Protecting Small Business Access in the Modernizing Federal Marketplace

A Discussion Framework for Legislative and Regulatory Solutions

Prepared By: The American Small Business Chamber of Commerce™ - September 30, 2025

Executive Summary

The federal acquisition system is undergoing its most significant transformation in decades through the Revolutionary FAR Overhaul and GSA's legislative proposals. These changes will fundamentally restructure how $700 billion in annual procurement flows—creating a tiered system that systematically reduces predictable small business access precisely where federal spending is growing most rapidly.

The Urgent Challenge: The FAR Council expects to complete this overhaul in late 2025, creating a narrow window for Congressional action to preserve fair competition before these changes become entrenched. Our analysis indicates these reforms could reduce small business participation from 26% to 16%, representing a $72 billion annual reduction in small business contract dollars.

Key Structural Shifts Requiring Discussion:

• $600+ Billion Moves to Discretionary Status: The Rule of Two is explicitly excluded from task orders under multiple-award vehicles, where 86% of federal spending will occur
• Protected Market Shrinks Dramatically: The statutorily protected small business zone contracts from $10K-$250K to only $100K-$250K
• Transparency Erodes: Non-transparent spending increases 30-fold from $3B to $90B as micro-purchase thresholds rise to $100,000
• Systemic Uncertainty Grows: Non-binding "Practitioner Albums" replace formal regulations, and four-year sunset provisions threaten established protections

This Discussion Framework Presents: A before-and-after analysis of the federal marketplace and specific legislative and regulatory solutions for consideration as we work toward consensus recommendations for Congress, the FAR Council, and GSA. The proposals leverage automation to eliminate administrative burden while ensuring statutory small business mandates are preserved in the modernized system.

Visual Overview: The Restructured Federal Marketplace - Impact on Small Business Access

(Applying Proposed Structural Changes to FY2024 $700B Baseline)

This analysis applies the proposed structural changes to the FY2024 $700 billion procurement baseline to provide a consistent framework for understanding how small business access would be redistributed. While actual FY2025+ spending levels may vary, this approach enables clear comparison of the structural impacts.

Note: Post-reform projections reflect structural disadvantages including elimination of Rule of Two protection, increased competition from large businesses in newly opened markets, and the "walled garden" effect of mandatory use vehicles where small businesses must compete on large business terms.

Time-Critical Context

The FAR Council expects the Revolutionary FAR Overhaul (RFO) to be completed in late 2025, creating an urgent timeline for Congressional action:

• October 13, 2025: Deadline for reviewing and updating the FAR to eliminate non-statutory regulations
• Late 2025: FAR Council expects ongoing revisions and formal rulemaking to occur on a rolling basis

This compressed timeline means discussions on protective measures must occur before these changes become entrenched in the federal acquisition system. The projected 38% reduction in small business participation ($72 billion annually) underscores the importance of timely intervention.

Introduction

The federal acquisition system is undergoing fundamental transformation through the Revolutionary FAR Overhaul and proposed GSA statutory changes. While modernization offers potential efficiency benefits, Congress, the FAR Council, GSA, and Small Business Advocates have a critical opportunity to ensure these changes preserve fair access and competition for small businesses, consistent with the statutory mandate for "maximum practicable opportunity."

The Statutory Imperative and the Economic Reality

The Small Business Act mandates "maximum practicable opportunity" for small businesses in federal contracting, yet current participation (26%) already falls short of small businesses' true economic footprint. Rather than addressing this gap, the proposed changes could reduce small business participation to approximately 16%, representing a $72 billion annual reduction that would significantly impact the small business economy.

Small businesses represent 99.9% of all U.S. businesses but receive only 26% of federal contract dollars. They employ 45.9% of American workers (61 million people) but face declining vendor counts in the federal marketplace. They generate 43.5% of U.S. GDP yet their share of the federal marketplace has stagnated.⁵¹

This document provides a framework for discussion on specific legislative and regulatory interventions that could be incorporated into the modernization process. Our analysis reveals that multiple changes, when viewed collectively, create a tiered system of small business access that could reduce predictable access by $72 billion annually.

