The U.S. Small Business Administration (SBA) on Oct. 25, 2024, issued a proposed rule aimed at increasing small business participation in multiple award contracts (MACs) by expanding the application of the Rule of Two to multiple award task and delivery orders, with certain exceptions. The proposed rule is part of the federal government's broader effort to ensure that small businesses, particularly small disadvantaged businesses, have greater access to federal contracting opportunities.
Summary of Key Points
This Holland & Knight blog post summarizes key points from the proposed rule.
- Expansion of Rule of Two. The proposed rule directs agencies to set-aside orders under MACs for small business contract holders when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the MAC that are competitive in terms of market prices, quality and delivery. The proposed rule cites to an Office of Federal Procurement Policy memo, "Increasing Small Business Participation on Multiple-Award Contracts" (OFPP Memorandum), that was issued on Jan. 25, 2024.
- Applies to New Orders on Existing MACs. While the proposed rule will not affect existing task and delivery orders, if finalized, it will apply to all new MACs and new orders on existing contracts where procedures allow for set-asides.
- The Proposed Rule Provides Exceptions to the Rule of Two. The proposed rule provides several exceptions that are consistent with the OFPP Memorandum, such as orders under the Federal Supply Schedule or where an exception to fair opportunity or an agency-specific exception applies.
- Requires Agencies to Set-Aside Orders for Small Business MAC Holders. Importantly, the proposed rule would require the set-aside of orders where the Rule of Two is satisfied with respect to small business MAC contract holders (again, with notable exceptions including the Federal Supply Schedules). Interestingly, the SBA states that agencies would still have flexibility in terms of selecting which MAC to use, but once a MAC is chosen, they would have to conduct a Rule of Two analysis as to the MAC contract holders.
- Contracting Officers Are Required to Document Their Rationale Not to Set Aside an Order. The proposed rule requires that a contracting officer must document rationale not to set aside an order over the micro-purchase threshold where an exception does not apply and provide that documentation to the agency's small business specialist or the agency's Office of Small and Disadvantaged Business Utilization or, for the U.S. Department of Defense (DOD), the Office of Small Business Programs. SBA can also exercise discretion to review the documentation and submit recommendations to increase small business opportunities at the agency.
Proposed Changes to a Procuring Agency's Procurement Planning Responsibilities
The proposed rule seeks to require agencies to provide more advanced notification to SBA's procurement center representatives earlier in the acquisition planning process – the current rule only requires 30 days notice – particularly where the MAC exceeds the substantial bundling threshold and the number of small businesses is expected to be less than 30 percent of the total number of awardees. SBA's stated goal is to ensure that at least 30 percent of awardees on each MAC are small businesses, which in turn would make the Rule of Two more effective. SBA provides several justifications in support of its issuance of the proposed rule.
- SBA notes the Small Business Act specifies that a "fair proportion" of "total purchase[s] and contracts for goods and services of the Government in each industry category ... are awarded to small business concerns" and reasons that the Act does not apply only to contract-level actions.
- SBA aims to eliminate a conflict between the application between the Rule of Two between the Court of Federal Claims (COFC) and the U.S. Government Accountability Office (GAO). COFC precedent has adopted a broader view of the Rule of Two's application, whereas GAO has held that it only applies at the contract level, and agencies are left with discretion when it comes to task order set-asides. The proposed change to require application of the Rule of Two to task and delivery orders under MACs, with certain exceptions, aims to eliminate lingering confusion in industry.
- SBA cites to the recent Executive Order 14091, which sets a government-wide goal of awarding 15 percent of federal contract spending to Small Disadvantaged Businesses in fiscal year 2025. SBA believes this proposed rule would assist the government in achieving these targets.
Public Comment and Implementation
The proposed rule will undergo a 60-day public comment period, allowing stakeholders to provide feedback on its provisions. This process is crucial for refining the proposed rule and addressing any concerns before its finalization. Comments on the proposed rule will be due on Dec. 24, 2024 – 60 days after its publication.
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