The FAR Council Strikes Back: How the latest FAR rewrite hurts small-business competition
Nine years ago, the FAR Council tried and failed to mandate consolidated contracting, but this time, the mandate will go into effect.
The latest edition of the FAR rewrite—ahem, the Revolutionary FAR Overhaul—was significant enough to merit a White House press release. In the release, Dr. Kevin Rhodes, the nominee for Administrator of the Office of Federal Procurement Policy, exclaimed in bold, italicized font how the rewrite of several sections of the FAR—including FAR Part 8—will result in “more robust competition” and “increase[] participation by innovative small business manufacturers [and] new entrants.” I give credit to Dr. Rhodes for at least mentioning small businesses, since they were left out of prior OFPP announcements. But Dr. Rhodes is wrong on the competition point. The new FAR Part 8 is going to hurt small-business competition.
The FAR Council has tried to rewrite FAR Part 8 before. In 2016, the FAR Council issued a proposed rule to implement what was then called the Federal Strategic Sourcing Initiative, essentially a contract consolidation program. Using FSSI contracts would be mandatory unless the agency couldn’t find the product on an FSSI contract or the agency justified going elsewhere. In other words, the government had to go to consolidated contracts first.
The FAR Council retracted that proposal because the pushback from small businesses was so intense. Across 78 public comments, small businesses called the proposal “Orwellian” and lamented “that it was going to hurt more small businesses than it is going to help.” The Coalition for Government Procurement—a procurement policy trade group that has both large and small contractors as members—advised that the FSSI program “has had a negative impact on small businesses.”
That was nine years ago. The FAR Council withdrew its previous FAR Part 8 rewrite because, back then, new contracting policies were required to be proposed to the public before they were put into effect. But not with this current FAR rewrite.
Now, under the guise of the Executive Order that fast-tracks the FAR rewrite, the FAR Council can make new procurement policies effective before receiving public feedback. That’s what they did here with FAR Part 8, and the result is an even harsher consolidation mandate that will have a worse negative impact on small businesses.
Accelerating the decline in small business participation
The negative impact comes about because the new FAR Part 8 rewrite mandates that agencies use so-called best-in-class contracts. These are consolidated nationwide contracts designated by OFPP as “model contract solutions.” Best-in-class contracts currently cover only 13.6% of eligible contract spending. That figure will undoubtedly increase under the new mandate.
And with the increase in best-in-class contracts will come a decrease in the number of small businesses that sell directly to the Federal government. That is because—of the 60,951 small businesses that received Federal awards in 2024—only 2,969 were vendors on best-in-class contracts. (GWCM Small Business Dashboard.) That’s less than 5% of small business vendors:
The Federal government has already seen a 50% drop in small-business vendors since 2009. The best-in-class mandate will only accelerate that decline.
Less competition, more concentration
Back to Dr. Rhodes’s point: How can restricting government contracts to less than 5% of small businesses create more robust competition? Even if we concede that best-in-class contracts might result in lower prices and less administrative work, they don’t lead to more competition. OFPP itself recognized this during the first Trump administration: in 2019, OFPP allowed agencies to opt out of best-in-class (or BIC) contracts where “use of the BIC or Government-wide solution would force the agency to rely on a small cadre of small business providers that could create significant mission risk.” (That exception doesn’t exist in the latest rewrite.) And, during the fight over the Federal Strategic Sourcing initiative, the Coalition for Government Procurement found that in just the office-supplies industry, consolidation could reduce the number of small businesses from over 400 to just 23.
That’s not robust competition; it’s concentrating government buying with a handful of firms. That’s great if you are one of the 5% of small businesses that win best-in-class awards. The average annual best-in-class spending with those 2,969 small businesses was $8 million. But I don’t understand the logic that the Part 8 mandate would increase competition or invite new entrants into contracting. The very opposite is true, and it will mean a steep drop in small-business participation.
Best-in-class is not statutory
Another confusing aspect of the new Part 8—specifically the best-in-class mandate—is that it is divorced from the purpose of the FAR rewrite as a whole. The FAR rewrite is supposed to ensure that the FAR “is refocused on its statutory roots.” But best-in-class is not required by statute. While at SBA, I was responsible for implementing the only statute that mentions best-in-class contracting: a paragraph in 15 USC 644(g) that requires an annual report to Congress on small businesses in best-in-class contracts. There isn’t a statute anywhere that requires agencies to use best-in-class contracting.
