FAR 52.219-14—Limitations on Subcontracting.
Plain-English Summary
FAR 52.219-14, Limitations on Subcontracting, is the core performance-requirement clause used to ensure that small-business set-asides, sole-source small-business awards, certain set-aside or direct-award orders under multiple-award contracts, and HUBZone preference awards actually benefit the intended small business program participant. The clause defines key terms such as “similarly situated entity” and treats independent contractors as subcontractors, then sets the percentage of work the prime contractor may pay to non-similarly situated subcontractors depending on the contract type: services, supplies, general construction, or special trade construction. It also explains when the limitation applies, including how it applies to partial set-asides, multiple-award contract orders, and HUBZone awards, and when the contracting officer must choose the compliance measurement point for contracts versus orders. The clause further addresses joint ventures, including mentor-protégé joint ventures and 8(a) joint ventures, by requiring the joint venture participants collectively to meet the applicable limitation and by imposing a 40 percent minimum workshare for the protégé or 8(a) participant(s). In practice, this clause is both a compliance and a pricing issue: contractors must plan their teaming, subcontracting, and self-performance strategy before award and then track actual performance throughout the base period, option periods, or order period to avoid a breach. Contracting officers use it to protect the integrity of small business programs and to verify that the awardee is not merely a pass-through entity for work that should be performed by the qualifying small business concern.
Key Rules
Applies only to covered awards
The clause applies to specific small-business set-asides, sole-source awards under the listed small business programs, certain set-aside or direct-award orders under multiple-award contracts, and HUBZone preference awards unless the HUBZone concern waived the preference. It does not apply to the unrestricted portion of a partial set-aside.
Similarly situated entities count differently
A first-tier subcontractor that shares the prime’s qualifying small-business program status and is small under the NAICS code assigned to the subcontract is a similarly situated entity. Work performed by such entities is treated as compliant work for purposes of the limitation, but any further subcontracting by them counts against the prime’s limit.
Independent contractors are subcontractors
The clause expressly treats independent contractors as subcontractors. Contractors cannot avoid the limitation by labeling labor as independent contractor support if that labor is part of subcontracted performance.
Different percentage limits by contract type
For services and supplies contracts, the prime may not pay more than 50 percent of the amount paid by the Government to non-similarly situated subcontractors, with supplies measured excluding materials cost. For general construction the limit is 85 percent, and for special trade construction it is 75 percent, both excluding materials cost.
Mixed contracts use the relevant portion
If a contract includes both services and supplies, the services limit applies only to the service portion and the supplies limit applies only to the supply portion. The clause is therefore applied by contract line or performance segment, not necessarily to the entire contract value as a single pool.
Compliance is measured at the required time
For covered contracts, compliance is measured by the end of the base term and each option period, or by the end of each order performance period if the contracting officer selects that method. For covered orders, compliance is measured by the end of the order performance period.
Joint ventures must meet aggregate performance rules
A joint venture satisfies the clause through the aggregate performance of its participants, but the small business protégé in a mentor-protégé JV and the 8(a) participant(s) in an 8(a) JV must each perform at least 40 percent of the work performed by the joint venture. Their work must be substantive and more than administrative functions.
Responsibilities
Contracting Officer
Determine whether the clause applies based on the acquisition type, include the clause when required, and select the appropriate compliance measurement point for covered contracts. The contracting officer must also understand whether the award is a partial set-aside, a covered order under a multiple-award contract, or a HUBZone award with or without a waiver.
Prime Contractor
Plan and perform the contract so that payments to subcontractors that are not similarly situated entities stay within the applicable percentage limit. The prime must track subcontracting and self-performance throughout the relevant performance period and ensure that any subcontracting by similarly situated entities is counted correctly.
Small Business Subcontractor / Similarly Situated Entity
Perform work consistent with its status so that its first-tier subcontract work counts toward the prime’s compliance with the limitation. If it further subcontracts work, that downstream subcontracting counts against the prime’s allowable subcontracting percentage.
Joint Venture Participants
Collectively perform the applicable percentage of work required by the clause, and ensure the protégé or 8(a) participant(s) perform at least 40 percent of the work performed by the joint venture. Their contribution must be real performance, not merely administrative support.
Agency / Small Business Program Officials
Structure acquisitions and awards in a way that aligns with the applicable small business program rules and monitor compliance where required. They may need to coordinate with the contracting officer on set-aside strategy, order placement, and program eligibility issues.
Practical Implications
This clause is a performance test, not just a paperwork requirement: contractors need a real plan for who will do the work before award, not after. A proposal that looks compliant on paper can become noncompliant if actual labor, subcontract dollars, or construction costs shift during performance.
