XL EagleLimitations on subcontracting (Limitations on subcontracting (LoS))
Limitations on subcontracting stands for Limitations on subcontracting (LoS). The limitations on subcontracting rule makes sure a small business that wins a set-aside or sole-source small business contract does a meaningful share of the work itself. It limits how much of the contract money the prime can pay to subcontractors that are not 'similarly situated,' meaning not in the same small business program.
Under SBA rules, the prime generally may not pay more than 50 percent of the amount it receives to non-similarly situated subs for services or for supplies, more than 85 percent for general construction, or more than 75 percent for specialty trade construction. For supplies and construction, the cost of materials is excluded. Work done by similarly situated subs counts as the prime's own.
Why it matters to a small contractor
If you are a subcontractor, this rule shapes how big a slice of a set-aside job you can get. If you are a small prime, track your payments to subs through the whole contract. Check whether the solicitation includes FAR 52.219-14, since that clause sets the rule for that contract.
Example
A small business wins a $500,000 set-aside for building maintenance services. To stay within the limit, it pays no more than $250,000 to non-similarly situated subcontractors and uses its own staff for the rest.
Limitations on subcontracting: common questions
What is the limitation on subcontracting for services?
For services, a small prime generally may not pay more than 50 percent of the amount paid to it to subcontractors that are not similarly situated.
What does similarly situated mean?
It means a subcontractor that is in the same small business program as the prime and is small under the size standard the prime used for the contract.
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