Federal Contracts Must Now Be Reserved for Small Businesses If Two Can Bid: The 'Rule of Two' Becomes Law

The “Protecting Small Business Competitions Act of 2025” is a pretty straightforward bill that’s all about making sure small businesses get a bigger piece of the federal contracting pie. It takes a long-standing practice known as the “Rule of Two” and officially writes it into law, specifically amending Section 15(j) of the Small Business Act.

What’s the Rule of Two, and Why Does It Matter?

This bill essentially mandates that when the government needs to buy something—whether it’s office supplies, IT services, or construction work—and that contract is expected to cost more than the "simplified acquisition threshold" (that’s the dollar amount where things get complicated), the contracting officer must try to set aside that job exclusively for small businesses. The catch is that the officer has to reasonably believe two things: first, that they can get offers from at least two responsible small businesses; and second, that they can award the contract at a fair market price. If these two criteria are met, the big guys are out, and the contract is reserved for small firms.

More Work for Main Street

For the small business owner—the local construction firm, the specialized software developer, or the janitorial service—this is a big deal. It formalizes a pathway to federal contracts that previously relied on policy and discretion. If you’re a small business that’s been trying to break into government work, this law strengthens your competitive position by legally requiring government agencies to look your way first before opening the bidding up to massive corporations. This is designed to increase the market share and competitive opportunities for Main Street businesses.

The 'Reasonable Belief' Loophole

While the intent is clearly beneficial, the implementation hinges on the contracting officer’s judgment. The requirement relies entirely on the officer’s "reasonable belief" regarding the availability of two responsible bidders and the ability to secure a “fair market price.” This introduces a subjective element. If an officer decides they can’t "reasonably believe" two small businesses can handle the job, or if they think the small business bids will be too high, they could bypass the set-aside requirement. This subjective judgment is the biggest point of potential friction, as it gives the officer a clear out if they want to avoid the extra work of finding two qualified small firms.

Who Wins and Who Loses?

Small businesses are the clear winners here, gaining better access to lucrative government contracts. The main groups that might feel the squeeze are the large businesses that previously competed for these mid-sized contracts. Those jobs will now be legally off-limits to them if the “Rule of Two” criteria are met. Furthermore, government agencies might face minor implementation challenges if they struggle to identify two responsible small businesses for highly specialized or niche contracts, potentially delaying the procurement process or occasionally resulting in slightly higher initial costs as they adjust to the new mandate.