These proposals recognize that automation and artificial intelligence, properly implemented, can actually reduce administrative burden while enhancing small business participation. This directly contradicts claims that market research and set-aside determinations are "too burdensome" when these very functions are being automated.

The following analysis presents the current federal marketplace structure, projected changes under proposed reforms, and specific protective measures with documented precedents for consideration. Our goal is to advance a constructive dialogue on integrating these protections into the evolving acquisition landscape.

Part I: The Current Federal Marketplace - Where $700 Billion Flows Today

The Federal Procurement Landscape (FY2024 Baseline)

The federal government spent approximately $700 billion annually on contracts in FY2024.¹ While FY2025 spending may reflect different totals, we use FY2024 data throughout this analysis to enable consistent apples-to-apples comparisons of market structure changes. This analysis examines how that money currently flows and who receives it, establishing a baseline against which proposed changes can be measured.

Traditional Contract Methods:

1. Sealed Bid/Negotiated Contracts: ~$350B (50%)

• These represent open market solicitations conducted under FAR Parts 14 & 15²
• Small business participation currently stands at approximately 27% ($94B)³
• The average solicitation receives 3.7 bids, indicating healthy competition⁴
• Full transparency is provided through SAM.gov postings
• Critically, these acquisitions require mandatory application of the "Rule of Two"

2. GSA Schedules: ~$50B (7%)

• These pre-negotiated vehicles operate under FAR Part 8⁵
• Small business participation is approximately 33% ($16.5B)⁶
• Approximately 20,000 contract holders participate, with 40% being small businesses⁷
• Reporting occurs quarterly rather than in real-time
• Set-asides at the task order level are discretionary under FAR 8.405-5

3. Government-Wide Acquisition Contracts (GWACs): ~$40B (6%)

• These IT-focused vehicles (including CIO-SP3, SEWP, Alliant)⁸
• Small business participation averages 22% ($8.8B)⁹
• Entry opportunities are limited to periodic competitions
• Task order visibility is typically delayed 30-90 days
• Set-aside decisions at the task order level are discretionary

4. Agency-Specific Multiple Award Contracts (MACs): ~$150B (21%)

• These are individual agency vehicles¹⁰
• Small business participation averages 20% ($30B)¹¹
• Application of the Rule of Two has been inconsistent across agencies
• Transparency practices vary significantly by agency
• Set-aside practices have been mixed, with some agencies applying Rule of Two and others not

5. Simplified Acquisitions: ~$30B (4%)

• These acquisitions fall under the current $250,000 threshold¹²
• By statute (15 U.S.C. § 644(j)), these are 100% reserved for small business¹³
• Approximately 500,000 transactions occur annually¹⁴
• Limited visibility exists for actions under $25,000
• This represents a statutorily protected market segment

6. Micro-Purchases: ~$3B (<1%)

• These fall under the current $10,000 threshold¹⁵
• No competition is required
• Zero public visibility exists for these transactions
• Primarily conducted through government purchase card usage
• No set-aside requirements apply

Current Small Business Performance:

• Total Small Business Prime Contracts: $183B (26% of total)¹⁶
• Unique Small Business Vendors: ~70,000 (down from 125,000 in FY2015)¹⁷
• Statutorily Protected Market: $30B (simplified acquisitions)
• Competitive Market: $153B (competing against large businesses)

Part II: The Post-Reform Marketplace - Fundamental Restructuring Creates Tiered Access

Projected Distribution of Federal Procurement Under Proposed Changes

(Using FY2024 $700B Baseline for Consistent Comparison)

Analysis of the FAR overhaul memoranda¹⁸ and GSA's legislative proposals¹⁹ indicates a substantial redistribution of procurement spending that will fundamentally alter small business access patterns. For consistent comparison, this analysis applies the proposed structural changes to the FY2024 $700 billion baseline to illustrate how spending would be redistributed under the new framework. The consolidation of spending into discretionary vehicles could reduce small business participation to approximately 16%, representing a $72 billion annual impact on the small business economy.

