VA medical center says our supply orders are going under the rule of two. I'm not a vet. Am I just out?

The VA rule of two means that if two or more veteran-owned small businesses (VOSBs) or service-disabled veteran-owned small businesses (SDVOSBs) can perform the work at a fair and reasonable price, the requirement will be set aside for them. You are not necessarily shut out, but your path to doing business with the VA will likely change to being a subcontractor to a VOSB or SDVOSB.

For a supply contract, the prime contractor, if it is a small business, will not pay more than 50 percent of the amount paid by the Government, excluding the cost of materials, to subcontractors that are not similarly situated entities (FAR 52.219-14(e)(2)). This means that a VOSB or SDVOSB can use your company as a subcontractor for materials, and this would not count against the limitations on subcontracting. The nonmanufacturer rule is a different concept; it applies when a small business that is not the actual manufacturer of the product bids on a supply contract set aside for small businesses. In that case, the small business must provide products of a small business manufacturer, or obtain a waiver from the SBA.

The VA rule of two applies to all VA procurements, including those below the simplified acquisition threshold and those above it, even if the general FAR rules would otherwise require a different set-aside. This is a VA-specific regulation that takes precedence for VA contracts.