The biggest trap is misunderstanding what counts as a similarly situated entity. If a subcontractor does not share the prime’s qualifying program status and size status for the assigned NAICS code, its work counts against the prime’s limit.
Contractors often overlook that independent contractors are treated as subcontractors and that downstream subcontracting by a similarly situated entity still counts against the prime’s cap. This can create hidden overages if the prime only tracks its direct subcontracts.
For mixed contracts, the limitation is applied to the relevant portion of the work, so contractors should segregate service, supply, and construction costs carefully. Poor cost allocation can make compliance impossible to prove.
Joint ventures need special attention because the clause requires aggregate compliance and, in mentor-protégé and 8(a) JVs, a minimum 40 percent workshare by the qualifying small business participant(s). Administrative participation alone is not enough; the small business must perform substantive work.
Official Regulatory Text
As prescribed in 19.507 (e) , insert the following clause: Limitations on Subcontracting (Oct 2022) (a) This clause does not apply to the unrestricted portion of a partial set-aside. (b) Definition. Similarly situated entity , as used in this clause, 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 its socioeconomic status); and (2) Is considered small for the size standard under the North American Industry Classification System (NAICS) code the prime contractor assigned to the subcontract. (c) Applicability. This clause applies only to— (1) Contracts that have been set aside for any of the small business concerns identified in 19.000 (a)(3); (2) Part or parts of a multiple-award contract that have been set aside for any of the small business concerns identified in 19.000 (a)(3); (3) Contracts that have been awarded on a sole-source basis in accordance with subparts 19.8 , 19.13 , 19.14 , and 19.15 ; (4) Orders expected to exceed the simplified acquisition threshold and that are— (i) Set aside for small business concerns under multiple-award contracts, as described in 8.405-5 and 16.505 (b)(2)(i)(F); or (ii) Issued directly to small business concerns under multiple-award contracts as described in 19.504 (c)(1)(ii); (5) Orders, regardless of dollar value, that are— (i) Set aside in accordance with subparts 19.8 , 19.13 , 19.14 , or 19.15 under multiple-award contracts, as described in 8.405-5 and 16.505 (b)(2)(i)(F); or (ii) Issued directly to concerns that qualify for the programs described in subparts 19.8 , 19.13 , 19.14 , or 19.15 under multiple-award contracts, as described in 19.504 (c)(1)(ii); and (6) Contracts using the HUBZone price evaluation preference to award to a HUBZone small business concern unless the concern waived the evaluation preference. (d) Independent contractors. An independent contractor shall be considered a subcontractor. (e) Limitations on subcontracting. By submission of an offer and execution of a contract, the Contractor agrees that in performance of a contract assigned a North American Industry Classification System (NAICS) code for— (1) Services (except construction), it 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. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 50 percent subcontract amount that cannot be exceeded. When a contract includes both services and supplies, the 50 percent limitation shall apply only to the service portion of the contract; (2) Supplies (other than procurement from a nonmanufacturer of such supplies), it will not pay more than 50 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 50 percent subcontract amount that cannot be exceeded. When a contract includes both supplies and services, the 50 percent limitation shall apply only to the supply portion of the contract; (3) General construction, it will not pay more than 85 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 85 percent subcontract amount that cannot be exceeded; or (4) Construction by special trade contractors, it will not pay more than 75 percent of the amount paid by the Government for contract performance, excluding the cost of materials, to subcontractors that are not similarly situated entities. Any work that a similarly situated entity further subcontracts will count towards the prime contractor's 75 percent subcontract amount that cannot be exceeded. (f) The Contractor shall comply with the limitations on subcontracting as follows: (1) For contracts, in accordance with paragraphs (c)(1), (2), (3) and (6) of this clause— [ Contracting Officer check as appropriate. ] □ By the end of the base term of the contract and then by the end of each subsequent option period; or □ By the end of the performance period for each order issued under the contract. (2) For orders, in accordance with paragraphs (c)(4) and (5) of this clause, by the end of the performance period for the order. (g) A joint venture agrees that, in the performance of the contract, the applicable percentage specified in paragraph (e) of this clause will be performed by the aggregate of the joint venture participants. (1) In a joint venture comprised of a small business protégé and its mentor approved by the Small Business Administration, the small business protégé shall perform at least 40 percent of the work performed by the joint venture. Work performed by the small business protégé in the joint venture must be more than administrative functions. (2) In an 8(a) joint venture, the 8(a) participant(s) shall perform at least 40 percent of the work performed by the joint venture. Work performed by the 8(a) participants in the joint venture must be more than administrative functions. (End of clause)