1. Required Use Vehicles (NEW): ~$200B (29%)

• Mandated use required per overhauled FAR Part 8²⁰
• Agencies must use these vehicles unless exceptional circumstances exist
• Rule of Two explicitly excluded at task order level per revised FAR Part 19²¹
• Projected small business participation: ~15% ($30B)

2. GSA Schedules (EXPANDED): ~$150B (21%)

• Absorbing common categories from agency-specific contracts²²
• Expanded scope under GSA proposals
• Rule of Two already discretionary (per FAR 8.405-5)²³
• Projected small business participation: ~20% ($30B)

3. GWACs/MACs (CONSOLIDATED): ~$250B (36%)

• Significant growth from current $190B level
• Absorbing former open market competitions
• Rule of Two excluded at task order level under overhaul
• Projected small business participation: ~15% ($37.5B)

4. Simplified Acquisitions (TRANSFORMED): ~$80B (11%)

• The Simplified Acquisition Threshold (SAT) is raised to $10M for commercial items, to be phased in over several years²⁴
• Critical Structural Change: This transformation severs the link between the simplified acquisition procedure and the small business set-aside. While the procedure can now be used for acquisitions up to $10M, the statutory requirement to set aside these acquisitions for small businesses remains only for acquisitions between $100K and $250K²⁵. This opens a vast portion of what was previously the exclusive domain of small business competition to large businesses.
• The raising of the micro-purchase threshold to $100K simultaneously guts the lower portion of this protected market, removing the $10K-$100K range from the set-aside requirement.
• Creates $79.7B unprotected zone for commercial items between $250K-$10M
• Projected small business participation above $250K: ~10% ($8B)

5. Micro-Purchases (EXPANDED): ~$10B (1.4%)

• Threshold raised to $100K²⁶
• No competition or visibility required
• Ten-fold increase in untracked spending

The Emerging Tiered Access Framework and Its Structural Impact on Small Business Competition

The proposed changes create a three-tiered system for small business access that systematically reduces predictable access and redirects competition toward methods where small businesses face structural disadvantages. This restructuring could reduce small business participation by $72 billion annually.

Tier 1: Protected But Declining Market

• Spending Category: Traditional sealed bids/negotiated contracts
• Rule of Two Status: Mandatory application preserved
• Share of Total Federal Procurement Market: Declining from 50% to minimal percentage
• Small Business Impact: Analysis of the FAR Overhaul indicates that traditional contracts will become "the option of last resort," used only when mandatory vehicles cannot meet requirements.⁴⁹ This preserves small business protections for a rapidly shrinking market segment.

Tier 2: Discretionary and Growing Market

• Spending Category: Task orders under multiple-award vehicles (Required Use, GSA Schedules, GWACs/MACs)
• Rule of Two Status: Explicitly excluded—set-asides at contracting officer discretion only
• Share of Total Federal Procurement Market: Growing to 86% of federal spending
• Small Business Impact: The consolidation into mandatory use vehicles creates a "walled garden" where small businesses must compete on large business terms.⁵⁰ The explicit exclusion of Rule of Two from task orders creates structural uncertainty for small business access precisely where procurement spending is concentrated.

Tier 3: Statutorily Protected but Reduced Market

• Spending Category: Simplified acquisitions between $100K-$250K
• Rule of Two Status: 100% small business set-aside preserved by statute
• Share of Total Federal Procurement Market: Protected segment shrinks both in absolute terms and as a percentage of the total market
• Small Business Impact: The raising of both the micro-purchase threshold and the SAT for commercial items systematically reduces the value and scope of the statutorily protected small business market.

Critical Changes in Transparency and Access

Loss of Visibility and Oversight:

• Current Non-Transparent Spending: Approximately $3B. This represents micro-purchases below the $10,000 threshold that are made with government purchase cards and have no requirement for public reporting or competition, resulting in minimal taxpayer visibility and oversight.
• Post-Reform Non-Transparent Spending: Approximately $90B. The proposal to raise the micro-purchase threshold to $100,000 would cause a 30-fold increase in spending that occurs with no public visibility, no competition, and drastically reduced oversight. This represents a fundamental shift toward "dark procurement" that escapes public accountability.

