The phrase 'limitations on subcontracting' is easy to misunderstand. The rule is primarily an obligation on a qualifying small-business prime contractor, but it can directly affect how a prime structures work with subcontractors.
For a subcontractor, the important questions are whether the prime contract is covered, which limitation applies, whether the subcontractor is similarly situated, and whether the work allocation described in the proposal is consistent with the final subcontract.
Current percentage framework
13 CFR 125.6 provides different calculations by contract type. For covered service contracts, the small-business prime generally may not pay more than 50% of the amount paid by the Government to firms that are not similarly situated. The regulation also uses a 50% framework for covered supply contracts, with specific treatment of material costs and the nonmanufacturer rule.
For general construction, the regulation generally allows no more than 85% of the relevant amount to be paid to firms that are not similarly situated. For special trade construction, the figure is generally 75%. The actual calculation and exclusions should be checked against the current rule and the contract's assigned NAICS code.
Official source: 13 CFR 125.6 — Limitations on Subcontracting.
Why similarly situated status matters
Amounts paid to a qualifying similarly situated entity receive different treatment under the rule to the extent that entity performs the work with its own employees. That means status cannot be determined only by asking whether the subcontractor is 'small.' The relevant small-business program status and subcontract NAICS code matter too.
What a subcontractor should verify
- What small-business program or set-aside applies to the prime award?
- What NAICS code is assigned to the subcontracted work?
- Is the subcontractor being treated as similarly situated, and is that treatment supported?
- Does the proposed workshare match the prime's compliance assumptions?
- Could later subcontracting by the subcontractor change the calculation?
- Does the agreement require status notifications if size or program eligibility changes?
Do not turn the regulation into a guaranteed workshare
A prime's need to comply with 13 CFR 125.6 does not automatically give a particular subcontractor a guaranteed percentage of revenue. If the parties intend a specific workshare, that commitment should be stated clearly in the teaming agreement or subcontract rather than inferred from the regulation.