FedSubK Feature: The "Rule of Two" and the Rest of the Story
If you are a small business, you’ve probably heard that if there are two small businesses interested in a solicitation, the Government is required to set aside that opportunity for small businesses.
(INSERT BUZZER SOUND HERE)
Not so fast. It’s a little more complicated than that so we are going to break down what the “Rule of Two” means to you and when it comes in and works to your advantage.
Let’s start first with…
What is the “Rule of Two”?
The “Rule of Two” is inculcated in Federal procurement via the Federal Acquisition Regulation (FAR) and Title 13 of the Code of Federal Regulations (CFR). In essence it means that, over the micro-purchase threshold (see FAR Subpart 2.101), the Contracting Officer must determine that there is reason to believe that quotes or offers will be obtained from at least two or more responsible small business concerns which are competitive in terms of fair market price, quality, and delivery.
When Does the Rule of Two Apply?
Simplified Acquisitions. Simplified Acquisitions are those opportunities where the total aggregate dollar value does not exceed the Simplified Acquisition Threshold (SAT), presently $250,000. The Federal Acquisition Regulation (FAR) Subpart 19.502-2(a) says that the Contracting Officer shall set aside simplified acquisitions for small businesses unless there is NOT a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of fair market prices, quality, and delivery.
Over the Simplified Acquisition. These actions are anything over the SAT (over $250,000 in total aggregate dollar value). FAR Subpart 19.502-2(b) says that the Contracting Officer shall set aside any acquisition over the simplified acquisition threshold for small business participation when there is a reasonable expectation that-
(1) Offers will be obtained from at least two responsible small business concerns; and
(2) Award will be made at fair market prices.
Total small business set-asides shall not be made unless such a reasonable expectation exists.
Task or Delivery Orders under Multiple Award Contracts. The Office of Management and Budget (OMB) issued a memo titled, “Increasing Small Business Participation on Multiple-Award Contracts” (1/25/2024) requiring that, except for orders citing an exception to competition (as allowed in accordance with FAR Subpart 16.505(b)(2), exceptions to fair opportunity, or agency procedures), that orders over the micro-purchase threshold should be set aside 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 multiple-award contract that are competitive in terms of market prices, quality, and delivery.”
The Department of Defense (DoD) also issued its own memo (4/19/2024) stating,
a. “Under multiple-award contracts, acquisition teams should consider setting aside orders over the micro-purchase threshold (MPT) for small business contract holders (to include specific small business socio-economic set asides as applicable) when the contracting officer determines there is a reasonable expectation of obtaining offers from two or more small business contract holders under the multiple-award contracts that are competitive in terms of market prices, quality, and delivery.”
b. “If there are not at least two small business contract holders that are competitive for the requirement, the contracting officer is reminded to document the basis for not using an order set-aside via a DD Form 2579, "Small Business Coordination Record" in accordance with DFARS 219.201(c)(10)(B), agency procedures and the referenced OMB memorandum.”
Partial Set Asides to Small Businesses. Whan an acquisition is not appropriate for a total small business set-aside, but a logical portion or portions of the work (except for construction) lends itself to a partial small business set-aside, the “Rule of Two” is also applied. FAR 19.502-3(a) mandates that the Contracting Officer shall set aside that portion or portions exclusively for small business participation when—
(1) Market research indicates that a total set-aside is not appropriate (see 19.502-2),
(2) The requirement can be divided into distinct portions,
(3) The acquisition is not subject to simplified acquisition procedures,
(4) Two or more responsible small business concerns are reasonably expected to submit offers on the set-aside portion or portions of the acquisition that are competitive in terms of fair market prices, quality, and delivery,
(5) The specific program eligibility requirements identified in this part apply, and
(6) The solicitation will result in a contract other than a multiple-award contract (see 2.101 for definition of multiple-award contract).”
What Does the Contracting Officer Consider When Applying the “Rule of Two”?
Going back to the rule, let’s break down what the Contracting Officer’s considerations must be.
Are there two or more responsible small business concerns? The Contracting Officer may look at procurement history, past and current market research using the methods outlined in FAR Part 10 given the scope, complexity, and value of the action in question, and determine if the work falls within that which small businesses can reasonably perform, applying the general standards at FAR Subpart 9.104-1. The general standards must all be met by prospective contractors:
(a) Have adequate financial resources to perform the contract, or the ability to obtain them.
(b) Be able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments.
(c) Have a satisfactory performance record. A prospective contractor shall not be determined responsible or nonresponsible solely because of a lack of relevant performance history, except as provided under FAR Subpart 9.104-2.
(d) Have a satisfactory record of integrity and business ethics.
(e) Have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them (including, as appropriate, such elements as production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors).
(f) Have the necessary production, construction, and technical equipment and facilities, or the ability to obtain them.
