19.505
Limitations on subcontracting and nonmanufacturer rule
FAR 19.505 strictly limits how much work small business primes can subcontract and sets requirements for nonmanufacturers to ensure set-aside benefits stay with small businesses.
Overview
FAR 19.505 establishes the limitations on subcontracting and the nonmanufacturer rule for small business set-asides and related awards. It sets strict thresholds on how much work a small business prime contractor can subcontract to non-similarly situated entities and outlines requirements for nonmanufacturers providing end items they do not produce. The regulation applies to most small business set-asides above the simplified acquisition threshold, as well as certain sole-source and set-aside contracts and orders, regardless of dollar value. It also details compliance periods, waiver procedures, and special rules for kit assemblers and multiple-item acquisitions.
Key Rules
- Applicability
- Applies to small business set-asides above the simplified acquisition threshold and certain set-aside or sole-source contracts/orders under specific subparts, regardless of value.
- Limitations on Subcontracting
- For services (except construction): No more than 50% of contract value (excluding similarly situated entities) may be subcontracted.
- For supplies/products: No more than 50% (excluding materials and similarly situated entities).
- For general construction: No more than 85%.
- For special trade construction: No more than 75%.
- Compliance Period
- Contractors must comply by the end of the base term/option period or by the end of each order’s performance period, as determined by the contracting officer.
- Nonmanufacturer Rule
- Nonmanufacturers must supply end items made by small businesses in the U.S., meet size standards, be engaged in trade, and take ownership/possession. Kit assemblers have additional requirements.
- Waivers
- SBA may grant class or individual waivers to the nonmanufacturer rule under specific circumstances.
Responsibilities
- Contracting Officers: Ensure compliance with subcontracting limits, determine compliance periods, notify offerors of waivers, and request waivers when necessary.
- Contractors: Track and limit subcontracting to non-similarly situated entities, comply with nonmanufacturer rule requirements, and maintain documentation.
- Agencies: Oversee compliance, request waivers from SBA, and provide required notifications.
Practical Implications
- This section ensures that small business set-asides benefit small businesses and prevent excessive pass-through to large firms. Contractors must carefully monitor subcontracting percentages and understand the nonmanufacturer rule to avoid noncompliance. Common pitfalls include miscalculating subcontracting percentages, misunderstanding similarly situated entity status, and failing to obtain or communicate waivers.