Restore Fair Access™ Crisis Briefing Center

A Living Report on the Dismantling of Small Business Protections in Federal Contracting

Introduction

Small businesses are not a sideline of the American economy; they are its foundation. They fuel innovation, create jobs, sustain rural communities, drive manufacturing strength, and build resilient supply chains¹.

Federal procurement — a cornerstone of economic policy — historically recognized this by ensuring small businesses received a “fair proportion” of government contracts. The Rule of Two — a foundational government principle requiring set-asides for small businesses when at least two qualified small firms are expected to bid at fair prices — has long been a critical mechanism for achieving this goal².

However, a rapid and profound structural overhaul of federal acquisition policy, initiated in April 2025, has fundamentally undermined this bedrock protection. This brief documents how regulatory enforcement mechanisms that once ensured small business participation have been strategically dismantled. This is not mere reform — it is the quiet removal of processes, transparency, and enforceability. The law remains — but the process that made it real has been erased.³

As a result, agencies are no longer bound by enforceable requirements to include small businesses in federal procurement above the Simplified Acquisition Threshold (SAT) — a dollar threshold (currently $250,000, increasing to $350,000 effective June 11, 2025)⁴. This shift allows agencies to bypass set-aside rules without explanation, without public reporting, and — effectively — without legal consequence.

These are not abstract policy shifts; they directly impact the flow of billions of federal contracting dollars that once secured opportunities for small businesses. For example, congressional district data reveals that over 300 districts have over $100 million in small business federal contract revenues at risk annually, much of which is directly linked to set-aside contracts historically triggered by the Rule of Two. These vital dollars are now at grave risk.

I. The Law Has Not Changed — But Everything Else Has

In 2025, the federal government began dismantling the regulatory framework that protected small business access to federal contracts. But it did so without changing the law.

The Rule of Two remains codified in the Small Business Act at 15 U.S.C. § 644(j)¹. The requirement to provide small businesses with the maximum practicable opportunity to participate in federal procurement remains in force. The statutory language has not changed.

What has changed is the infrastructure that implemented, enforced, and operationalized those statutes through the Federal Acquisition Regulation (FAR).

A. The Executive Orders Did Not Repeal Statutes

Executive Order 14275, Restoring Common Sense to Federal Procurement, issued April 15, 2025, directed the FAR Council to review the FAR and “remove any provision not required by statute or essential to sound procurement”². It also authorized the use of class deviations “until final rules reforming the FAR are published.”

Nowhere in the order did the administration claim to repeal or suspend the Small Business Act. Nor could it — such a move would require an act of Congress. Instead, EO 14275 initiated a procedural purge: deleting regulations that once gave the statutes force and replacing them with informal principles.

B. Regulatory Deletion = Legal Repeal

Beginning in May 2025, the FAR Council published redlined versions of four FAR Parts:

• Part 1 – Federal Acquisition System
• Part 10 – Market Research
• Part 34 – Major System Acquisition
• Part 52 – Contract Clauses

Each redline removed key language that previously enforced small business access. These deletions were not accompanied by formal APA rulemaking — only by deviation guidance.

For example:

• FAR 10.002(b)(1) – Required the contracting officer to determine whether small businesses were available to perform the work³
• FAR 10.002(b)(2) – Required agencies to assess bundling impacts and to document when small business participation was not feasible
• FAR Subpart 1.5 – Governing public participation and ensuring compliance with 41 U.S.C. § 1707
• FAR Clause 52.219 – Establishing enforceable contract language for small business programs

C. In Some Cases, New Non-Statutory Rules Were Inserted

While much of the overhaul has been framed as deletion, the FAR Council also inserted new language that does not appear in any statute.

In FAR Part 10, for instance, the revised version includes a new priority hierarchy instructing contracting officers to prefer commercial solutions and existing contract vehicles before considering set-asides⁴.

This language is not authorized by 15 U.S.C. § 644 or any other statutory provision governing small business contracting. It is entirely regulatory — and yet it now governs acquisition strategy.

D. A System Without Rules Is a System Without Remedies

The result is a contracting system in which:

• Statutes still exist
• Regulations that implemented them have been removed
• Informal frameworks now guide decisions
• No binding mechanism exists to enforce statutory compliance

Small businesses may still reference 15 U.S.C. § 644 in principle — but they have lost the procedural and contractual tools that allowed them to enforce it in practice.

