19.809-2 Limitations on subcontracting and nonmanufacturer rule
Source: FAR 19.809-2 on acquisition.gov
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.
(a) Limitations on subcontracting. To be awarded a contract or order under the 8(a) program, the 8(a) participant is required to perform—
(1) For services (except construction), at least 50 percent of the cost incurred for personnel with its own employees;
(2) For supplies or products (other than a procurement from a nonmanufacturer of such supplies or products), at least 50 percent of the cost of manufacturing the supplies or products (not including the cost of materials);
(3) For general construction, at least 15 percent of the cost with its own employees (not including the cost of materials); and
(4) For construction by special trade contractors, at least 25 percent of the cost with its own employees (not including the cost of materials).
(b) Compliance period. An 8(a) contractor is required to comply with the limitations on subcontracting—
(1) For a contract under the 8(a) program, either by the end of the base term and then by the end of each subsequent option period or by the end of the performance period for each order issued under the contract, at the contracting officer's discretion; and
(2) For an order competed exclusively among contractors who are 8(a) participants or for an order issued directly to one 8(a) contractor in accordance with 19.504(c)(1)(ii), by the end of the performance period for the order.
(c) Waiver. The applicable SBA District Director may waive the provisions in paragraph (b)(1) requiring a participant to comply with the limitations on subcontracting for each period of performance or for each order. Instead, the SBA District Director may permit the participant to subcontract in excess of the limitations on subcontracting where the SBA District Director makes a written determination that larger amounts of subcontracting are essential during certain stages of performance.
(1) The 8(a) participant is required to provide the SBA District Director written assurance that the participant will ultimately comply with the requirements of this section prior to contract completion. The contracting officer shall review the written assurance and inform the 8(a) participant of their concurrence or nonconcurrence. The 8(a) participant can only submit the written assurance to the SBA District Director upon concurrence by the contracting officer.
(2) The contracting officer does not have the authority to waive the provisions of this section requiring an 8(a) participant to comply with the limitations on subcontracting for each period of performance or order, even if the agency has a Partnership Agreement with SBA.
(3) Where the 8(a) participant does not ultimately comply with the limitations on subcontracting by the end of the contract, SBA will not grant future waivers for the 8(a) participant.
(d) Nonmanufacturer rule. See 19.505(c) for application of the nonmanufacturer rule, inclusive of waivers and exceptions to the nonmanufacturer rule.