“It has been a long time coming, but the Department of Defense, in conjunction with the GSA and NASA, are finally issuing a final rule amending the FAR guidance regarding limitations on subcontracting. In this post, we are going to explore just what these changes are and what they mean for government contractors such as yourself. The hope is this brief summary and analysis will provide you some insight as to just what the new rules do…”
“We did discuss this rule earlier, back in December 2018. As we noted then, ‘The substance of the proposed FAR rule isn’t terribly surprising, nor should it be. Substantively, the rule largely conforms with the SBA’s rule codified in 13 C.F.R. 125.6. Indeed, in its commentary discussing the proposed rule, the FAR Council repeatedly mentions the intent to align the FAR with the SBA’s regulation.’ With this new rule, FAR clause 52.219-14, Limitations on Subcontracting, will have the same language as the SBA rule stating that subcontracts to similarly situated entities will not count against the limit on subcontracting. No longer will that clause simply state, for example, that for services, ‘[a]t least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.’ Now it will state, for services, that the prime ‘will not pay more than 50 percent of the amount paid by the Government for contract performance to subcontractors that are not similarly situated entities.’
In other words, the calculation language for the FAR limitation on subcontracting will now match the SBA rule…”
“In summary, an entity is similarly situated if it has the same sort of SBA classification as the prime contractor and is a small business under the NAICS code of the subcontract. If the prime contractor is an 8(a) certified company and the subcontract is for, let’s say, roofing contractor services, then the subcontractor will have to be an 8(a)-certified company with average annual receipts of less than $16.5 million (assuming that is the size standard applicable to the subcontract). If the contractor is simply a small business with no further statuses, then the subcontractor only needs to be a small business with less than $16.5 million in average annual receipts (or whatever ‘NAICS code the prime contractor assigned to the subcontract’)…” Read the full article here.
Source: FAR Final Rule on Limitations on Subcontracting – By John Holtz, August 23, 2021. SmallGovCon.
