FAR 52.219-14 limitations on subcontracting

Federal Acquisition Regulation (FAR) 52.219-14 limits payments to subcontractors that are not similarly situated on covered small-business awards. The percentage depends on the contract's category. (FAR 52.219-14)

For services, the cap is generally 50% of the government's payments for contract performance. Qualifying first-tier subcontractors can help satisfy the performance requirement.

FAR 52.219-14 percentages by contract type

The caps are 50%, 50%, 85%, and 75%, depending on the category. These are maximum payments to subcontractors that are not similarly situated, subject to the counting rules below. (SBA percentage table)

The Small Business Administration (SBA) publishes the same percentage framework. The agency's guidance covers general small-business set-asides above the simplified acquisition threshold and specified socioeconomic awards. (SBA contracting guidance)

First identify the award's qualifying program. The small-business set-aside guide explains the program categories.

Services, supplies, and construction describe the acquisition's work category here. For pricing arrangements such as fixed-price and cost-reimbursement, see federal contract types.

What is a similarly situated entity?

A similarly situated entity is a qualifying first-tier subcontractor with the required program status and size. Both tests matter. (13 CFR 125.1; FAR 52.219-14(b))

The status must match the status that qualified the prime for the award. Size is measured under the North American Industry Classification System (NAICS) code assigned to the subcontract.

A business does not qualify merely because it belongs to some small-business program. Confirm the relevant status, the subcontract's NAICS code, and the corresponding size standard.

Keep the supporting records with the subcontract. Record who checked them and when. Build a review step for changes in the subcontractor's status.

The definition also covers qualifying independent contractors. Calling someone a consultant does not by itself remove the payment from the subcontracting calculation. (FAR 52.219-14(b) and (d))

How the 50 percent limit works

Measure covered payments against the applicable payment base, rather than labor hours or headcount. (RFO 52.219-14)

Here is an illustrative services example with no applicable exclusions:

The covered amount is $350,000 plus $100,000, or $450,000. Dividing by $1,000,000 gives 45%, within the 50% cap.

Do not count the $100,000 twice. It is part of the $350,000 paid to the similarly situated firm.

The onward work counts because similarly situated credit extends to work performed with that subcontractor's own employees. Work passed onward counts against the cap. (13 CFR 125.6(c))

Require enough subcontractor reporting to identify those amounts. A status certificate alone does not show who performed the work.

How the cost of materials exclusion works

Supplies and both construction categories exclude material costs. SBA's guidance states that exclusion alongside the applicable percentages. (SBA contracting guidance)

For an illustrative manufacturing supply contract, suppose government payments are $1,000,000 and excluded materials cost $400,000. The remaining base is $600,000. The 50% cap is therefore $300,000 of covered subcontracting payments.

Document the exclusion and remove qualifying materials from the calculation consistently. Separate material purchases from subcontracted performance so the records explain the result.

Services do not have that general exclusion. Section 125.6(a)(1) permits specified other direct-cost exclusions only under stated conditions. (13 CFR 125.6(a))

For a mixed contract, use the assigned NAICS code to identify the applicable limitation and relevant portion. Section 125.6(b) says only 1 limitation applies to the same contract.

What if the prime is a nonmanufacturer?

A nonmanufacturer supply acquisition follows a different rule from the ordinary 50% manufacturing calculation. Check the end-product sourcing requirements before using the table.

Under 13 CFR 121.406, qualifying nonmanufacturers generally supply products from a small domestic manufacturer, processor, or producer, unless an applicable waiver permits otherwise. The regulation also contains additional eligibility conditions. (13 CFR 121.406(b))

Record whether the business is acting as manufacturer or nonmanufacturer for the acquisition. If a waiver is relevant, retain the actual waiver and identify the covered product.

Do not treat a reseller's supplier payment as an ordinary service subcontract merely to fit the 50% calculation. Resolve the acquisition category first.

What changed under the FAR Overhaul?

The codified clause remains dated October 2022 on Acquisition.gov, under Federal Acquisition Circular 2026-01, effective March 13, 2026. The Revolutionary FAR Overhaul (RFO) separately publishes model deviation text.

