Limitations on Subcontracting (FAR 52.219-14): the 50% rule, worked out
What FAR 52.219-14 and 13 CFR 125.6 limit on set-aside contracts, how the amount-paid calculation works for services, supplies and construction, how similarly situated subcontractors count, and how to plan compliant workshare.
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When an agency sets a contract aside, it expects the small business it chose to do most of the work. FAR 52.219-14, Limitations on Subcontracting, implements that expectation (based on 15 U.S.C. 657s and SBA's rule at 13 CFR 125.6): it caps how much of the money the Government pays a small prime can flow to subcontractors that are not similarly situated. Plan the team around the cap from the first teaming conversation and you can still bring in large partners. Ignore it and you risk penalties, a poor performance record and a protest that takes the award away.
The limits by type of work
| Work type | The prime will not pay more than this share to subcontractors that are not similarly situated | Base for the calculation |
|---|---|---|
| Services (except construction) | 50% | Amount paid by the Government for contract performance |
| Supplies (other than from a nonmanufacturer) | 50% | Amount paid, excluding the cost of materials |
| General construction | 85% | Amount paid, excluding the cost of materials |
| Special trade construction | 75% | Amount paid, excluding the cost of materials |
When a contract combines services and supplies, the NAICS code the contracting officer assigns decides which limit applies (13 CFR 125.6). A prime that supplies another manufacturer's product as a nonmanufacturer is measured by the nonmanufacturer rule (13 CFR 121.406) instead of the supplies limit.
How the calculation works
The current rule measures dollars paid to subcontractors, not the older "cost of contract performance incurred for personnel" test that earlier clause versions used. The question is simple:
Amount paid to subcontractors that are not similarly situated, divided by the total amount paid by the Government (on the right base), must not exceed the limit.
Three details change the answer more than people expect:
- Similarly situated subcontractors count as the prime. Amounts paid to a first-tier subcontractor with the same program status that is small under the NAICS code assigned to its subcontract do not count against the limit. See similarly situated entities.
- Lower tiers count. Any work a similarly situated subcontractor passes on to its own subcontractors counts toward the limit.
- Independent contractors are subcontractors. Payments to 1099 consultants count against the limit unless the consultant is itself similarly situated.
Example: On a services set-aside, the Government pays $10 million in the base period. The prime pays $3 million to a large subcontractor and $2 million to a small business subcontractor that is similarly situated, and performs the rest. The non-similarly-situated share is 30%, which complies. If the small subcontractor passes $1 million of its work to a large lower-tier firm, that $1 million counts too: 40%, still compliant. If an option-year modification moved $5.5 million to the large subcontractor, the prime would be at 55% or more and out of compliance.
When compliance is measured
13 CFR 125.6 sets the measurement period. For a set-aside contract it is generally the base term and then each option period. For an order set aside under a multiple-award contract that was not itself set aside, it is generally each order, and contracting officers can require order-by-order compliance in other cases. Your contract states which applies, and it matters: a team that is compliant over five years can still fail in one option year.
Joint ventures and mentor-protégé teams
When a joint venture is the prime on a set-aside, work performed by the joint venture partners counts toward the joint venture's own share, and the small partner (or partners) must perform at least 40% of the work the joint venture performs (13 CFR 125.8). That makes a joint venture, including an SBA mentor-protégé joint venture, a common way to bring a large partner's capability into a set-aside without breaking the cap. See teaming agreements versus joint ventures.
Planning compliant workshare
Checklist: tick items as you go (saved in this browser only)
Common pitfalls
- Counting hours instead of dollars. A subcontractor with fewer, higher-priced labor categories can take more of the money than its headcount suggests.
- Assuming every small business is similarly situated. On an 8(a), HUBZone, SDVOSB or WOSB set-aside, the subcontractor needs the same program status, not just small size.
- Forgetting lower-tier subcontracting. Your similarly situated partner's own subcontracts count against your limit.
- Treating Limitations on Subcontracting as the only test. A large subcontractor that performs the primary and vital requirements can still make the prime affiliated under SBA's ostensible subcontractor rule (13 CFR 121.103(h)), even when the percentages work.
- Checking only at proposal time. Compliance is measured over performance, so the plan must survive staffing changes and modifications.
Watch out: Violations can bring penalties under the Small Business Act: 13 CFR 125.6 sets the fine at the greater of $500,000 or the amount paid to subcontractors above the permitted level, on top of contract remedies and the effect on past performance evaluations. Read the clause version in your contract; FAR text is being renumbered through the Revolutionary FAR Overhaul, and the clause in your solicitation controls.
How TeamingIndex helps
- The Team Builder runs a Limitations on Subcontracting check as you set workshare: it labels each member similarly situated, not similarly situated or undetermined (with the reason), uses each member's SAM.gov small business NAICS list, and shows the non-similarly-situated share to the hundredth of a percent.
- Find partners who are likely similarly situated for your set-aside, for example SDVOSBs small under NAICS 541512.
- Post a set-aside teaming need on the teaming board and state the status and NAICS code you need, so the right partners answer.
Not legal advice. TeamingIndex guides are general information to help you plan, not legal advice. Regulations, clauses and program rules change and solicitations can tailor them: always work from the current regulation and the clauses in your solicitation, and confirm decisions with your contracting officer or counsel.
Official sources
Primary regulations and program pages this guide was checked against on . Read them for the authoritative text.
- FAR 52.219-14: Limitations on Subcontractingacquisition.gov(opens in a new tab)
- 13 CFR 125.6: Prime contractor performance requirements (limitations on subcontracting)ecfr.gov(opens in a new tab)
- 13 CFR 125.1: Definitions (similarly situated entity)ecfr.gov(opens in a new tab)
- 13 CFR 125.8: Joint venture requirementsecfr.gov(opens in a new tab)