XL EaglePass-Through (Pass-Through Contracting)
Pass-Through stands for Pass-Through Contracting. A pass-through happens when a prime contractor sends most of the work and money to subcontractors and does little itself. On small business set-asides, rules called limitations on subcontracting cap how much can go to subs that are not similarly situated small businesses.
In general, on services the prime cannot pay more than 50 percent of the amount it receives to non-similarly situated subs. The limits are 50 percent for supplies, 75 percent for specialty trade construction and 85 percent for general construction, with certain costs excluded.
Why it matters to a small contractor
If you sub to a small business prime on a set-aside, the prime must keep enough work for itself, which can cap your share. If you are a small business too, work you do may count toward the prime's share as a similarly situated firm.
Example
A small prime wins a $200,000 janitorial set-aside. It can pay no more than $100,000 to large or non-similarly situated subs, so it uses its own staff for most of the cleaning.
Pass-Through: common questions
What does similarly situated mean?
A sub that has the same small business status that qualified the prime, such as small for the NAICS code or the same socioeconomic program.
Is pass-through always illegal?
No. It is only a problem when it breaks the limits on subcontracting or misrepresents who does the work.
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