The Administrative Procedure Act (APA), enacted in 1946, requires that substantive changes to federal agency rules and procedures must undergo public notice, comment, and publication before taking effect⁵. These safeguards apply explicitly to procurement regulations — including the FAR.

When the government deletes enforceable rules and inserts new frameworks through class deviations or internal guidance without a formal rulemaking process, it violates both the letter and spirit of the APA.

In this way, the FAR overhaul has achieved what would otherwise require legislation: it has eliminated enforceable rights without repealing a single law.

II. Impact on Enforceability: From Mandate to Discretion

The cumulative effect of the recent Executive Orders and regulatory changes has fundamentally undermined the practical enforceability of the Rule of Two, particularly for contracts above the Simplified Acquisition Threshold (SAT). What was once a clear and consistently enforced legal requirement has effectively been relegated to a policy preference, subject to discretion and hidden processes⁶.

For decades, the Rule of Two, as codified in FAR 19.502-2, served as a mandatory set-aside for larger acquisitions if market research identified at least two responsible small businesses capable of performing the work at fair prices. However, this regulatory mandate — unlike the statutory requirement for contracts below SAT — is now on precarious ground. Executive Order 14275 explicitly directs the FAR Council to purge rules not directly underpinned by statute. As the Rule of Two for over-SAT procurements is a creation of regulation and policy rather than an express statutory command, it is directly targeted for removal or substantial relaxation when the FAR Council revises Part 19.

This regulatory mechanism was fully enforceable for decades — until the new deviation regime was introduced. The new FAR 1.109 further accelerates this by automatically sunsetting non-statutory rules within four years unless explicitly renewed⁷.

Even before formal FAR deletion, agencies are already operating under mechanisms that allow them to bypass the Rule of Two requirement. The dismantling of FAR 10.002(b)(1) and (b)(2) removed the specific market research requirements that historically triggered the Rule of Two analysis. Contracting officers are no longer explicitly required to identify small business capabilities through market research — effectively eliminating the very process that initiated the set-aside determination. This shifts the decision-making from a procedural mandate to a discretionary judgment call by the contracting officer⁸.

Furthermore, the new deviation authority, facilitated by the dismantling of FAR 1.404 and the “should not shall” guidance on reporting, empowers agencies to immediately issue class deviations that suspend provisions like FAR 19.502-2(b). A contracting officer following an approved class deviation is considered in compliance with procurement law — even if their actions contradict the FAR’s text. This means that, de facto, the Rule of Two can already be suspended by agency-level deviations⁹.

Consequently, for contracts above the SAT, the Rule of Two can no longer be viewed as a strictly enforceable, uniform legal requirement. Any contracting officer choosing not to apply the Rule of Two in a particular procurement above the SAT (for example, by deciding to use an existing multi-agency contract or go full and open due to “commercial solutions” considerations) is unlikely to face successful legal challenge — provided the agency documents a rationale consistent with the new policies (e.g., market research shows a commercial item from other-than-small businesses is available, or that using an existing vehicle is more efficient). The Government Accountability Office (GAO), which historically sustained protests for failures to apply the Rule of Two, would now be constrained if that rule is no longer in effect (or has been deviated from). GAO may be left to state that while an agency’s action might be “unwise,” no regulation exists to prohibit it — leading to the denial of protests.

III. How They’re Doing It — The Deviation Doctrine

The dismantling of small-business protections is not random or isolated. It follows a discernible strategy—one that appears coordinated across Executive Order, OMB guidance, FAR overhaul, and deviation memos.

A. The Legal Infrastructure Was Removed, Not Rewritten

The mechanism is deceptively simple:

• Delete rules that require set-asides or trigger enforcement
• Substitute informal language in agency guides and playbooks
• Bypass the APA by issuing changes through deviation authority
• Claim modernization while eliminating actual access requirements

B. The APA Was Replaced with Deviation Memos

OMB Memorandum M-25-25, issued in May 2025, orders the “streamlining” of the FAR by removing all provisions “not required by statute or essential to procurement.” It explicitly calls for use of class deviations to implement these changes immediately—before formal rules are proposed.¹³

The FAR Council complied. On May 2, 2025, it published redlines of over 40 FAR sections and issued a formal deviation guide encouraging agencies to bypass deleted rules using interim memos.

At the same time, EO 14275 and EO 14276 mandate commercial-first sourcing and elimination of what the administration calls “legacy regulatory overlays.” These overlays include the very procedures that once triggered or enforced the Rule of Two.

