How to Meet the Limitations on Subcontracting on an SDVOSB Set-Aside
When you win an SDVOSB set-aside, federal law caps how much of the award you can pass through to other firms. The limitations on subcontracting exist to make sure the prime — not a large subcontractor — actually performs the work. This guide explains the percentage tests by contract type and how the similarly situated entity rule changes the math.
Before You Start
What you'll need
- An SDVOSB set-aside or sole-source award
- Your subcontracting plan and teaming arrangements
- Records of amounts paid to subcontractors
Systems used: Contract file · Accounting/job-cost system
Identify the contract type to pick the right test
The limitation is measured differently by contract type. For services, the prime may not pay more than 50% of the amount received from the government to firms that are not similarly situated. For supplies (other than from a non-manufacturer), the cap is also 50%. For general construction the cap is 85%, and for specialty trade construction it is 75%.
Measure against the right base
The test looks at the amount paid to non-similarly-situated subcontractors as a share of the total amount the prime receives from the government — not as a share of total cost. Identify which dollars count before you sign teaming agreements.
Tip: Use the Subcontracting Goal Calculator to model how much work you must self-perform under each contract type before you commit subcontractors.
Apply the similarly situated entity exception
Work subcontracted to a 'similarly situated entity' — a subcontractor that is itself an SDVOSB small under the same NAICS code as the prime contract — does not count against the limitation. This lets SDVOSB-to-SDVOSB teams pool work without breaching the cap.
Watch the ostensible subcontractor rule
Even if you meet the percentage test, an SDVOSB can be found ineligible if a subcontractor performs the primary and vital work or the prime is unusually reliant on it. Structure the relationship so the SDVOSB prime genuinely manages and performs the core scope.
Track performance throughout the contract
Compliance is measured over the life of the contract (or each order on a multiple-award vehicle, depending on terms). Keep job-cost records that show the share paid to non-similarly-situated subcontractors so you can demonstrate compliance if challenged.
Document compliance in writing
Maintain teaming agreements, similarly-situated certifications from your subcontractors, and payment records. A violation can lead to loss of the award, penalties, and status protests, so a clean paper trail is your best protection.
Primary Sources
This guide is general information, not legal advice. Verify current requirements against the cited regulations and your contracting officer before acting.
Change log (1)
- LaunchedPublished the how-to guide library covering SDVOSB certification, SAM.gov registration, recertification, limitations on subcontracting, status protests, finding set-asides, and joint ventures — each with HowTo structured data, primary-source citations, and cross-links into the glossary, FAQ, and calculators.