(g) Be otherwise qualified and eligible to receive an award under applicable laws and regulations.
Small businesses must also be determined capable of meeting the limitations on subcontracting, as required by the type of work performed (i.e., supplies, services, construction).
Are those same small business concerns expected to submit offers? The Contracting Officer may determine if those small businesses have submitted offers in the past for same/similar work and the likelihood they would submit an offer now, to include seeking statements of interest.
These two questions above are why it is SO important that if you are remotely thinking this opportunity is something you could perform as a small business prime or could team with another small business to perform, you MUST answer the RFI. Those RFI responses inform the answers to these two questions.
Will the offer be competitive in terms of fair market price(s), quality, and delivery? If the small business has submitted an offer in the past for same/similar work, the Contracting Officer may choose to look at the competitiveness of the pricing submitted at that time. The Contracting Officer may explore contractor websites, look at current Federal and private sector award info, catalog or market pricing available, or current contract pricing (i.e., GSA Schedule, other agency contracts, etc.).
Are other factors considered?
- Shifting economic or industrial factors may result in changes in the market since the last purchase was made.
- The Contracting Officer should consider additional market research using the methods in FAR Part 10, as appropriate for the dollar value of the action, before locking in the acquisition strategy.
- The Contracting Officer may also look at SAM.gov exclusions, responsibility, and qualification information.
- Risk if offers are not received from at least two responsible small business offerors. There could be reprocurement costs if the single offer is not responsive (i.e., does not meet the requirements set forth in the Request for Quote (RFQ) or Request for Proposal (RFP).
o In DoD in particular, if only one offer is received in response to a competitive solicitation that the offer but comply with statutory requirements for certified cost or pricing data (see DFARS Clause 252.215-7008 Only One Offer).
o If less than 30 days was provided for the receipt of offers and only one offer was received, the Government may be required to revise the opportunity to promote more competition and resolicit for an additional 30-day period. This could add risk depending on the duration of the funds available for obligation and/or mission requirements.
What is with all the “Shalls” and “Shoulds” and “Musts” and “May”?
Did you pick up on those throughout this article? Well, those tell you what the Contracting Officer is directed by the regulation to do versus what they only need to consider doing. “Shall” and “must” are mandatory; “should” and “may” are not.
Those last two are where the “gray area” of contracting comes into play and the Contracting Officer’s judgement is used to determine if they need the info or not.
And this is how the Rule of Two doesn’t always mean that a solicitation will have an acquisition strategy that is a small business set-aside even when two small businesses appear to be interested and qualified. A simple rule isn’t always as simple to follow when subjectivity is part of the process and can come into play. The Contracting Officer doesn’t make these decisions in a vacuum; they have a team of advisors like the Project Manager, agency Small Business Specialist, SBA PCR, and others. Together, they will decide how these factors apply and are met by small businesses as it relates to the acquisition strategy for an opportunity based on their collective knowledge of the industry, the market, and competition pool and its competitiveness.
And as Paul Harvey used to say…”now you know the rest of the story.”
(Aug 2024)
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FedSubK Feature: What is Buying In?
"Buying in". Do you know what that is? Let's illustrate it with a little story...
Once upon a time an agency leader🤴 was looking around at things to make 🌟efficient.🌟 They got the idea that every agency should have the same widgets🔅 their agency had.
The agency leader🤴 called up a widget company👩🔧 and said, "We are interested in your widgets. 🔅What kind of discount can you give us?"
The widget company👩🔧 offers a discount 📉 because they know this agency🤴 not only buys for themselves but may buy for other agencies🫅🤴👸 where a highly trusted widget competitor👨🔧 presently has the work.
The widget company👩🔧 was "buying in" -- offering unrealistic discounts📉 that made the price unrealistically low not only for the current effort but also to influence the purchasing decisions on future buys. Then prices usually up 📈 again over time.
Depending on when "buying in" happens there could also be questions related to compliance with the Competition in Contracting Act (CICA) and possible other violations.
This is why agency announcements that management has made a deal for "$1 a license" and other such management interference is of concern. 🚨 Management plays the numbers game. I'm not saying numbers aren't important, but let's just say... there is a real reason why management typically does not hold contract signature authority. 😬😉
The Government is supposed to keep things fair and do its due diligence. But it's falling for the oldest trick in the book.
Risk, intent, compliance with statutory requirements, misunderstanding of requirements, and comparable market pricing must be evaluated when the Contracting Officer has reason to believe a proposed price is unrealistically low price. But are they?
If a contract isn't in place, there there is still a need to follow appropriate competition rules before a handshake deal. If a contract is already in place, there are things to consider when new discounts appear to be unrealistic including the risk of continued performance, depending on the type of product or service being purchased.
