts. The SBA agrees with COFC decision which held, contrary to GAO opinions, that agencies are required to apply the Rule of Two before they select an IDIQ vehicle to procure work.

The SBA is moving to resolve this split through the rulemaking process. This change, once finalized, will prevent agencies from moving work to IDIQ contracts that would otherwise be set aside for small businesses under a Rule of Two analysis. From an application perspective, the “Rule of Two” works in concert with, but still supersedes category management. This is because the “Rule of Two” is a FAR-based requirement whereas CM is an OMB preferred government-wide solution.

Conclusion

We will continue to follow SBA’s progress on this matter and provide updates as they become available. However, in keeping with good public policy, providing access to opportunities for small businesses and strengthening the defense industrial base is good business for all.

Share in the comments: How do you utilize the “Rule of Two?”