The House Committee on Small Business has scheduled a full committee markup for May 20, 2026 on H.R. 2804, the Protecting Small Business Competitions Act of 2025. The legislation, introduced by Representative Nydia Velazquez (D-NY), would codify the Rule of Two into federal statute for the first time, writing the small business set-aside mandate directly into the Small Business Act and insulating it from elimination through regulatory action alone.

What the Rule of Two Requires

The Rule of Two is the foundational mechanism through which federal contracting officers determine when a procurement must be set aside for small business competition. Under Federal Acquisition Regulation 19.502-2, contracting officers are required to set aside acquisitions for small businesses when there is a reasonable expectation that they will receive offers from at least two responsible small business concerns that can perform the work at fair market prices. When that standard is met, the contract opportunity is restricted to small business competitors and large businesses are excluded from the competition, directing the award into the small business sector.

The rule applies above the simplified acquisition threshold and covers both standalone contracts and orders placed under multiple-award vehicles. It is one of the most frequently applied mechanisms in federal small business contracting policy and directly affects the distribution of hundreds of billions of dollars in federal procurement annually by determining which opportunities enter small business competition rather than open competition where large businesses can compete.

The Statutory Gap

Despite its centrality to federal small business contracting policy, the Rule of Two exists only in regulation, specifically in the FAR, rather than in statute. The Small Business Act directs agencies to give small businesses the maximum practicable opportunity to participate in federal contracting, but it does not explicitly codify the Rule of Two standard or require the FAR to maintain it. That absence of explicit statutory authorization means the rule is vulnerable to elimination or modification through regulatory action without a corresponding act of Congress.

That vulnerability became visible during the current administration FAR streamlining initiative, which proposed eliminating regulatory provisions that lacked express statutory authorization. The FAR Council ultimately retained the Rule of Two in its modernization efforts, but the episode highlighted that the rule continued existence depends on regulatory discretion rather than on a legislative mandate that would require congressional action to override. H.R. 2804 would close that gap by amending Section 15(j) of the Small Business Act to establish the Rule of Two as a statutory requirement, meaning future regulatory overhauls could not eliminate it without Congress acting to change the underlying statute.

Legislative Status and Timeline

The May 20 markup by the House Small Business Committee is the bill next procedural step. A committee markup is the meeting at which members consider, amend, and vote on legislation before advancing it to the full chamber for floor consideration. A favorable committee vote would position H.R. 2804 for House floor action, though the timeline for floor scheduling and the status of any Senate companion legislation remain uncertain. Industry stakeholders were given until 9:00 a.m. ET on May 18 to sign onto a coalition letter supporting the legislation ahead of the markup, reflecting the compressed window between the markup announcement and the scheduled committee action date. Coalition letters submitted ahead of markups signal the breadth of industry support for a bill and are frequently entered into the committee record as evidence of stakeholder backing for the legislation under consideration.

Bills codifying existing regulatory protections often attract bipartisan support when they address procedural mechanisms broadly seen as beneficial to small businesses across industry sectors and geographic regions. The Rule of Two is not a program preference specific to any defined group of businesses but rather a competition structure mechanism that benefits any small business that qualifies under the applicable size standard for a given procurement, a characteristic that tends to broaden its political support base relative to more targeted small business contracting preferences. Small business contractor associations representing firms in defense, information technology, construction, professional services, and logistics all have an institutional interest in protecting a set-aside mechanism that operates across every procurement category rather than being limited to a single industry or program type.

Implications for Small Business Contractors

If enacted, H.R. 2804 would provide small business contractors with greater certainty that the Rule of Two will remain operative regardless of changes in FAR policy, shifts in administration priorities, or future regulatory streamlining efforts. Contracting officers would continue to be legally required under the Small Business Act itself to set aside acquisitions when the two-company standard is met, and any challenge to that requirement would require congressional action rather than only an administrative rulemaking. For small businesses that rely on set-aside competition to access federal contracts, that statutory floor represents meaningful protection against the risk that future policy changes reduce the availability of set-aside opportunities in their markets.

The bill also reflects a broader congressional pattern of acting to codify regulatory protections that originated in administrative action but lack the permanence of statute. Placing the Rule of Two in the Small Business Act would align its legal standing with the statutory foundations of the HUBZone and 8(a) program requirements, giving the set-aside mandate the same durable protection from administrative rollback that those congressionally established programs already enjoy, and signaling that Congress, not the FAR Council, holds final authority over the fundamental architecture of small business competition in federal procurement.

Contractors

H.R. 2804 is pending legislation in the House Committee on Small Business. If enacted, it would affect all federal contracting officers, agencies, and small business contractors operating in the federal marketplace, codifying an obligation that currently depends on FAR regulatory text for its existence. No single prime contractor is the subject. Small business contractors, industry associations, and agency acquisition offices can track the bill and its committee status at congress.gov under the 119th Congress.

Sources

H.R. 2804, Protecting Small Business Competitions Act of 2025 — Congress.gov
House Committee to Consider Legislation Codifying the Rule of Two — PilieroMazza