The Government gets a quick win to lock in a low rate, saving some money now. That's called the short game. Government buyers getting blurry-eyed over unbelieveably low prices and don't do the long-term analysis.
But I'll bet you a dollar the company is playing the long game. They are watching and waiting, getting to know your needs and asking loads of questions. "When do you use my widget most?" "Who buys the most widgets?" "When do you typically buy widgets?" And then as fast as they dropped the price, they raise it again on you when you can't afford to make a change -- like at an end of fiscal year. That's how they get locked in and receive perpetual contracts.
BTW...the fairy tale above is a true story. I've had new politicals and new leadership / commanders trot companies into my office saying "Company ABC here says they want to sell us "widgets" at a huge discount compared to what we're paying or others are paying now."
Well...okay then.
As a Contracting Officer, whether I could even begin to entertain that idea depends on several things. It's not an automatic "yes". You could replace "widgets" with just about any product or service and it's probably happened to a Contracting Officer somewhere. Especially as new Administrations come into Government.
The stories in the news that made me think -- "Huh, are they buying in?" are the Axios story "Anthropic wants to sell Claude to the Government for $1". (https://www.axios.com/pro/tech-policy/2025/08/05/ai-anthropic-government-sale-dollar) and FedScoop story "Federal agencies can buy ChatGPT for $1 through GSA deal" (https://fedscoop.com/openai-chatgpt-enterprise-federal-government-gsa-deal-general-services-administration-anthropic/).
My husband (also a retired Contracting Officer) and I look at each other often during the news now and, based on the reported discount or price alone, we know that company is likely "buying in". That's based on our combined 72 years of Fed experience and our Contracting Officer "Spidey sense" from having been around the block a few times. But these deals just the most recent in a series of deals GSA is making with companies since the new Administration came to town. OneGov is the program GSA is, in my former Contracting Officer opinion, using to tout savings under for the press releases. But it may come back later to be a big mistake. I hope I'm wrong.
Program/Project Managers and Contracting Officers AND the competition to these companies...LEARN about it and WATCH for it. It's on the rise.
(And don't get me started on having to argue with new politicals, leadership, and commanders about why I can't terminate a current contract and then turn around and give the same work to another contractor at their unrealistic lower price.🙄😱 That's a topic for another time.)
The practice of "buying in" is becoming more common now. Learn about it and how to spot it.
DoD Reduction In Force (RIF) Guidance
Just when you thought it couldn't get any more confusing, some agencies also have their own RIF guidance separate from the OPM guidance that is what we've heard the most about. DoD is one of those agencies.
A copy of the current DoD RIF guidance, DoD Instruction 1400.25, Volume 351, is found at: https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/140025/140025_V351.PDF?ver=DgEFMmb9dLDV7OV-PLb7VQ%3D%3D
This guide establishes policy, assigns responsibilities, and prescribes procedures for reduction in force (RIF) actions taken under Part 351 of Title 5, Code of Federal Regulations (CFR), as modified by Section 1597(f) of Title 10, United States Code (U.S.C.).
This guidance does not, in full, apply to DoD employees covered by an alternative personnel system (e.g., the Acquisition Demonstration; Science and Technology Reinvention Laboratories; and the Defense Civilian Intelligence Personnel System). Those systems will develop their own policies and procedures for RIF that comply with the law, as approved by the Under Secretary of Defense for Personnel and Readiness (USD(P&R)). This guide also does not apply to Senior Executive Service (SES) positions.
The policy statement in 1.2 states that, "For any RIF of civilians in the competitive and excepted services in the DoD, the determination as to which employees will be separated from employment must be made primarily on the basis of performance."
In accordance with 10 U.S.C. 1597, DoD must report to Congress 45 days prior to implementing an approved RIF.
DoD will comply with 5 CFR 351.402 and 351.403 when establishing competitive areas and competitive levels, respectively. Competitive service employees and excepted service employees are placed on separate retention registers established in accordance with 5 CFR 351.404 and 351.405.
For purposes of DoD RIF, employees are placed in one of two categories:
- employees with a period of assessed performance of less than 12 months, and
- employees with a period of assessed performance of 12 months or more.
An employee’s period of assessed performance for purposes of RIF will be the sum of the months of assessed performance associated with the employee’s performance appraisals within the most recent 4-year period preceding the cutoff date established for the RIF. However, periods of time in a rating cycle for which an employee’s performance was not assessed are not included in the employee’s period of assessed performance.
For example, if an employee receives a rating after serving 10 months of the 12-month cycle, the employee’s period of assessed performance is 10 months for that rating cycle.
For employees absent for military service, periods of time during the rating period may be treated as periods of assessed performance if they meet the requirements of Paragraph 3.3.c.(1) under Paragraph 3.3.b.(2) of the DoD guide.
