FAR 52.215-22 Pass-Through Charges: 70% Threshold and Added Value

FAR 52.215-22 is a solicitation provision that requires you, as an offeror on certain government contracts, to identify in your proposal how much of the total cost you will perform yourself and how much each subcontractor will perform. When your subcontracting exceeds 70 percent of the total cost of work, the provision requires two additional disclosures: the dollar amount of indirect costs and profit you will apply to the subcontracted work, and a written description of the value you add relative to that work.¹ The provision travels with its companion contract clause, FAR 52.215-23, which supplies the definitions and, after award, the government’s remedies.

The Baseline Disclosure Every Proposal Must Include

Whenever a solicitation contains FAR 52.215-22, your proposal must identify two things regardless of how the work is divided: the total cost of the effort you will perform, and the total cost of the effort each subcontractor will perform.¹ This lets the Contracting Officer see the split before any threshold analysis begins.

The regulation does not spell out which specific cost elements (overhead, G&A, materials) get folded into “total cost of work.” Your proposal has to lay out the breakdown clearly enough that the Contracting Officer can determine whether the 70 percent line has been crossed.

What Changes When Subcontracting Crosses 70 Percent

Seventy percent is the trigger. When you plan to subcontract more than 70 percent of the total cost of work under a contract, task order, or delivery order, two further items become mandatory in the proposal:

The dollar amount of indirect costs and profit or fee you will apply to the subcontractor’s work.
A description of the value you will provide relative to that subcontracted work.¹

The same test cascades. If any of your proposed subcontractors intends to subcontract more than 70 percent of its own scope to lower-tier subcontractors, you must report the subcontractor’s indirect costs and profit on that lower-tier work and describe the value the subcontractor adds. That means you need visibility into your subcontractors’ teaming arrangements before the proposal goes in, not after.

When a Solicitation Will Contain FAR 52.215-22

Not every solicitation includes the provision. Whether it appears depends on the agency, the dollar value, and the contract type.

Civilian Agencies

A civilian-agency Contracting Officer includes both the provision and the clause when two conditions are met: the total estimated contract or order value exceeds the simplified acquisition threshold of $350,000, and the contract is expected to be cost-reimbursement.²³

Department of Defense

DoD uses a higher dollar threshold and broader contract-type coverage. The clause is required when the total estimated value exceeds $2.5 million (the current threshold for certified cost or pricing data) and the contract is anything other than the following:

Firm-fixed-price contracts awarded based on adequate price competition
Fixed-price with economic price adjustment awarded based on adequate price competition
Firm-fixed-price contracts for commercial products or services
Fixed-price with economic price adjustment for commercial products or services
Fixed-price incentive contracts awarded based on adequate price competition
Fixed-price incentive contracts for commercial products or services

Competitively awarded and commercial-item fixed-price contracts are excluded because the pricing mechanism itself limits the government’s exposure. Everything else above $2.5 million gets the clause.²⁴

Discretionary Inclusion

Even when the mandatory thresholds are not met, a Contracting Officer may include the clause in any solicitation and contract if they consider it appropriate.² You cannot assume you are exempt just because a contract falls below the dollar thresholds or uses a fixed-price structure.

How “Added Value” Is Judged

The written value description you submit under the 70 percent trigger is not a formality. The regulation defines added value as performing subcontract management functions that the Contracting Officer determines benefit the government, and it lists specific examples: processing orders for parts or services, maintaining inventory, reducing delivery lead times, managing multiple sources for contract requirements, coordinating deliveries, and performing quality assurance functions.⁵ These are hands-on activities. Forwarding invoices or routing paperwork does not qualify.

If you cannot demonstrate a tangible contribution, the Contracting Officer can treat your indirect costs and profit on the subcontracted work as an excessive pass-through charge. Costs you incur to actually manage the subcontract, plus indirect costs and profit on those management costs, do not count as pass-through charges and remain recoverable.⁵

The standard is qualitative. There is no fixed percentage cap on profit. A 15 percent markup survives if you can show genuine value; a 3 percent markup is still vulnerable if all you do is pass paper.

Obligations After Award

The disclosure work does not end at award. Under FAR 52.215-23, if your subcontracting shifts after award and crosses the 70 percent line, you must notify the Contracting Officer in writing, identify the revised subcontract cost, and verify that you will provide added value on the subcontracted work. The same rule applies at the subcontractor level: if a subcontractor’s lower-tier subcontracting grows past 70 percent after award, you must report that change too, with the revised cost breakdown and a statement that the subcontractor will add value.⁵

If the Contracting Officer later concludes your charges are excessive, the remedy depends on contract type. On cost-reimbursement contracts, excessive pass-through charges are unallowable under FAR Subpart 31.2, so the government will not reimburse them and may recover amounts already paid.⁵⁶ On applicable DoD fixed-price contracts, the government is entitled to a price reduction equal to the excessive charges included in the contract price. That is a stronger remedy than contractors usually expect on fixed-price work.

Flow-Down to Subcontractors

You have to pass these rules along. FAR 52.215-23 requires you to insert the substance of the clause into qualifying subcontracts. For civilian agency prime contracts, the flow-down covers cost-reimbursement subcontracts that exceed $350,000. For DoD prime contracts, the flow-down covers both cost-reimbursement and fixed-price subcontracts (except the same fixed-price types excluded at the prime level) that exceed $2.5 million.⁵

The obligation to flow the clause down further travels with it. A subcontractor receiving the clause must include it in its own qualifying subcontracts, so the restriction reaches every tier.

Alternate I for Pre-Approved Added Value

FAR 15.408(n)(2)(iii) authorizes the Contracting Officer to use Alternate I of FAR 52.215-23 when the prospective contractor has already demonstrated that its functions provide added value and that no excessive pass-through charges exist.² If you make a convincing case during solicitation or negotiation, the Contracting Officer can adjust the clause accordingly. A documented track record of subcontract management is what makes this route usable.

1
Acquisition.GOV. 48 CFR 52.215-22 – Limitations on Pass-Through Charges-Identification of Subcontract Effort
2
Acquisition.GOV. FAR 15.408 Solicitation Provisions and Contract Clauses
3
Acquisition.GOV. Threshold Changes – October 1st, 2025
4
Acquisition.GOV. FAR 15.403-4 Requiring Certified Cost or Pricing Data
5
Acquisition.GOV. 52.215-23 Limitations on Pass-Through Charges
6
Acquisition.GOV. Part 31 – Contract Cost Principles and Procedures