13 CFR § 125.6
Limitations on Subcontracting
In Plain English
When a firm wins a small business or SDVOSB set-aside, it can't simply pass the work through to a large business. 13 CFR § 125.6 caps how much of the award the prime may subcontract to firms that are not 'similarly situated.' The rule is measured by the percentage of the amount paid by the government that the prime spends on subcontractors — and work given to similarly situated entities (here, other certified SDVOSBs) does not count against the cap. This is the operative compliance test behind every SDVOSB set-aside.
Who It Applies To
- Prime contractors holding SDVOSB (and other small business) set-aside or sole-source awards.
- Joint ventures performing set-aside work, where the JV is treated as the prime.
- Subcontracting and teaming arrangements that rely on similarly situated entities to meet the limit.
Key Provisions
| Provision | What It Means |
|---|---|
| Services (except construction) | The prime may not pay more than 50% of the amount paid by the government to firms that are not similarly situated entities. Put differently, the prime plus its similarly situated subs must perform at least 50% of the work. |
| Supplies / products (other than from a nonmanufacturer) | The prime may not pay more than 50% of the amount paid by the government (excluding the cost of materials) to non-similarly-situated firms. |
| General construction | The prime may not pay more than 85% of the amount paid by the government (excluding materials) to non-similarly-situated firms. |
| Specialty trade construction | The prime may not pay more than 75% of the amount paid by the government (excluding materials) to non-similarly-situated firms. |
| Similarly situated entities | Work subcontracted to a similarly situated entity — for an SDVOSB set-aside, another certified SDVOSB that is small for the assigned NAICS code — is excluded from the percentage counted against the limit. |
Common Pitfalls
- Measuring the limit by hours or scope rather than by the share of the dollars paid by the government, which is how the rule is written.
- Counting a subcontractor as 'similarly situated' when it is not certified for the same program or is not small under the procurement's NAICS code.
- Forgetting that materials are excluded from the calculation for supplies and construction but the percentages differ by contract type.
- Assuming the prime can flow all performance to a single large teaming partner — that is the ostensible-subcontractor trap that also raises affiliation concerns.
Frequently Asked
What is the limitations on subcontracting rule?
13 CFR § 125.6 caps how much of a set-aside award the prime can pass to firms that are not 'similarly situated.' For services, the prime and its similarly situated subcontractors must perform at least 50% of the work — measured by the share of the amount paid by the government.
Do similarly situated subcontractors count against the limit?
No. Work performed by a similarly situated entity — for an SDVOSB set-aside, another certified SDVOSB that is small for the assigned NAICS code — is excluded from the percentage counted against the subcontracting limit.
How is the 50% limit measured?
By dollars, not hours. The rule looks at the percentage of the amount paid by the government that the prime spends on non-similarly-situated subcontractors. For supplies and construction, the cost of materials is excluded and the percentages differ by contract type.
Primary Sources
Plain-English explainer, 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 plain-English regulation explainers for 13 CFR Part 128 (VetCert), FAR Subpart 19.14, 13 CFR § 125.6 (limitations on subcontracting), 38 U.S.C. § 8127 (Veterans First), FAR 52.219-27, and 13 CFR Part 134 Subpart J (status protests) — each with a key-provisions table, common pitfalls, FAQPage and Legislation structured data, primary-source citations, and cross-links into the glossary, how-to guides, FAQ, and comparisons.