The result: agency heads now issue internal guidance that overrides prior regulatory requirements—often without public visibility, explanation, or recourse.

C. Deletions Were Accompanied by Unauthorized Insertions

While much attention has focused on the rules that were deleted (such as FAR 10.002(b)(1) and 1.404), less attention has been given to the rules that were inserted.

The revised FAR now includes:

• A new “procurement priority hierarchy” that places small business set-asides after commercial vehicles and existing contracts
• Authorization for contracting officers to skip prior market research rules
• Language suggesting that “flexible acquisition strategies” may override prior set-aside procedures

These additions do not appear in any statute. They were not issued through notice-and-comment rulemaking. And yet they now appear in the FAR—treated by agencies as legally binding.

D. A Patchwork Regime That Cannot Be Protested

The post-overhaul system is not just less regulated—it is structurally non-reviewable.

• The FAR is no longer uniform—deviations differ by agency, and may not be published
• Set-asides are no longer required—only suggested by internal playbooks
• Small businesses cannot protest deviations—and may not even know they exist
• GAO cannot enforce policies that no longer appear in regulation

This regime does not just shift discretion to agencies. It removes the external visibility and legal footholds that once made challenge possible. There is no APA notice, no binding regulation, and no guaranteed way to know when—or why—rules have been bypassed.

IV. The False Premise: Debunking “Modernization” and “Commercialization”

A. The Myth of Streamlining

One of the most persistent justifications for the FAR overhaul is “streamlining.” The April 2025 Executive Orders framed the removal of long-standing regulations as a way to increase efficiency and reduce acquisition burden¹⁶. But the regulations being erased — including those that enforce small business participation — are not incidental paperwork. They are the rules that make participation enforceable, reviewable, and equitable.

Eliminating these rules may temporarily reduce formality, but it also removes structure. Without enforceable set-aside triggers, documented market research, or deviation reporting, agencies are left without standardized procedures. The result is not improved speed — it is procedural ambiguity.

As leading acquisition law experts have warned, this shift will likely increase protest frequency, reduce clarity, and fragment the procurement system¹⁷.

B. Commercialization as a Code for Consolidation

EO 14276 and the related FAR revisions elevate “commercial products and services” as the preferred acquisition strategy¹⁸. But this language is not neutral. The shift to commercial preference — especially when combined with GSA-managed vehicles and multi-agency contracts — reinforces a centralized market that favors existing large suppliers.

Small businesses, which often operate outside of these centralized contract vehicles, are structurally excluded from competing. New entrants are discouraged from even registering. The shift to “commercial-only” strategies may sound efficient — but it systemically eliminates the diversity, innovation, and resilience that small business suppliers bring.

Worse, the move toward platform consolidation creates a procurement bottleneck. Agencies become dependent on a small number of pre-approved vendors. New suppliers are blocked not by competition, but by vehicle access.

C. The Real Cost of “Efficiency”

The administration has framed these changes as a cost-saving initiative. But the available data show that increased contract size, reduced competition, and market concentration lead to higher long-term costs¹⁹. As fewer firms compete, pricing discipline disappears. As innovation slows, adaptation costs rise.

The short-term savings claimed through centralized buying often mask long-term risks: lack of supplier diversity, fragility during supply shocks, and the inability to pivot when incumbent vendors fail to perform.

V. The Next Battlefield: AI and Algorithmic Exclusion

A. A Shift from Policy to Code

Federal procurement is entering a new phase — one increasingly shaped by automation, artificial intelligence, and algorithmic tools. This shift carries significant promise, but also serious risk: without clear standards and oversight, AI systems may automate the exclusion of small businesses from federal opportunity.

In 2025, a series of Executive Orders reframed the procurement process as one centered on speed, scale, and commercialization²⁰. AI platforms are now being deployed to support “streamlined” acquisitions. These platforms process vendor eligibility, prioritize contract vehicles, and evaluate offers. But they do so based on datasets built on past behavior — not on statutory obligations like the Rule of Two.

Without intervention, this technology shift risks turning past exclusion into permanent logic. Algorithms cannot enforce what they are never taught to recognize.

B. The Rule of Two Is Not Coded Into the System

As federal agencies integrate AI into acquisition platforms, few — if any — have embedded the Rule of Two as an enforceable condition. Despite its statutory origin, there is no current federal requirement that small business preference logic be embedded in automated procurement tools.