Contraction of the Statutorily Protected Small Business Market:

• Current Protected Range: $10K-$250K ($30B fully protected for small businesses)
• Post-Reform Protected Range: $100K-$250K (significantly reduced protected value)
• New Unprotected Zone for Commercial Items: $250K-$10M ($79.7B)
• Analysis: The combination of raising the micro-purchase threshold and creating a much higher threshold for commercial items substantially reduces the dollar value of acquisitions that must be set aside for small businesses by statute.

Structural Shift in Set-Aside Requirements:

• Current Mandatory Rule of Two Application: ~$350B (covering traditional contracts and simplified acquisitions)
• Post-Reform Mandatory Rule of Two Application: Minimal (primarily traditional contracts only)
• $600+ Billion Shifts to Discretionary or Unprotected Status
• Analysis: The explicit exclusion of Rule of Two from task orders, combined with the expansion of acquisition methods where set-asides are discretionary, represents the most significant structural change to small business procurement in decades. This shift could reduce small business participation by $72 billion annually.

Legislative Framework for Discussion

Core Protection: Codify the Rule of Two and Ensure Its Smart Application in the Modernized Marketplace

The Legislative Vehicle: H.R. 2804 - The Protecting Small Business Competitions Act

Current Status and Context: H.R. 2804 has been introduced to require Rule of Two application to task and delivery orders.²⁷ This legislation addresses a critical gap created by the FAR Overhaul, which explicitly states that "the rule of two does not apply" to orders under multiple-award contracts while preserving it for new contracts. This bifurcated approach creates permanent, structural uncertainty for small business access at the task order level, where the majority of federal spending will occur.

The Urgent Need for Statutory Codification: The FAR Overhaul includes a new "Regulatory Sunset" provision in FAR Part 1.109 that requires non-statutory rules to be reaffirmed every four years. This creates ongoing uncertainty for small business protections. H.R. 2804 solves this by codifying the Rule of Two in statute, making it durable and applying it consistently across the modernized marketplace. Without this legislative action, small business access protections will be subject to periodic reconsideration and potential erosion.

Proposed Amendment for Consideration: We recommend enhancing H.R. 2804 with an amendment that ensures these protections are built into the foundation of automated acquisition systems:

Precedent: The FY2019 NDAA Section 856 required DoD to develop metrics for ensuring small business participation.²⁸ This extends similar accountability to automated systems while leveraging technology to reduce administrative burden.

Foundation for Fairness: Restoring Transparency and Due Process in Acquisition Governance

Beyond specific procurement changes, the FAR Overhaul introduces fundamental governance changes that create systemic uncertainty. The movement of substantive rules into non-binding "Practitioner Albums" and the expanded use of deviations without transparency represent a departure from the principles of due process and regulatory predictability that small businesses depend on for long-term planning and investment.

A. Consolidate Acquisition Guidance into the FAR

• Problem: The creation of separate "Practitioner Albums" for each FAR Part fragments acquisition guidance outside the formal regulatory framework. These albums bypass Administrative Procedure Act requirements, create non-binding suggestions that agencies may adopt inconsistently, and establish a shadow regulatory system that small businesses must navigate without certainty.²⁹
• Proposed Solution: All acquisition procedures affecting procurement outcomes must be incorporated directly into the FAR through proper notice-and-comment rulemaking. Practitioner Albums should be limited to training materials and examples, not substantive procedural guidance.
• Precedent: The Administrative Procedure Act (5 U.S.C. § 553) requires notice and comment for substantive rules, and FAR 1.102 establishes the principle of "uniform procurement policies."³⁰