Retention Factors
Competing employees are listed on a retention register based on--
- Rating of Record. See Section 3.3.c. for rating of record examples based on cutoff dates, military service, time frames for ratings to be used, and ratings from a system other and the Defense Performance Management Program (DPMAP).
- Tenure Group. This follows the definitions found in 5 CFR 351.501(b) for competitive service and 5 CFR 351.502(b) for excepted service.
- Average Score. In general, an employee’s average score for one performance appraisal is derived by dividing the sum of the employee’s performance element ratings by the number of performance elements. The average of the average scores drawn from the two most recent performance appraisals received by the employee, except when the performance appraisal reflects an “unacceptable” rating of record will be reviewed. When the most recent performance appraisal reflects an “unacceptable” rating of record, only that performance appraisal will be considered for purposes of the employee’s average score.
- Veterans’ Preference. This follows the procedures in 5 CFR 351.501(c) with three veterans' preference subgroups:
- AD - 30% or more disabled veteran
- A - eligible for veterans' preference for the purpose of RIF but not for placement in the AD category (i.e., less than 30% disabled veteran determination)
- B - not eligible for veterans' preference for purpose of RIF
- DoD Service Computation Date-Reduction in Force (DoD SCD-RIF). Follows rules of credible service as found in 5 CFR 351.503(a) and (b). DoD does not follow 5 CFR 351.504, which grants additional retention service credit in RIF based on an employee's ratings of record.
Rounds in Reduction in Force (RIF)
Two rounds of RIF will be conducted. Round One, Release from Competitive Level, and Round Two, Assignment Rights, are explained in the document in detail related to types of appointments, order of release from the competitive level, and exceptions that may apply. They are found in sections 3.5 and 3.6, respectively.
Displacement may occur during Round Two. Displacement is the assignment of an employee to a continuing position in a different competitive level that is held by another employee with a lower retention standing (i.e., “bumping” another employee). Displacement may be at the same grade or at a grade up to three grades or grade intervals (or equivalent) below the position of the released employee.
Right of Only One Offer
Employees released from a retention register are only eligible for one offer of assignment (similar to OPM rules), with some exceptions. If the employee accepts and offer, rejects an offer, or fails to reply to an offer in a timely manner, they are not entitled to further offers. However, the DoD Component must make a better offer of assignment to a released employee (i.e., to a position with a higher representative rate) if a position becomes available before, or on, the RIF effective date.
Sample retention registers and scenarios are found in the guide in Appendix 3A. Employees have the right to request a review of retention registers and have representation also be allowed to review the registers, as requested by the employee.
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DISCLAIMER: Info is provided for awareness. I am NOT an HR professional but an HR enthusiast having started in HR and being a Federal supervisor and hiring manager. Before taking any action that changes your status, please seek the advice of an attorney knowledgeable in Federal employment law.
Voluntary Separation Incentive Payment (VSIP)
Voluntary Separation Incentive Payment (VSIP) allows agencies that are downsizing or restructuring to offer employees lump-sum payments up to $25,000 as an incentive to voluntarily separate. The amount received is reduced by Fed and state taxes, social security, and Medicare, as applicable.
The full guide on the program is found at the OPM website https://www.opm.gov/policy-data-oversight/workforce-restructuring/voluntary-separation-incentive-payments/guide.pdf
Eligibility for VSIP requires an employee be employed by an Executive Branch agency for at least three (3) continous years without a time limit and not be--
▶️ a reemployed annuitant;
▶️ otherwise be eligible for disability retirement;
▶️ recipient of a notice of involuntary separation for misconduct or poor performance;
▶️ recipient of any previous VSIP from the Federal Government;
▶️ on a service agreement for which--
➡️ a student loan repayment benefit was paid, or is to be paid, during the 36-months preceding the date of separation;
➡️ a recruitment or relocation incentive was paid, or is to be paid, during the 24-months preceding the date of separation; and
➡️ a retention incentive was paid, or is to be paid, during the 12-months preceding the date of separation.
If you receive a VSIP and later come back to Federal Service within 5 years of the date of the separation on which the VSIP is based, you must repay the entire amount before your first day of reemployment. This includes working under a personal services contract or other direct contract with the Government.
The top 10 questions related to VSIP can be found at https://www.opm.gov/policy-data-oversight/workforce-restructuring/voluntary-early-retirement-authority/top-10-frequently-asked-questions-about-vera-and-vsip.pdf
OPM's page on VSIP is at https://www.opm.gov/policy-data-oversight/workforce-restructuring/voluntary-separation-incentive-payments/
DISCLAIMER: Information is provided for situational awareness. I am not an HR professional but an HR enthusiast having been a Chief of Contracting and Federal supervisor. Please consult with an attorney knowledgeable in Federal employment law before making any decisions that impact your Federal employment status.
