FAR 52.219-14: Limitations on Subcontracting (The 50% Rule)
Official federal procurement regulation analysis, contractor performance obligations, and risk mitigation strategies for small businesses.
What It Means in Plain English
When a small business wins a set-aside contract, it cannot simply broker the deal to a large business or non-qualified subcontractor. The prime contractor (and its similarly situated small business teammates) must perform at least a specified minimum percentage of the contract value or labor cost.
Mandatory in all federal solicitations and awards set aside for Small Business, 8(a), HUBZone, SDVOSB/VOSB, and WOSB/EDWOSB valued over the Simplified Acquisition Threshold ($250,000).
Mandatory Statutory Requirements
- Services (except construction): The prime and similarly situated small businesses must pay at least 50% of the cost of contract performance incurred for personnel to their own employees.
- Supplies & Products (non-manufacturing): The prime must perform at least 50% of the cost of manufacturing the supplies (excluding material costs), or comply with the Nonmanufacturer Rule.
- General Construction: The prime contractor must perform at least 15% of the contract value with its own employees (excluding cost of materials).
- Specialty Trade Construction: The prime contractor must perform at least 25% of the contract value with its own employees (excluding cost of materials).
- Similarly Situated Entities: Work performed by first-tier subcontractors with the same socioeconomic qualification (e.g. SDVOSB sub on an SDVOSB set-aside) counts toward the prime's percentage.
Contractor Compliance Obligations
- Maintain detailed, job-costed payroll accounting distinguishing prime personnel labor from subcontractor invoices.
- Verify and document the official SAM.gov certification of any 'similarly situated' subcontractor before counting their work.
- Submit mandatory compliance reporting to the Contracting Officer upon request during contract performance and closeout.
Acting as a 'pass-through' broker by subcontracting 70%+ of a set-aside service contract to a large business is a direct violation of the False Claims Act. Penalties include immediate contract termination, mandatory debarment, and civil fines up to $50,000+ per false invoice.
Interactive FAR 52.219-14 Subcontracting Calculator
Test your actual labor figures against the 50% services rule or 15% construction limit.
Frequently Asked Questions About FAR 52.219-14
What is a 'similarly situated entity' under FAR 52.219-14?
A similarly situated entity is a first-tier subcontractor that has the exact same small business program status that qualified the prime contractor for the set-aside. For example, on a Service-Disabled Veteran-Owned Small Business (SDVOSB) set-aside, another certified SDVOSB subcontractor is similarly situated, and its labor costs count toward the 50% requirement.
Does the 50% rule apply to total contract value or only labor costs?
For service contracts, the 50% limitation applies strictly to the cost of contract performance incurred for personnel (labor costs), excluding materials and other direct costs.
Can an agency waive FAR 52.219-14?
No. The limitation on subcontracting is a statutory mandate established by the Small Business Act (15 U.S.C. 657s) and cannot be unilaterally waived by a Contracting Officer.