Limitations on Subcontracting Compliance Checklist
Winning a set-aside obligates you to perform most of the work yourself. The limitations on subcontracting at 13 CFR 125.6 cap how much of the award the prime can pass to firms that aren't similarly situated — and blowing the cap is both a compliance failure and a fraud exposure. Run this checklist as you build the teaming plan, and run it again from actuals before the contract closes out.
Who Should Run This
- SDVOSB primes building a teaming or subcontracting plan
- Small-business primes on any set-aside, who are subject to the same limits
- Compliance and contracts staff reconciling self-performance at closeout
Identify the applicable limit (13 CFR 125.6)
You've classified the contract by type: services, supplies, general construction, or specialty-trade construction.
The cap depends on the work type — the four categories carry four different self-performance thresholds (13 CFR 125.6(a)).
For services, the prime + similarly situated entities will perform at least 50% of the cost of contract performance incurred for personnel.
Services (except construction): no more than 50% of the amount paid by the government may go to firms that are not similarly situated (13 CFR 125.6(a)(1)).
For supplies, the prime + similarly situated entities will perform at least 50% of the cost of manufacturing (excluding the cost of materials).
Supplies (other than from a nonmanufacturer): the 50% self-performance test is measured on the cost of manufacturing, excluding materials (13 CFR 125.6(a)(2)).
For general construction, no more than 85% of the cost (excluding materials) goes to non-similarly-situated subs.
General construction: the prime + similarly situated entities perform at least 15% of the cost of the contract, excluding materials (13 CFR 125.6(a)(3)).
For specialty-trade construction, no more than 75% of the cost (excluding materials) goes to non-similarly-situated subs.
Special trade construction: the prime + similarly situated entities perform at least 25% of the cost of the contract, excluding materials (13 CFR 125.6(a)(4)).
Apply the similarly-situated-entity offset (13 CFR 125.6(c))
Work passed to a similarly situated subcontractor is excluded from the subcontract total for the limitation.
A subcontractor that is both small and holds the same set-aside status (e.g., another SDVOSB on an SDVOSB award) is 'similarly situated'; its work counts toward the prime's self-performance, not against it (13 CFR 125.6(c)).
Each claimed similarly situated entity actually holds the same set-aside status and is small for the NAICS.
The offset only applies if the sub genuinely qualifies — verify certification and size, because a wrong assumption collapses the offset and can breach the limit.
Lower-tier (second-tier) subcontracting by your similarly situated subs is accounted for.
Work a similarly situated sub further subcontracts to a non-similarly-situated firm does not count toward self-performance — track the flow-down.
Document and reconcile
Your bid/teaming model shows the prime + SSEs meeting the limit with headroom, not exactly at the line.
Estimates drift during performance; build margin so normal variance doesn't push you over. The Limitations on Subcontracting Calculator models the split.
Actual cost records will let you prove compliance at closeout, period of performance, or by order.
Compliance is generally measured over the period of performance (or per order on certain vehicles) — keep cost records that map to the applicable measurement period and the FAR 52.219-14 clause terms.
Where Firms Fail This Audit
- Counting materials in the wrong direction — for supplies and construction, the cap is measured excluding the cost of materials.
- Assuming any small-business sub is 'similarly situated' — it must hold the same set-aside status as the award.
- Bidding exactly at the 50% line, then breaching it when a self-performed task slips to a sub mid-performance.
- Forgetting that work a similarly situated sub further subcontracts to a non-SSE doesn't count as self-performance.
- Not retaining cost records that tie to the measurement period the clause actually uses.
Frequently Asked
How much work must an SDVOSB prime self-perform on a set-aside?
It depends on the contract type. For services and for supplies, the prime plus similarly situated entities must perform at least 50% of the work (measured on personnel cost for services, and on manufacturing cost excluding materials for supplies). For general construction it's at least 15%, and for specialty-trade construction at least 25%, each excluding materials (13 CFR 125.6).
What is a 'similarly situated entity'?
A subcontractor that is both small for the contract's NAICS code and holds the same set-aside certification as the prime — for example, another certified SDVOSB on an SDVOSB set-aside. Work performed by a similarly situated entity counts toward the prime's self-performance instead of against the limitations on subcontracting (13 CFR 125.6(c)).
When is compliance with the limitations measured?
Generally over the entire period of performance of the contract, though certain vehicles measure it by order or by the base and each option period. The governing clause is FAR 52.219-14, and you should keep cost records aligned to whichever measurement period applies.
Primary Sources
Self-audit aid, not legal advice. SDVOSB rules are still settling after the 2023 transfer of certification to the SBA, and federal acquisition dollar thresholds are periodically adjusted for inflation — verify current figures and procedures against the cited authority and your contracting officer before acting.
Change log (1)
- LaunchedPublished printable, source-cited self-audit checklists for SDVOSB ownership & control, the limitations on subcontracting, joint ventures, the VetCert application package, recertification & status maintenance, and set-aside bid readiness — each with an ItemList of the checks plus FAQPage, Dataset, and BreadcrumbList structured data, primary-source citations, and cross-links into the regulation explainers, how-to guides, glossary, FAQ, and calculators.