FAR 19.001—Definitions.
Plain-English Summary
FAR 19.001 provides the core definitions used throughout FAR Part 19, which governs small business programs. This section defines “concern,” “fair market price,” “industry,” and “similarly situated entity,” and those definitions control how agencies and contractors apply set-asides, subcontracting requirements, size/status determinations, and price reasonableness concepts in small business contracting. In practice, these definitions determine who counts as a qualifying business, how to think about pricing in small business set-aside contexts, how to group firms by NAICS-based industry, and when a subcontractor can be treated as part of the prime contractor’s small business performance for subcontracting and limitation-on-subcontracting purposes. The section is important because a misunderstanding of any one of these terms can affect eligibility for award, compliance with subcontracting plans, and whether a contractor remains in compliance after award. It also cross-references SBA regulations, especially 13 CFR 121.105, showing that FAR Part 19 definitions work together with SBA size and affiliation rules rather than standing alone.
Key Rules
Concern is a qualifying business
A “concern” is any for-profit business entity with a place of business in the United States or its outlying areas that contributes to the U.S. economy through taxes, use of American products, materials, or labor, and similar factors. The term is broad and includes individuals, partnerships, corporations, joint ventures, associations, and cooperatives.
Fair market price is not lowest cost
“Fair market price” means a price based on reasonable costs under normal competitive conditions, not simply the lowest possible price. In small business set-aside contexts, this concept helps ensure the government pays a fair and reasonable price while still supporting small business participation.
Industry follows NAICS classifications
“Industry” refers to all concerns primarily engaged in similar lines of activity, as identified in the North American Industry Classification System (NAICS) manual. This matters because NAICS codes drive size standards, industry grouping, and many small business eligibility determinations.
Similarly situated entity has two tests
A “similarly situated entity” is a first-tier subcontractor, including an independent contractor, that shares the same small business program status as the prime contractor for the award and is also small under the NAICS size standard assigned to the subcontract. Both conditions must be met.
Status is tied to the prime award
For a set-aside contract, a similarly situated entity must have the same small business program status that qualified the prime contractor for the award. For example, on a small business set-aside, the subcontractor must be a small business, regardless of socioeconomic status.
First-tier only for this definition
The definition applies to first-tier subcontractors only. Lower-tier subcontractors do not qualify as similarly situated entities under this definition, which is important when evaluating compliance with subcontracting and performance requirements.
Responsibilities
Contracting Officer
Use these definitions when structuring solicitations, evaluating small business eligibility, assigning or reviewing NAICS-based size standards, and administering small business set-asides and subcontracting requirements. Ensure the correct meaning of “fair market price” is applied in pricing decisions and that subcontracting compliance is measured using the proper definition of similarly situated entity.
Contractor/Prime Contractor
Confirm that the business qualifies as a concern when pursuing small business opportunities, understand how NAICS codes affect industry and size status, and identify which subcontractors qualify as similarly situated entities. Prime contractors must track first-tier subcontractors carefully to ensure compliance with subcontracting and limitation-on-subcontracting requirements.
Subcontractor
Represent size and small business program status accurately, because those representations may determine whether the subcontractor counts as similarly situated. Subcontractors should verify that they meet the applicable NAICS size standard and the relevant small business program status tied to the prime award.
Agency/SBA
Apply and interpret the underlying SBA size and affiliation rules that inform the FAR definition of concern, and ensure NAICS classifications and size standards are used consistently. Agencies also rely on these definitions when monitoring small business participation and enforcing program requirements.
Practical Implications
These definitions affect eligibility and compliance from the very start of a procurement, especially in small business set-asides and subcontracting plans.
A common pitfall is assuming any small business subcontractor counts as similarly situated; the subcontractor must match the prime’s qualifying small business program status and be small under the assigned NAICS code.
Another frequent mistake is treating fair market price as the lowest price available; the standard is reasonable pricing under normal competitive conditions.
NAICS coding matters because it drives size status and industry grouping, so an incorrect code can change whether a firm qualifies or whether a subcontractor counts.
Contractors should document subcontractor status and NAICS size determinations early, because compliance problems often arise after award when performance and subcontracting percentages are already being measured.
Official Regulatory Text
As used in this part- Concern means any business entity organized for profit (even if its ownership is in the hands of a nonprofit entity) with a place of business located in the United States or its outlying areas and that makes a significant contribution to the U.S. economy through payment of taxes and/or use of American products, material and/or labor, etc. "Concern" includes but is not limited to an individual, partnership, corporation, joint venture, association, or cooperative. For more information, see 13 CFR 121.105 . Fair market price means a price based on reasonable costs under normal competitive conditions and not on lowest possible cost (see 19.202-6 ). Industry means all concerns primarily engaged in similar lines of activity, as listed and described in the North American Industry Classification System (NAICS) manual. Similarly situated entity means a first-tier subcontractor, including an independent contractor, that— (1) Has the same small business program status as that which qualified the prime contractor for the award ( e.g. , for a small business set-aside contract, any small business concern, without regard to socioeconomic status); and (2) Is considered small for the size standard under the NAICS code the prime contractor assigned to the subcontract.