NEWS | Congress Eyes Permanent “Rule of Two” Protections for Small Business Contractors

NSBA supports Congress' efforts to support opportunities for small business and small-business contractors.

MAY 18, 2026 | This week, lawmakers on Capitol Hill are expected to take up legislation that would formally codify the federal government’s longstanding “Rule of Two” requirement into statute.

The House Committee on Small Business is scheduled to hold a full committee markup on Wednesday, May 20, where members are expected to consider H.R. 2804, the Protecting Small Business Competitions Act of 2025.

For decades, the Rule of Two has served as a cornerstone of federal procurement policy. Under the rule, agencies are generally required to reserve contracts for small businesses when there is a reasonable expectation that at least two qualified small firms can perform the work at fair market prices. The policy has helped ensure that small businesses remain competitive participants in the federal contracting ecosystem.

The hearing comes amid growing concern within the government contracting community that procurement consolidation and regulatory streamlining efforts could weaken protections for small-business participation.

While the Rule of Two currently exists within the Federal Acquisition Regulation (FAR), supporters of the legislation argue that the requirement lacks explicit statutory protection. According to stakeholders supporting the bill, codification would provide greater certainty and stability for small-business contractors competing for federal work.

Federal contracting remains one of the largest economic opportunities available to small firms and NSBA members, but many entrepreneurs already face barriers competing against large incumbents with greater resources and existing agency relationships. The Rule of Two helps level that playing field by ensuring agencies actively consider qualified small-business vendors before opening procurements to unrestricted competition.

Advocates also argue that small businesses bring innovation, agility, and specialized expertise to federal missions, particularly in technology, manufacturing, construction, and professional services.

Supporters of the legislation have increasingly pointed to the rise of large, consolidated contract vehicles and governmentwide acquisition contracts (GWACs) as a growing threat to small-business access.

As agencies seek efficiency through bundled or centralized procurements, smaller contractors can struggle to compete for work that once would have been accessible through standalone procurements or set-asides. Codifying the Rule of Two would reinforce congressional intent that agencies continue prioritizing small-business participation whenever marketplace conditions support it.

The debate also reflects broader concerns about preserving a diverse federal industrial base and preventing excessive reliance on a smaller number of large contractors.

The markup before the House Committee on Small Business represents an early but important step in the legislative process. If approved by committee, the legislation could advance to the House floor later this year.

Small-business advocacy organizations and industry stakeholders have already begun rallying support for the measure ahead of this week’s markup.

NSBA will continue monitoring developments related to federal procurement reform and opportunities affecting small-business contractors nationwide.