GovCon's 'rule of two' is about to widen in scope

A select few rules and regulations dictate how we cover the business of federal government contracting as either a researcher or reporter, or both in my career path.

One of them is the “rule of two.” It requires agencies to reserve a contract for small businesses whenever the reasonable expectation exists that at least two responsible SBs can submit proposals worth evaluating, plus that the award can be made at fair and reasonable market prices.

It is both a mouthful and a golden rule of GovCon, which is poised to go through a new phase of importance now that the Biden administration has told agencies to apply it for task orders on multiple-award contracts.

Agency contracting officers have to produce documentation for any decision not to use the order set-aside, the White House's Office of Federal Procurement Policy said in a Thursday memo to agencies.

Such documentation has to include detail on an agency's market research efforts, why it decided to use a certain vehicle and share the findings with that agency's small business specialist. The information on research should include how the agency examined small businesses not on multiple-award contracts.

OFPP's memo included a few other changes to how the government will do small business contracting, as did this blog post from the Small Business Administration's leader Isabel Casillas and this LinkedIn post from OFPP's senior adviser Christine Harada.

The focus here will be on the rule of two.

Countless bid protests over the years have put that golden rule of GovCon under the microscope, both at he Government Accountability Office and Court of Federal Claims. The Supreme Court even had its say in 2016, when all nine justices told the Veterans Affairs Department to use the rule for its go-to technology contract called T4NG.

It appears that in widening how agencies are to apply the rule of two, OFPP is looking to create more opportunities for small businesses at the task order level and not just to get on the vehicle in the first place. Business development consultancies everywhere have plenty of examples where companies struggle to turn their positions into task order wins, and therefore revenue.

Winning a position on those vehicles can certainly feel like a make-or-break proposition for companies. Around 56% of all federal fiscal year 2023 award activity flowed through contract vehicles, according to figures from market intelligence firm HigherGov.

That represents the third year in a row where more than half of awards went through government-wide acquisition contracts or other vehicles with a set number of awardees. More signs point to continued increases on that front than decreases.

The same concept seems to hold true for the number of small businesses participating in the market, except with the number going in the opposite direction. While the dollars for small businesses may be going up, the number of SBs shrunk in half between 2010 and 2022.

Back to the state of contracting vehicles. In any deep dive of who is winning stuff on them, it quickly becomes apparent who have won a grand total of zero dollars in task order business. I find companies in that category more obvious to find than the winners.

OFPP appears to be trying to address one facet of the well-documented problem of more dollars going to small businesses but fewer of those companies receiving it.

At first glance, this widening of how agencies are to apply this golden rule of two also looks to only help the companies that are already on the vehicles in the first place.

I also don't necessarily think OFPP is doing the wrong thing here either when considering that more companies have plenty of contract vehicle "wins" on the board, but nothing to show for them after the fact when the real competitions start in the task order phase.

Applying GovCon's golden "rule of two" to where most of the business is happening anyway appears to be worth trying, if the goal is to make more opportunities for small businesses.

Contract vehicles look to be the most sensible place to start, even if much of the business of contract vehicles can sometimes make little sense at all.