52.219-14
Limitations on Subcontracting
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.