Question 1

How is the 50% supply contract rule calculated?

Accepted Answer

For SDVOSB supply contracts, the prime must perform at least 50% of the cost of manufacturing — meaning the cost of converting raw materials into the finished product. This does not include the cost of materials themselves. If the SDVOSB is a non-manufacturer (a dealer or reseller), different rules apply — the contractor must supply products manufactured by a domestic small business or another SDVOSB.

Question 2

What are the limitations on subcontracting for SDVOSB set-asides?

Accepted Answer

For SDVOSB set-aside contracts, the prime contractor must comply with limitations on subcontracting in FAR 52.219-14. For service contracts: the SDVOSB must perform at least 50% of the cost of personnel. For supply contracts: at least 50% of the cost of manufacturing. For construction: at least 15% of the cost of the contract. Similarly situated subcontractors (also SDVOSBs) count toward these requirements.

Question 3

What is the primary industry exception to limitations on subcontracting?

Accepted Answer

The primary industry exception applies when a business operates in a specialty trade industry (e.g., electrical, plumbing, HVAC) or a primary industry where it is standard practice to subcontract. In these cases, the prime may subcontract more work than the standard 50% requirement, provided the prime performs the work its business type normally performs. This exception is documented in SBA regulations and must be well-supported.

How is the 50% supply contract rule calculated?

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