Final rule regarding the limitations on subcontracting: What contractors need to know

pillars of government building

Effective Sept. 10, 2021, there will be an amendment to the Federal Acquisition Regulation (FAR) relating to the limitations on subcontracting. The purpose of this regulation is to limit the amount of work and funding that a small business can subcontract out to another company. The implementation of this final rule supersedes the previous ruling published on Dec. 4, 2018. After a review of public comments, the Civilian Acquisition Council and the Defense Acquisition Regulation Council decided to implement the following changes, per the Federal Register:

  • The rule implements section 1651 of the FY 2013 NDAA which provides revised limitations on subcontracting that apply across all small business programs.
  • The limitations on subcontracting will be calculated as a percentage of the overall contract or order amount (i.e., the contract price, including costs and profit or fee) to be spent by the prime contractor on subcontractors as a result of section 1651.
  • For the purpose of compliance with the limitations on subcontracting, the prime contractor no longer has to track the percentage of costs incurred that it spends performing work itself.
  • Section 1651 also provides that the percentage of the award amount that the prime contractor spends on subcontractors who are similarly situated entities is not considered subcontracted for purposes of the limitations on subcontracting.

This rule, published in the Federal Register, will implement statutory authorities and SBA regulations that are designed to make it easier and less burdensome for small business prime contractors to comply with requirements related to how much work they may subcontract under federal contracts, including task and delivery orders under those contracts (i.e., the “limitations on subcontracting”). The changes to these requirements would both ease compliance costs and provide more authorized ways to subcontract. Section 1651 of the NDAA for FY 2013 revised and standardized the limitations on subcontracting, including the nonmanufacturer rule.

Find a detailed explanation here.

Find more information regarding FAR clause 52.219-14 Limitations on Subcontracting here.


Jeff Shapiro, CPA, Partner, Government Contracting



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