FAR 52.219-14 Limitations on Subcontracting: Percentages and Penalties

FAR 52.219-14, Limitations on Subcontracting, restricts how much of a small business set-aside contract a prime can pay to subcontractors that don’t share its small business status. The ceiling depends on what you’re delivering: 50% for services, 50% for supplies (excluding materials), 85% for general construction (excluding materials), and 75% for specialty trade construction.¹ Miss those numbers and the mandatory penalty starts at $500,000.

When the Clause Is in Your Contract

Contracting officers must include FAR 52.219-14 in two situations. The first is any small business set-aside for supplies, services, or construction expected to exceed the simplified acquisition threshold, which rose to $350,000 on October 1, 2025.² The second is any contract set aside or awarded sole-source under the 8(a) Business Development Program, the HUBZone Program, the Service-Disabled Veteran-Owned Small Business Program, or the Women-Owned Small Business Program, regardless of dollar value.³

The clause also reaches multiple-award contracts when individual orders may be set aside for small business, and contracts where a HUBZone firm wins through the HUBZone price evaluation preference (unless the firm waived it).¹ The “regardless of dollar value” language matters. A $50,000 sole-source 8(a) award carries the same subcontracting limits as a $5 million one.

The Percentages and How They Are Calculated

The caps measure what the prime pays to subcontractors that are not “similarly situated.” The base for the calculation is the amount the government pays for contract performance, with different rules on materials:

Services (except construction): no more than 50% to non-similarly-situated subcontractors. Materials are not excluded from the base.¹
Supplies: no more than 50%, excluding the cost of materials.¹
General construction: no more than 85%, excluding materials. The prime self-performs at least 15%.¹
Specialty trade construction: no more than 75%, so the prime self-performs at least 25%.¹

Service contractors get one useful lever. Under 13 CFR 125.6, certain other direct costs can be excluded from the calculation when they aren’t the principal purpose of the acquisition and small businesses don’t typically provide them. Airline travel, cloud computing, transportation or disposal work under environmental remediation contracts, and mass media purchases are the listed examples.⁴ Review those exclusions before concluding you’re out of compliance on a services deal.

Contracts That Mix Services and Supplies

When a contract includes both services and supplies, the 50% limit applies separately to each portion, not to the contract as a whole.¹ The assigned NAICS code determines which side dominates for other regulatory purposes, but the subcontracting calculation runs on each piece independently. Blending the two into a single percentage is a common error on mixed procurements.

What Counts as a Similarly Situated Entity

The caps only restrict payments to subcontractors that are not similarly situated. A similarly situated entity is a first-tier subcontractor (including an independent contractor) that meets two conditions: it holds the same small business program status that qualified the prime, and it qualifies as small under the NAICS code the prime assigned to the subcontract.¹ Work performed by a similarly situated subcontractor is treated as if the prime performed it.

The status match depends on the type of set-aside. On a general small business set-aside, any small business qualifies as similarly situated. On a set-aside under a specific socioeconomic program, the subcontractor must share that same program status, so a HUBZone prime on a HUBZone set-aside needs HUBZone subcontractors for the work to count favorably.¹

Watch the tiers. If a similarly situated subcontractor further subcontracts work to a firm that is not similarly situated, that downstream work counts against the prime’s cap. If a subcontractor loses its qualifying status mid-performance, the work it does afterward may stop counting favorably. Keep certifications on file from day one and check them again during performance.

Joint Ventures

Small business joint ventures can chase set-asides, but they add a second layer on top of the standard caps. The joint venture as a whole must meet the subcontracting percentage for the contract type. On top of that, in an SBA-approved mentor-protégé joint venture, the protégé must perform at least 40% of the work done by the joint venture, and that work has to go beyond administrative functions.¹ The same 40% floor applies to 8(a) joint ventures.

The mechanics under 13 CFR 125.8 catch teams off guard. Work performed by the mentor and any of its affiliates at any subcontracting tier counts toward the mentor’s share, not the protégé’s. Work performed by a similarly situated subcontractor does not count toward the protégé’s 40%, even though it still counts favorably for the joint venture’s overall subcontracting limits.⁵ The protégé has to do the work itself.

When Compliance Is Measured

The contracting officer picks the measurement point at award. For set-aside contracts, the solicitation will specify either compliance by the end of the base term and again by the end of each option period, or compliance by the end of the performance period for each individual order.¹

For orders under multiple-award contracts set aside under the 8(a), HUBZone, SDVOSB, or WOSB programs, compliance is always measured at the order level, regardless of dollar value.¹ Every task order stands on its own. Over-performing on one order does not offset a shortfall on another.

Contracting officers can request payroll records, subcontractor invoices, and cost breakdowns at any point during performance. If you’re running close to the line, course-correct during the contract, not during an audit.

Supply Resellers and the Non-Manufacturer Rule

Small businesses that resell products face a separate obligation alongside the subcontracting cap. Under the non-manufacturer rule, a small business awarded a supply contract must supply products made by a domestic small business manufacturer or processor, take ownership or possession of the items with its own personnel, equipment, or facilities consistent with industry practice, and stay within the 500-employee size standard for non-manufacturers.⁶

Where no small business manufacturer exists, the SBA can issue waivers. A class waiver covers an entire product category when no small business manufacturer has submitted or received an award in that category within the previous two years. An individual waiver is contract-specific, must be requested by the contracting officer, and expires at the end of that contract or one year from issuance, whichever comes first.⁶ Check the current class waiver list before assuming you have to source from a small manufacturer.

Penalties for Blowing the Limits

Under 13 CFR 125.6, the mandatory penalty for a subcontracting limitation violation is the greater of $500,000 or the total dollar amount the contractor spent on subcontractors in excess of the permitted level.⁴ The $500,000 is a floor. A contractor that subcontracted $2 million over the cap faces a $2 million penalty.

Criminal exposure comes through 15 U.S.C. § 645, which reaches misrepresentation of small business status to obtain a set-aside. The statute authorizes fines up to $500,000, imprisonment up to 10 years, or both. Violators also face suspension and debarment, administrative remedies under the Program Fraud Civil Remedies Act, and ineligibility for any SBA program for up to three years.⁷

The Department of Justice has also pursued subcontracting limit violations under the False Claims Act, treating non-compliance as actionable fraud when the contractor certified it would meet the requirements and then didn’t. Between the mandatory financial penalty, the criminal statute, debarment, and False Claims Act exposure, these percentages are hard limits, not guidelines.

1
Acquisition.GOV. Federal Acquisition Regulation 52.219-14 – Limitations on Subcontracting
2
Acquisition.GOV. Threshold Changes – October 1st, 2025
3
Acquisition.GOV. Federal Acquisition Regulation 19.507 – Solicitation Provisions and Contract Clauses
4
eCFR. 13 CFR 125.6 – Limitations on Subcontracting
5
eCFR. 13 CFR 125.8 – Joint Venture Agreements
6
U.S. Small Business Administration. Nonmanufacturer Rule
7
Office of the Law Revision Counsel. 15 USC 645 – Offenses and Penalties