It’s not in an Executive Order either—Executive Order 14240 on consolidating procurement—doesn’t mention best in class. That executive order is more about consolidating procurement functions at GSA than consolidating contracting with a handful of contractors. The best-in-class mandate first appears in an OMB memorandum, but, as I learned when negotiating the Rule of Two, OMB memos are not themselves law.
By putting the best-in-class mandate in Part 8 itself, the FAR Council is turning the mandate into the equivalent of a law. Federal regulations are legal requirements for agency action. As part of a Federal regulation, the new best-in-class mandate will raise the possibility of bid protests against agencies that don’t follow the mandate. So, while the FAR Council is seeking legislation to make it harder to file bid protests, they appear to have created a new, broad basis for protests. An agency that uses a non-best-in-class contract will be susceptible to a protest that it should have used a best-in-class contract.1
Commercial buying becomes the norm
One more point about Dr. Rhodes’s quotes: In his defense, he probably wasn’t referring to Part 8 when remarking that the FAR rewrite would spark competition. The press release isn’t particularly clear on this; it only specifically mentions the rewrite of part 8 and the elimination of parts 38 and 51. But it’s really the rewrite of another part of the FAR, Part 12, that deregulates. The rewrite of FAR Part 12 on commercial purchasing is the most likely change to promote competition.
The rewritten FAR Part 12 directs agencies to use RFQs—requests for quotations—rather than RFPs for all purchases of commercially available products and services valued at or below $7.5 million. Agencies can use standing price quotations and unpriced purchase orders. The resulting contracts will have far fewer clauses. The text defines commercial to include construction.
This move to mimic commercial practices in government procurement will attract some new entrants and be welcomed by most small businesses. It also will make government buying less uniform and the process less transparent. Under the new Part 12, agencies won’t need to use evaluation plans. There will be no requirement to score quotations or establish a competitive range. After award, the government is only required to provide a brief explanation for award—not a full debriefing.
These changes will certainly speed up procurement. And it should make things easier on subcontractors too—fewer clauses means fewer flowdowns. But my bigger concern is that the consolidation brought about by the best-in-class mandate will overwhelm any deregulatory benefit for small businesses. Ultimately, small-business competition will suffer.
Sam Le is a Virginia- and D.C.-licensed attorney. His website is www.samlelaw.com.
Also, because the best-in-class mandate is not statutory, it would be covered by the four-year sunset provision in the OMB memo on the FAR rewrite.
Great article, Sam. This shows how they can avoid the Rule of Two small business preference without even changing FAR Part 19. There is no mandatory Rule of Two under FAR Part 8. This category management practice forces agencies to use preselected contract vehicles (like Army CHESS, NASA SEWP, and GSA MAS), where there might not be two or more capable small businesses, despite the existence of dozens of capable small businesses available on the open market. Forcing agencies to work with only a few firms will eliminate competition, while also reducing the responsiveness of industry. One more order to a firm with hundreds of government orders is just another order. However, to a small firm that same order might be the company's biggest order and would get prioritized.
This is also an example of how they pick and choose, not based on statues, but rather preference. The FAR Part 8 overhaul does not point to a statute to eliminate the small business Rule of Two. Instead it points to the GSA FAR Supplement as the authority to avoid the mandatory small business preference. That's a long way off of getting back to statutes, it's just making things up as they go along because they don't want the chosen few firms to have to compete with small business.
Sam. Great points, all. FAR revisions affecting the public should be subject to review and public comment (APA). How or why is this not being done for these major revisions? RFPs will also afford agencies the opportunity to rank and rate offers (Best Value). Comparative evaluations very rarely result in nonresponsibility determinations where the offer of a small businesses (apparent successful offeror is eliminated). That offer would otherwise be subject to a Certificate of Competency referral to SBA; further limiting the ability of a small business to be re-evaluated by SBA for the possible award of that contract. Finally, RFP evaluations generally take longer to perform than sealed bids. Time saved? Much has changed since I retired from SBA.