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Limitations on Subcontracting (FAR 52.219-14)

Updated: Oct 2, 2023

What does it mean? The clause provides notification to a small business prime contractor of limits on subcontracting to first-tier subs. Of the amount paid by the Government, the prime may not subcontract more than the following percentages:

  • Services (except construction) - 50%

  • Supplies (other than procurement from a nonmanufacturer of the supplies) -- 50%, excluding the cost of materials.

  • General construction -- 85%, excluding the cost of materials

  • Construction by special trade contractors -- 75%, excluding the cost of materials.

In a recent change, work performed by a subcontractor who is a similarly situated entity does not count toward these limitations and can be used by the prime toward the percentage that must be self-performed.

What is a "similarly situated entity"? An entity that has the same small business program status as that which qualified the prime for award AND is considered small for the size standard under the NAICS assigned by the prime contractor to the subcontract. Example: Prime contractor received a contract award under a small business set-aside. Any first-tier subcontractor who is also a small business AND is a small business under the NAICS assigned by the prime to the subcontract is a "similarly situated entity". Independent contractors are considered a subcontractor for the purposes of determining if their work qualifies them as a similarly situated entity.

By when must I comply? For contracts, the Contracting Officer will indicate compliance by either (1) the end of the base term of the contract, and end of each subsequent option period; or (2) by the end of the performance period for each order. For orders, it is by the end of the performance period of the order.

What if I'm part of a joint venture (JV)? The JV must perform the applicable percentage by the aggregate of the JV participants. Include a term similar to the contract term in the JV agreement. There are exceptions for certain JVs.

  • JV Small Business Protégé and Mentor (SBA approved): Protégé must perform at least 40% of the work performed by the JV.

  • 8(a) JV: The 8(a) participants must perform at least 40% of the work performed by the JV.

  • In both exceptions, the work must be more than administrative functions.

FAR 52.219-14 also applies to other types of contract actions.

  • Part(s) of a multiple-award contract set-aside for small businesses,

  • Contracts awarded on a sole-source basis under one of the SBA Federal Contracting Programs,

  • Orders set-aside under either GSA schedules or multiple award contracts, or issued directly to small businesses under the same, and

  • Contracts using the HUBZone price evaluation preference to award to a HUBZone, unless the preference was waived.

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