B. Restore Transparency for Regulatory Deviations

• Problem: The FAR Overhaul has eliminated transparency requirements for deviations while employing blanket deviations to fundamentally change agency operations without Federal Register notice or public comment.
• Proposed Solution: Reinstate full transparency requirements for all FAR deviations, require public posting within 30 days of approval, prohibit class deviations to circumvent APA requirements, and mandate quarterly Congressional reporting on deviation usage.
• Precedent: Existing FAR 1.404 establishes deviation procedures, and the Freedom of Information Act (5 U.S.C. § 552) supports public access to government decision-making frameworks.³¹

C. Stabilize the Regulatory Environment for Small Business Planning

• Problem: The new four-year regulatory sunset (FAR 1.109) creates constant uncertainty about which rules will survive, preventing long-term business planning and repeatedly threatening established small business protections.
• Proposed Solution: Remove sunset provisions for small business regulations or, if retained, explicitly exempt FAR Part 19 programs, require 18-month advance notice before provisions expire, and mandate economic impact analysis before sunsetting small business protections.
• Precedent: The Regulatory Flexibility Act (5 U.S.C. § 601 et seq.) requires consideration of small business impacts in rulemaking.³²

D. Preserve Small Business Appeal Rights

• Problem: Multiple sections of the overhauled FAR reduce or eliminate appeal rights for small businesses, including size standard determinations, task order protests, and set-aside reconsideration processes.
• Proposed Solution: Codify universal appeal rights for adverse small business determinations, establish a Small Business Acquisition Ombudsman with review authority, create expedited appeal processes, and mandate written justifications for all non-set-aside decisions.
• Precedent: SBA Office of Hearings and Appeals procedures (13 CFR Part 134) and existing GAO bid protest timelines (4 C.F.R. Part 21) demonstrate workable appeal frameworks.³³

Legislative Integration: These foundational reforms should be incorporated into the amended H.R. 2804 to ensure that Rule of Two codification occurs within a transparent, predictable regulatory framework that provides due process and preserves small business rights.

1. Tiered Competition Framework

Proposed Structure for Discussion:

• $0-$100K: Maintain micro-purchase flexibility with small business preference guidance
• $100K-$250K: Preserve 100% small business set-aside for simplified acquisitions
• $250K-$2M: Small business set-aside unless justified otherwise
• $2M-$5M: 40% mandatory small business subcontracting
• $5M-$10M: Evaluation credit for small business participation
• Above $10M: Required unbundling analysis

Rationale: This framework maintains existing small business protections while creating graduated requirements that match acquisition complexity. The $250K floor for enhanced set-aside requirements aligns with the preserved statutory protection level while extending small business opportunities into higher value acquisitions.

Documented Precedents:

• Federal law already establishes a higher $7.5M threshold for commercial acquisitions (41 U.S.C. § 1903, 10 U.S.C. § 3453), proving the concept of tiered thresholds based on acquisition type.³⁴
• NASA SEWP V includes tiered evaluation credits that provide competitive advantages to small businesses³⁵
• Construction contracts utilize tiered subcontracting requirements under FAR 19.7, demonstrating the workability of graduated small business participation mandates³⁶

2. Universal On-Ramp Requirements

Framework for Vehicles Exceeding $50M:

• On-ramps every 18-24 months to ensure ongoing market access
• 20% ceiling reservation for new vendors to prevent market stagnation
• Streamlined qualification for small businesses to reduce administrative burden
• Protected period for newest vendors to ensure meaningful participation opportunity

Successful Precedents:

• GSA OASIS+: 2024 on-ramp added 400+ vendors, demonstrating the viability of regular refresh opportunities³⁷
• NIH CIO-SP4: Includes mandatory on-ramp provisions that ensure continuous market access for new entrants³⁸
• Navy SeaPort-NxG: Regular on-ramps since 2019 have maintained vibrant competition and access³⁹
• GSA Alliant 2: Successfully added 81 contractors via on-ramp, proving the concept for major IT acquisitions⁴⁰

3. Transparency and Accountability Measures

Proposed Visibility Requirements:

• All actions over $25K publicly reported, aligning with the Federal Funding Accountability and Transparency Act (FFATA) standard⁴¹
• Pre-solicitation notices for vehicle orders over $250K to enhance competition
• Weekly dashboard updates on set-aside rates to provide real-time accountability
• Quarterly vendor diversity metrics by agency to track participation trends

Rationale: Aligning with the existing FFATA standard ensures comprehensive transparency using a well-established framework, capturing nearly all significant transactions while leveraging current infrastructure. This addresses the 30-fold increase in non-transparent spending that would otherwise occur under the proposed micro-purchase threshold changes.

