SUBLIMIT · GUIDE

Limitations on subcontracting: how the test is calculated, and how to prove your number.

A set-aside award comes with a promise about how much of the work your own firm will do. This guide explains what the rule measures, the arithmetic behind the percentage, what "similarly situated" changes, and the records you need to show a contracting officer the number is right.

What the rule measures

FAR 52.219-14 (implementing SBA's rule at 13 CFR 125.6) limits how much of a set-aside or sole-source contract a small business may pass to subcontractors. The limits by contract type:

Two things people miss: the test is measured on amounts paid by the government, not on hours or headcount, and the period of measurement is the contract's period of performance (or each period the contracting officer specifies), not a calendar month. Monthly workforce reports some agencies require are a separate obligation with separate arithmetic.

The arithmetic

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1. Eligible government payments. Total the amounts the government has paid under the contract for the period — invoices paid, not invoiced or accrued.
2. Counted subcontract amount. Total what you have paid (or are obligated to pay) to subcontractors that are not similarly situated for work under the contract. For supply and construction contracts, exclude the cost of materials.
3. Percentage. Counted subcontract amount ÷ eligible government payments.
4. Compare with the limit for the contract type. A fictional services example: $18,420.00 counted subcontracting against $100,000.00 paid = 18.42%, under the 50% limit.

Keep the arithmetic exact. A percentage that is rounded before comparison can sit on the wrong side of a limit.

What "similarly situated" changes

Work subcontracted to a similarly situated entity — a firm that holds the same small-business status the contract was set aside for (e.g. SDVOSB to SDVOSB, 8(a) to 8(a), WOSB to WOSB, HUBZone to HUBZone), and is small for the contract's NAICS code — does not count against the limit. But the similarly situated subcontractor's own lower-tier subcontracts do count. So "similarly situated" is a fact you must verify and document for each subcontractor, not a label you assume from a company name or a website.

• Verify status the way the rule requires (SBA certification for the relevant program; size for the NAICS code).
• Record what you verified, when, and the evidence reference.
• Get the similarly situated subcontractor's own subcontracting figures — their pass-through counts against you.

The records that prove the number

Contracting officers may ask for a demonstration of compliance at any time; SBA can also review during a size or status protest. The standard is not "we think we're under" but "here is the calculation and every input's source".

Common mistakes

• Measuring hours or headcount instead of amounts paid.
• Using invoiced amounts instead of amounts actually paid by the government.
• Treating a subcontractor as similarly situated because of a name, a logo or a claim on a website.
• Forgetting that a similarly situated sub's own subcontracting counts.
• Including materials in the numerator on a supply or construction contract (or excluding them on a services contract).
• Allocating a shared vendor's invoice to the wrong contract.
• Computing per month for a limit that is measured over the period of performance — or the reverse.

Period-end checklist

• Contract type, applicable limit and measurement period confirmed from the awarded contract.
• Government payments for the period totalled from payment records.
• Every subcontractor payment allocated to this contract with a source reference.
• Similarly situated status verified and documented per subcontractor; lower-tier figures obtained.
• Materials separated where the rule excludes them.
• Percentage computed exactly and compared with the limit.
• Every unknown (unverified sub, unallocated invoice, missing payment record) listed as an open item — not assumed.
• Calculation, inputs and evidence references retained for the contract file.

Download this checklist as a one-page PDF ↓

Questions people ask

Is the limit checked every month?

The clause measures compliance over the period of performance (or periods the contracting officer sets). Tracking it monthly is how you avoid finding out at the end that you are over — but the monthly figure is a management tool, not the legal test.

What if a subcontractor's status cannot be verified?

Then it is not similarly situated for the calculation, and its payments count. Record the attempt and the gap; do not guess.

Does this replace a workforce report my agency requires?

No. Some agencies require periodic workforce or staffing reports on their own forms. Those are hours- and people-based and separate from the payment-based subcontracting calculation, even though the same records feed both.