Systems that ignore the Rule of Two will perpetuate outcomes that also ignore it. A process that once required human judgment, rule-based compliance, and public documentation can now silently exclude without violating a single line of code.

C. Data Mirrors Discrimination

Procurement AI systems are trained on award history, pricing databases, and supplier performance metrics. But these datasets reflect years of exclusion. Small business vendors have been systematically underrepresented in over-SAT awards, multiple-award vehicles, and high-volume programs. AI tools that learn from this data will not merely replicate past bias — they will institutionalize it²¹.

Even well-meaning systems can yield exclusionary results. An algorithm prioritizing “commercial readiness,” “contracting volume,” or “past performance on consolidated vehicles” will inherently favor large incumbents. Algorithmic fairness cannot exist without statutory logic embedded into the system.

D. The Procurement System Is Being Rewritten in Code

Policy is no longer being written solely in the FAR. It is now being encoded in procurement software, AI tools, and automated workflows. These systems are not neutral. They reflect the values of those who design them — and the omissions of those who don’t.

Without clear safeguards, the result is not modernization — it is digitized exclusion. Small businesses cannot challenge the logic of a black-box recommendation engine. And the Rule of Two cannot be enforced if it was never programmed into the machine in the first place.

As noted in the May 2025 Restore Fair Access™ report, the Rule of Two must be embedded in every automated acquisition system to maintain compliance with both the Small Business Act and the Administrative Procedure Act (APA). This is not a design preference — it is a statutory requirement. Failure to encode the Rule of Two in procurement algorithms constitutes a functional repeal of the law.

AI systems are increasingly being used to replace traditional market research, sourcing logic, and set-aside evaluation. If those systems do not incorporate the Rule of Two — and do not prompt compliance reviews based on small business availability — they are not compliant with the law²².

Just as a deviation must be published to be valid, an acquisition decision rendered by AI must be legally reviewable, auditable, and anchored to statutory language. If these systems bypass the law without ever acknowledging it, the effect is indistinguishable from repeal — carried out through code, not Congress.

III. The Doctrine: A Forensic Analysis of the Attack

A. The Two-Part Strategy

The 2025 overhaul of federal procurement policy followed a precise two-part strategy:

• Systematic deletion of rules that triggered small business set-asides or made them enforceable
• Unlawful creation of new decision frameworks that were never passed through APA rulemaking

The result is a regulatory doctrine in which acquisition officials are told to ignore past rules and follow internal playbooks instead — even when those playbooks contradict longstanding policy, court precedent, or small business law.

B. Systematic Deletion: The Dismantling of FAR Part 10

FAR Part 10 — Market Research — historically served as the gateway for Rule of Two enforcement. If a contracting officer conducted proper market research and identified two or more small businesses, the acquisition would be set aside. That structure has now been dismantled.

• FAR 10.002(b)(1) — Deleted. This clause required agencies to evaluate whether small businesses were available.
• FAR 10.002(b)(2) — Deleted. This clause required agencies to document when bundling would prevent small business participation.
• “Commercial products and services” — Elevated. FAR 10 now directs COs to prioritize commercial and pre-existing contract vehicles before evaluating small business options²³.

The deletions above removed the procedural triggers that made Rule of Two enforcement possible. Without the trigger, the rule does not activate. Without activation, it does not apply.

Under the new Part 10, a contracting officer is no longer required to ask whether small businesses can perform the work — only whether a commercial solution already exists. This is not a neutral shift. It is a structural redirection away from inclusion.

C. Unlawful Creation: The Insertion of Informal Frameworks

While erasing the former rule structure, the 2025 overhaul also inserted new frameworks that do not appear in the FAR’s statutory base. These frameworks include:

• Deviation-based authority — allowing agencies to rewrite acquisition procedure without APA rulemaking²⁴
• Commercial-first sourcing — prioritizing speed and existing contracts above small business participation
• Streamlining by guidance — replacing published clauses with internal playbooks and “acquisition quick starts”

None of these constructs have been passed through the APA. They are not the result of law or notice-and-comment rulemaking. Yet agencies are being instructed to use them to override existing FAR parts.

This is more than a technical violation. It constitutes unlawful legislative rulemaking by executive action. The deviation system has become a substitute for formal regulation — with no opportunity for public review, no clear boundary, and no enforceable limits.