Existing Precedents:

• USASpending.gov current infrastructure already captures and displays this level of detail⁴²
• DoD's DIBBS pre-solicitation system demonstrates the feasibility of advanced notice requirements⁴³
• Virginia's eVA system provides real-time visibility into state procurement activities⁴⁴

4. GSA Schedule Enhancements

Contract-Based Requirements:

• Designated small business exclusive categories to ensure reserved space
• Published vendor ranking algorithms to ensure transparency in selection processes
• Streamlined access for qualified small businesses to reduce barriers to entry
• Monthly rotation of featured vendors to ensure visibility for all participants

Precedents:

• Amazon Business Government Marketplace uses small business badges to highlight small business offerings⁴⁵
• State of Georgia's small business exclusive categories have successfully reserved procurement opportunities⁴⁶
• SEWP V small business only ordering procedures demonstrate the workability of set-aside mechanisms within existing vehicles⁴⁷

5. Growth Transition Protections

Framework for Size Standard Graduates:

• Three-year "Recent Graduate" status with declining evaluation preference
• Joint venture allowances without affiliation under the SBA All Small Mentor-Protégé Program framework
• Prime contracting set-aside eligibility for former graduates on teaming bids
• Mentor-protégé participation rights to facilitate business development

Established Models:

• SBA All Small Mentor-Protégé Program (2016) provides the structural framework for these relationships⁴⁸
• DoD Comprehensive Subcontracting Test Program offers precedents for flexible subcontracting arrangements⁴⁹
• 8(a) Program nine-year graduation model demonstrates the effectiveness of transitional support mechanisms⁵⁰

The Technology Opportunity

Automation Eliminates the "Burden" Argument for Reducing Small Business Protections

The government's justification for excluding Rule of Two from task orders—administrative burden—becomes completely invalid when market research and set-aside determination functions are automated. This creates a unique opportunity to enhance both efficiency and small business participation simultaneously.

Current AI Development in Federal Acquisition:

• GSA is actively developing automated acquisition systems that can perform market research and vendor identification⁵¹
• Multiple agencies are piloting AI-powered market research tools that can analyze vendor capabilities automatically⁵²
• Automated vendor capability matching systems are in development that can identify qualified small businesses more comprehensively than manual methods⁵³

The Legislative Opportunity: If market research and set-aside analysis will be automated, then mandating small business consideration adds zero human workload while ensuring statutory compliance. The technology can be programmed to prioritize maximum practicable opportunity as required by law (15 U.S.C. § 644(a)). Furthermore, by mandating that the source code for government-wide automated acquisition systems be open-source, we ensure these critical tools remain transparent, auditable, and accountable to both Congress and the public.

Addressing the Core Flaw in the "Burden" Argument: The claim that small business protections create administrative burden becomes untenable when computers perform the analysis instantly. The technology can be designed from inception to optimize for both efficiency and small business participation, eliminating the false choice between modernization and fair access.

Conclusion

These proposals represent proven approaches that can be integrated into the modernization process to ensure consistent application of statutory small business mandates. They acknowledge technological advancement while ensuring small businesses retain meaningful access to federal opportunities. The goal is not to prevent modernization but to ensure it occurs fairly and transparently, maintaining the competitive marketplace essential to innovation and value.

The projected 38% reduction in small business participation ($72 billion annually) underscores the importance of building protections into the new system before the FAR Council completes its work in late 2025. By acting now, we can harness the power of automation to achieve the statutory goal of "maximum practicable opportunity" more effectively than ever before.

The technology exists to make federal procurement both more efficient and more accessible to small businesses—we need only ensure it is designed and implemented with both objectives in mind.