Limitations on Subcontracting Calculator

Sets the applicable limit under 13 CFR § 125.6

What is the limitations on subcontracting rule for SDVOSB set-asides?

The limitations on subcontracting rule (13 CFR § 125.6, implemented by FAR 52.219-14) caps how much of a set-aside award the prime contractor may pass through to firms that are not 'similarly situated.' For services, the prime cannot pay more than 50% of the amount paid by the government to non-similarly-situated subcontractors — meaning the prime plus its similarly situated subcontractors must perform at least 50% of the work. For supplies and products (other than from a nonmanufacturer) the limit is also 50%; for general construction it is 85%; and for specialty trade construction it is 75%. The rule exists so that a small business or SDVOSB set-aside is actually performed by the eligible firm rather than being passed through to a large business.

How is the 50% limitation on subcontracting measured — by hours or dollars?

By dollars, not labor hours. The rule looks at the percentage of the 'amount paid by the government' that the prime spends on non-similarly-situated subcontractors. For service contracts the base is the full award amount. For supplies and construction, the cost of materials is excluded from the base before the percentage is applied. Because the test is dollar-based, a prime can comply on a labor-heavy contract by self-performing more of the labor, and the calculation should track the actual dollars flowing to each subcontractor across the period of performance.

What is a 'similarly situated entity' and why does it matter?

A similarly situated entity (SSE) is a subcontractor that holds the same socioeconomic set-aside status as the prime and is small under the NAICS code assigned to the procurement. For an SDVOSB set-aside, a similarly situated entity is another certified SDVOSB that is small for that NAICS code. It matters because work performed by a similarly situated entity does NOT count against the limitations on subcontracting cap — it is treated like self-performed work. That makes SSE teaming a powerful, compliant way to deliver large set-asides: the prime and one or more SSEs can together perform the required minimum share while still subcontracting other scope to large businesses.

Does work subcontracted to another SDVOSB count against the limit?

No. Work subcontracted to a similarly situated entity — for an SDVOSB set-aside, another certified SDVOSB that is small under the procurement's NAICS code — is excluded from the percentage counted against the limitations on subcontracting cap. Only payments to non-similarly-situated firms (such as large businesses, or small businesses that don't hold the same set-aside status) count toward the limit. This is why the calculator separates similarly situated subcontracting from non-similarly-situated subcontracting: only the latter is capped.

Are materials excluded from the limitations on subcontracting calculation?

For supplies/products and for construction contracts, yes — the cost of materials is excluded from the base before applying the percentage limit. So for a general construction contract, the prime may not pay more than 85% of the amount paid by the government, excluding materials, to non-similarly-situated firms. For a services contract (except construction), there is no materials exclusion in the standard test; the 50% limit applies to the full amount paid by the government. The calculator only asks for a materials figure when you select a supplies or construction contract type.

What are the limitations on subcontracting percentages by contract type?

Under 13 CFR § 125.6: (1) Services, except construction — the prime may pay no more than 50% of the amount paid by the government to non-similarly-situated firms; (2) Supplies or products, where the firm is not a nonmanufacturer — no more than 50%, excluding the cost of materials; (3) General construction — no more than 85%, excluding materials; (4) Specialty trade construction — no more than 75%, excluding materials. Restated as a self-performance floor, the prime plus its similarly situated subcontractors must perform at least 50% (services and supplies), 15% (general construction), or 25% (specialty trade construction) of the applicable base.

What happens if an SDVOSB prime violates the limitations on subcontracting?

Violating the limitations on subcontracting is a serious compliance failure. It can lead to a status or responsibility challenge, contract termination, negative past performance, and — where misrepresentation is involved — civil False Claims Act liability and even criminal penalties, because FAR 52.219-14 requires the contractor to certify compliance. Excessive reliance on a single large subcontractor can also trigger the 'ostensible subcontractor' rule, under which SBA treats the prime and subcontractor as affiliated (or the subcontractor as the real prime), defeating the set-aside. Primes should plan the work split before award, document which subcontractors are similarly situated, and track actual dollars paid throughout performance.

How does the limitations on subcontracting rule differ from a subcontracting plan goal?

They are opposite-facing requirements. The limitations on subcontracting rule (13 CFR § 125.6) applies to a small business or SDVOSB PRIME on a set-aside and caps how much it may subcontract OUT to non-similarly-situated firms — it forces the eligible firm to self-perform a minimum share. A subcontracting plan goal (FAR 52.219-9) applies to a LARGE business prime and sets a minimum it must subcontract TO small business categories, including SDVOSBs. If you are a large prime negotiating SDVOSB subcontracting targets, use the Subcontracting Goal Calculator instead; this calculator is for the SDVOSB or small business prime holding the set-aside.