52.219-14 Limitations on Subcontracting
Source: FAR 52.219-14 on acquisition.gov
If you win a covered small business award, you must perform the required share of the work yourself or through similarly situated first-tier subcontractors, and you must track subcontracting percentages carefully by contract type and performance period.
Overview
- FAR 52.219-14, Limitations on Subcontracting, restricts how much work a small business prime contractor may subcontract to firms that are not similarly situated entities on certain set-aside, sole-source, and qualifying multiple-award contract actions.
- Its purpose is to ensure that small business awards provide meaningful performance opportunities to the small business concern or qualifying joint venture that received the award, rather than being largely passed through to other firms.
Key Rules
- Applicability and covered awards
- The clause applies to small business set-asides, certain sole-source awards under SBA programs, covered orders under multiple-award contracts, and HUBZone awards made using the price evaluation preference unless waived. It does not apply to the unrestricted portion of a partial set-aside.
- Similarly situated entities
- A first-tier subcontractor counts as similarly situated only if it has the same small business program status that qualified the prime for award and is small under the NAICS code assigned to the subcontract. Independent contractors are treated as subcontractors.
- Performance percentage limits
- For services and supplies, the contractor may not pay more than 50% of the applicable amount to subcontractors that are not similarly situated entities. For general construction, the cap is 85%; for special trade construction, 75%. For supplies and construction, cost of materials is excluded where stated.
- Timing and joint ventures
- Compliance is measured by the end of the base term and each option period, or by order performance period, depending on what the contracting officer selects. Joint ventures may aggregate performance, but SBA-approved mentor-protégé JVs and 8(a) JVs require the protégé or 8(a) participant(s) to perform at least 40% of the JV’s work, excluding merely administrative functions.
Responsibilities
- Contracting Officers: include the clause when prescribed, identify the correct compliance measurement period in the contract, and apply it only to covered awards and orders.
- Contractors: track payments to non-similarly situated subcontractors, classify subcontractors correctly, and structure performance to stay within the applicable percentage cap.
- Agencies: oversee compliance in set-aside and program awards to preserve the intended small business participation.
Practical Implications
- This clause exists to prevent pass-through contracting on small business awards.
- Contractors must monitor subcontracting throughout performance, especially on mixed contracts, multiple-award orders, and joint ventures.
- Common pitfalls include misclassifying a subcontractor as similarly situated, failing to count lower-tier subcontracting by a similarly situated first-tier subcontractor, and using the wrong compliance period.
As prescribed in 19.507(e), insert the following clause:
Limitations on Subcontracting (Oct 2022)
(a) This clause does not apply to the unrestricted portion of a partial set-aside.
(b) Definition.
Similarly situated entity, as used in this clause, means a first-tier subcontractor, including an independent contractor, that—
(1) Has the same small business program status as that which qualified the prime contractor for the award (e.g., for a small business set-aside contract, any small business concern, without regard to its socioeconomic status); and
(2) Is considered small for the size standard under the North American Industry Classification System (NAICS) code the prime contractor assigned to the subcontract.
(c) Applicability. This clause applies only to—
(1) Contracts that have been set aside for any of the small business concerns identified in 19.000(a)(3);
(2) Part or parts of a multiple-award contract that have been set aside for any of the small business concerns identified in 19.000(a)(3);
(3) Contracts that have been awarded on a sole-source basis in accordance with subparts 19.8, 19.13, 19.14, and 19.15;
(4) Orders expected to exceed the simplified acquisition threshold and that are—
(i) Set aside for small business concerns under multiple-award contracts, as described in 8.405-5 and 16.505(b)(2)(i)(F); or
(ii) Issued directly to small business concerns under multiple-award contracts as described in 19.504(c)(1)(ii);
(5) Orders, regardless of dollar value, that are—
(i) Set aside in accordance with subparts 19.8, 19.13, 19.14, or 19.15 under multiple-award contracts, as described in 8.405-5 and 16.505(b)(2)(i)(F); or
(ii) Issued directly to concerns that qualify for the programs described in subparts 19.8, 19.13, 19.14, or 19.15 under multiple-award contracts, as described in 19.504(c)(1)(ii); and
(6) Contracts using the HUBZone price evaluation preference to award to a HUBZone small business concern unless the concern waived the evaluation preference.
(d) Independent contractors. An independent contractor shall be considered a subcontractor.
(e) Limitations on subcontracting. By submission of an offer and execution of a contract, the Contractor agrees that in performance of a contract assigned a North American Industry Classification System (NAICS) code for—
(1) Services (except construction), it will not pay more than 50 percent of the amount paid by the Government for contract performance to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 50 percent subcontract amount that cannot be exceeded. When a contract includes both services and supplies, the 50 percent limitation shall apply only to the service portion of the contract;
(2) Supplies (other than procurement from a nonmanufacturer of such supplies), it will not pay more than 50 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 50 percent subcontract amount that cannot be exceeded. When a contract includes both supplies and services, the 50 percent limitation shall apply only to the supply portion of the contract;
(3) General construction, it will not pay more than 85 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 85 percent subcontract amount that cannot be exceeded; or
(4) Construction by special trade contractors, it will not pay more than 75 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 75 percent subcontract amount that cannot be exceeded.
(f) The Contractor shall comply with the limitations on subcontracting as follows:
(1) For contracts, in accordance with paragraphs (c)(1), (2), (3) and (6) of this clause—
[Contracting Officer check as appropriate.]
□ By the end of the base term of the contract 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.
(2) For orders, in accordance with paragraphs (c)(4) and (5) of this clause, by the end of the performance period for the order.
(g) A joint venture agrees that, in the performance of the contract, the applicable percentage specified in paragraph (e) of this clause will be performed by the aggregate of the joint venture participants.
(1) In a joint venture comprised of a small business protégé and its mentor approved by the Small Business Administration, the small business protégé shall perform at least 40 percent of the work performed by the joint venture. Work performed by the small business protégé in the joint venture must be more than administrative functions.
(2) In an 8(a) joint venture, the 8(a) participant(s) shall perform at least 40 percent of the work performed by the joint venture. Work performed by the 8(a) participants in the joint venture must be more than administrative functions.
(End of clause)