Small Business Programs (Part 19)

FAR 52.219-14

Limitations on Subcontracting

Caps how much of the contract value (calculated as the amount paid to subcontractors as a percentage of the total amount the small-business concern is paid) a small-business prime can subcontract to other-than-similarly-situated entities. After the May 2016 NDAA rule changes, the limits are based on percentage of the amount paid TO the prime that is paid FURTHER to non-similar subs. Specific limits: services 50%, supplies 50%, general construction 85%, specialty trade 75%.

FAR / DFARS Part
FAR Part 19 — Small Business Programs
Prescribed By
FAR 19.507(e) — Required in contracts set aside or sole-sourced to small business concerns under the small-business programs.
Flow-down to Subcontracts

Flow down required when the prime subcontracts further within the set-aside scope (52.219-14(e)).

What this clause requires

  • 1Services (except construction): no more than 50% of the amount paid to the prime may be paid to non-similar subs.
  • 2Supplies (other than from regular dealers): no more than 50% of the amount paid to the prime may be paid to non-similar subs.
  • 3General construction: no more than 85% of the amount paid to the prime may be paid to non-similar subs.
  • 4Specialty trade construction: no more than 75% of the amount paid to the prime may be paid to non-similar subs.
  • 5'Similarly situated entity' subs (same socioeconomic status — SDVOSB to SDVOSB, etc.) do not count toward the cap.

When this clause applies

All small-business set-asides under FAR Part 19 (8(a), HUBZone, SDVOSB, WOSB, EDWOSB, total small-business set-asides). Both individual contracts and orders against multi-award vehicles.

Common pitfalls

!Counting only direct labor — the rule is on dollars paid, not just labor hours.
!Forgetting the 'similarly situated' exception — subs of the same socioeconomic status reduce the burden.
!Tracking compliance at contract end rather than throughout — corrective action is harder retroactively.
!Missing flow-down (paragraph (e)) when subcontracting further within the set-aside scope.

Proposal-team checklist

  • ☐Model the limit at proposal time — sum all anticipated non-similar sub payments and confirm under cap.
  • ☐Identify similarly-situated subs early — same socioeconomic status reduces compliance burden.
  • ☐Build a monthly internal compliance dashboard tracking dollars paid to each sub category.
  • ☐If risk approaches cap, plan a corrective action (insource, swap subs) well before period of performance end.

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FAQ

What counts as 'similarly situated'?

An SDVOSB prime can use SDVOSB subs without counting them against the cap. Same applies to other small-business categories. The sub must hold the same socioeconomic status that qualified the prime for the set-aside.

Is the calculation based on labor hours or dollars?

Dollars, since 2016 NDAA rule changes. Specifically: amount paid by Government to the small-business prime that is then paid to non-similar subs.

What happens if I exceed the cap?

Violations can trigger contract termination, debarment, False Claims Act exposure, and SBA enforcement. SBA's OIG has been active.

Related clauses

FAR 52.219-8
Utilization of Small Business
FAR 52.219-9
Small Business Subcontracting Plan
FAR 52.219-28
Small Business Rerepresentation

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Reference content based on the Federal Acquisition Regulation and DFARS as of June 2026. Always verify the current clause text at acquisition.gov before relying on it for an actual submission. Educational reference; not legal advice.