New 'Rule of Two' Mandates Federal Contracts Be Set Aside for Small Businesses

The Protecting Small Business Competitions Act of 2025 is trying to make sure more federal dollars land in the hands of small businesses. This legislation adds a new section to the Small Business Act, specifically Section 15(j), establishing what’s being called the “Rule of Two.” In plain English, this rule is a mandate: if a government contract—or even a smaller task or delivery order—exceeds the “simplified acquisition threshold” (that’s the government’s definition of a smaller purchase), the contracting officer must set that work aside exclusively for small businesses.

The Rule of Two: Guaranteed Access

This isn't just a suggestion; it's a requirement based on a reasonable expectation. The contracting officer must reserve the contract for small businesses if they reasonably believe they will receive bids from at least two different responsible small business concerns. Think of it as a guaranteed shot at the big leagues for smaller players, provided there are at least two of them ready to compete. For a small construction company, a specialized IT firm, or a regional supplier, this means a significantly wider door to federal work, which can be the difference between stagnating and scaling up. The bill (SEC. 2) is clear that even with this set-aside, the government must still be able to award the contract at a fair market price, so taxpayers aren't overpaying.

What This Means for the Real World

For a small business owner, say a woman-owned engineering firm specializing in environmental remediation, this rule creates a huge opportunity. Before, they might have been forced to compete against massive, established defense contractors for a $300,000 project. Now, if the contracting officer believes two small firms like hers will bid, that contract is taken off the table for the big guys entirely. This increases competition among small businesses, which is healthy, and helps fulfill the government’s existing goals for small business participation.

However, the bill introduces a little bit of wiggle room that deserves attention. The whole rule hinges on the contracting officer’s ability to “reasonably believe” they will get offers from two responsible small businesses. This is where the rubber meets the road. If an officer is overworked or dealing with a niche contract, they might claim they don't "reasonably believe" two bidders exist, bypassing the set-aside requirement. This subjective language (SEC. 2) gives significant discretion to the officer and could be a point of friction, potentially limiting the intended benefits if not applied diligently. Large businesses, who previously bid on these mid-sized contracts, will also be watching closely, as this rule effectively shrinks their pool of available federal work.