Now that we are post holidays, while the kids are playing with their new gadgets or you are having your coffee scrolling on your phone (because, as entrepreneurs, that's what we do, right)...take a quick read and expand your Federal contracting knowledge!
Q: What are the limitations on subcontracting for small business primes?
A: Limitations on subcontracting typically apply to all contracts awarded to small businesses under set asides valued over the Simplified Acquisition Threshold (SAT), as defined in the Federal Acquisition Regulation (FAR) subpart 2.101. It's implemented via FAR clause 52.219-14.
The clause provides notification to a small business prime contractor of limits on subcontracting to first-tier subcontractors who are not similarly situated entities. Of the amount paid by the Government, the prime may not subcontract more than the following percentages:
▶️Services (except construction) - 50% of the amount to be paid by the Government under the contract, excluding the cost of materials.
▶️Supplies (other than procurement from a nonmanufacturer of the supplies) -- 50%, of the amount to be paid by the Government under the contract, excluding the cost of materials.
▶️General construction -- 85% of the amount to be paid by the Government, excluding the cost of materials
▶️Construction by special trade contractors -- 75% of the amound to be paid by the Government, excluding the cost of materials.
Work performed by a first-tier 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. However, credit cannot be taken for work that a first-tier subcontractor further subcontracts to a similarly situated entity.
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.
The Contracting Officer will indicate compliance is required 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.
Read more about limitations on subcontracting when part of a joint venture and other details at the FedSubK NOW! blog here.
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