Limitations on subcontracting and nonmanufacturer rule
8(a) contractors must perform a minimum percentage of work with their own employees and comply with subcontracting limits, with waivers only available through SBA approval and strict documentation.
Overview
FAR 19.809-2 establishes the limitations on subcontracting and the nonmanufacturer rule for contracts awarded under the 8(a) program. It specifies the minimum percentage of work that 8(a) participants must perform with their own employees for different contract types (services, supplies, general construction, and special trade construction). The section also outlines when compliance with these limitations must be measured, provides for possible waivers by the SBA District Director under specific circumstances, and references the nonmanufacturer rule for supply contracts. The regulation ensures that the benefits of 8(a) contracts primarily support eligible small businesses rather than being passed through to subcontractors or nonmanufacturers.
Key Rules
- Limitations on Subcontracting
- 8(a) participants must perform a minimum percentage of work with their own employees: 50% for services and supplies (excluding materials), 15% for general construction, and 25% for special trade construction.
- Compliance Period
- Compliance is measured either at the end of each contract period or order, as determined by the contracting officer.
- Waiver Process
- The SBA District Director may grant waivers for exceeding subcontracting limits if justified, but the 8(a) participant must provide written assurance of ultimate compliance, and the contracting officer must concur.
- Nonmanufacturer Rule
- For supply contracts, the nonmanufacturer rule applies as detailed in FAR 19.505(c).
Responsibilities
- Contracting Officers: Ensure 8(a) participants comply with subcontracting limitations, review and concur on waiver assurances, and cannot independently waive requirements.
- Contractors: Track and document compliance with subcontracting limits, seek waivers if necessary, and provide required assurances.
- Agencies: Oversee compliance and coordinate with SBA for waivers.
Practical Implications
- This section prevents pass-through contracting and ensures 8(a) firms perform substantial work. Noncompliance can result in loss of future waivers and jeopardize program eligibility. Contractors must carefully monitor labor and cost allocations, and coordinate closely with contracting officers and SBA for any exceptions.