RFO 52.219-14 retains the 4 percentage caps, materials exclusions, and similarly situated framework. The heading uses a deviation-date placeholder, and its prescription refers to 19.104-3(c). (RFO Part 52, 52.219-14)

The entire clause is not identical: applicability references and order language differ. Compare the version included in the solicitation rather than replacing it with a general online explanation.

An agency implements model text through a class deviation. (RFO FAQs)

When and how to check compliance

Use the measurement period specified by the applicable contract and rules. The codified clause provides base-term and option-period checks or order-level checks, with separate treatment for covered orders. (FAR 52.219-14(f))

For multi-agency set-aside contracts, SBA requires measurement for each order. (13 CFR 125.6(d))

1. Record the clause version, award category, and measurement period.
2. Identify the government-payment base and permitted exclusions.
3. Classify each first-tier subcontractor using documented status and size.
4. Obtain reports of work passed onward by similarly situated subcontractors.
5. Reconcile payments with invoices and subcontract records.
6. Forecast the final percentage whenever staffing or subcontract scope changes.

SBA regulations allow contracting officers to request evidence during or after performance. Examples include invoices, subcontract agreements, and lists of task values. (13 CFR 125.6(f)(4))

Keep the calculation reproducible. Someone reviewing it should be able to trace every included or excluded amount to a record.

What to do next

• Confirm which category and percentage govern the award.
• Verify each claimed similarly situated subcontractor.
• Separate permitted exclusions from covered payments.
• Track onward subcontracting and the correct measurement period.
• Review the forecast before changing subcontract scope.

Azcuna's LEDGER turns a trade study into a Decision Package in which every number cites its source and AI agents draft but never decide. It was proposed to the Army under SBIR Phase I topic ARM26BX06-NV012, and the proposal was submitted on October 21, 2026.

Questions people ask

What does FAR 52.219-14 require?

The clause limits payments to subcontractors that are not similarly situated on covered small-business awards. The cap depends on the contract category. Read the clause's applicability, exclusions, definitions, and measurement period together before calculating compliance for a particular award.

Does the 50 percent rule mean the prime must do half the work itself?

Not necessarily. SBA guidance permits qualifying similarly situated subcontractors to help satisfy performance requirements. The calculation concerns covered payments, not simply labor hours or employee counts. Work a qualifying subcontractor passes onward must still be counted under the applicable rules.

What is a similarly situated entity?

Under 13 CFR 125.1, the subcontractor must have the small-business program status relevant to the prime award and be small under its subcontract's assigned NAICS code. General small-business status alone does not satisfy a program-specific award's status requirement.

Are materials excluded from limitations on subcontracting?

Supplies and construction exclude material costs under the applicable rules. Services have no general materials exclusion. Section 125.6 allows certain other direct-cost exclusions for services only under stated conditions, so identify the regulatory basis before removing a cost from the calculation.

Sources

1. 152.219-14 Limitations on Subcontracting. · Federal Acquisition Regulatory Council, Acquisition.gov
2. 2Guidance for federal contracting officials · U.S. Small Business Administration
3. 313 CFR 125.1, What definitions are important to SBA's Government Contracting Programs? · U.S. Small Business Administration, Electronic Code of Federal Regulations
4. 413 CFR 125.6, What are the prime contractor's limitations on subcontracting? · U.S. Small Business Administration, Electronic Code of Federal Regulations
5. 513 CFR 121.406, How does a small business concern qualify to provide manufactured products or other supply items under a small business set-aside, service-disabled veteran-owned small business, HUBZone, WOSB or EDWOSB, or 8(a) contract? · U.S. Small Business Administration, Electronic Code of Federal Regulations
6. 6FAR Overhaul - Part 52 · Federal Acquisition Regulatory Council, Acquisition.gov
7. 7FAR Overhaul - FAQs · General Services Administration

Where this shows up in our work

• LEDGER, auditable Army acquisition decisions turns a trade study into a package where every number cites its source and AI drafts but never decides.
• ELLMENT, the offline LLM for E-2D crews answers a crew's question from the aircraft's own manuals and cites the page, with no network.
• TRACE, the offline S1000D and IETM viewer opens S1000D, MIL-STD-3001 and PDF technical manuals on a tablet with every marking intact.