Does the cost of materials count as subcontracting?

No. For general construction and special trade contracts, SBA’s rule says the cost of materials is excluded and not considered subcontracted.

Can I sub work to another SDVOSB on an SDVOSB set-aside?

Yes. A first-tier sub with the same program status that is small under the subcontract NAICS code is similarly situated, and work it performs with its own employees does not count against your limit.

Do independent contractors count as subcontractors?

Yes. The FAR clause says an independent contractor shall be considered a subcontractor.

Does the limit apply to small set-aside jobs?

Under SBA’s rule, the limits do not apply to small business set-aside contracts above the micro-purchase threshold and at or below the simplified acquisition threshold.

Guide

Limitations on subcontracting for trade contractors on set-aside work

Updated October 14, 2026

On a set-aside construction contract, a special trade contractor may not pay more than 75% of the amount the government pays it, excluding the cost of materials, to subcontractors that are not similarly situated. For general construction the limit is 85%. [FAR 52.219-14, Limitations on Subcontracting] Money paid to a similarly situated sub that does the work with its own employees does not count toward that limit. [13 CFR 125.6, Prime contractor limitations on subcontracting]

When the limit applies

The clause applies to contracts set aside for small businesses, including SDVOSB set-asides and sole-source awards under FAR Subpart 19.14, and to certain set-aside orders under multiple-award contracts. It does not apply to the unrestricted portion of a partial set-aside. [FAR 52.219-14, Limitations on Subcontracting] SBA’s rule names SDVOSB and VOSB contracts among those covered. [13 CFR 125.6, Prime contractor limitations on subcontracting] SBA’s rule says the limits do not apply to small business set-aside contracts valued above the micro-purchase threshold but at or below the simplified acquisition threshold. [13 CFR 125.6, Prime contractor limitations on subcontracting]

Special trade or general construction

Which percentage applies depends on the NAICS code on the contract: 75% for construction by special trade contractors and 85% for general construction. [FAR 52.219-14, Limitations on Subcontracting] When a contract mixes services, supplies, or construction, the contracting officer’s choice of NAICS code decides which limit applies, and only one limit can apply to a contract. [13 CFR 125.6, Prime contractor limitations on subcontracting]

What counts toward the limit

The cost of materials is excluded and is not treated as subcontracted. [13 CFR 125.6, Prime contractor limitations on subcontracting] An independent contractor counts as a subcontractor. [FAR 52.219-14, Limitations on Subcontracting] Workers you get from a temporary employee agency, professional employer organization, or leasing company are treated as your own self-performance, except on staffing contracts. [13 CFR 125.6, Prime contractor limitations on subcontracting]

Similarly situated subs

A similarly situated entity is a first-tier subcontractor with the same small business program status that qualified you for the award, and that is small under the NAICS code you assign to the subcontract. [FAR 52.219-14, Limitations on Subcontracting] Work you pay a similarly situated sub is not counted as subcontracted, as long as that sub does the work with its own employees. Anything it passes on to someone else counts against your limit. [13 CFR 125.6, Prime contractor limitations on subcontracting]

A simple example

SBA’s own example: on an $8,000,000 general construction contract, the prime can sub out no more than $6,800,000 to firms that are not similarly situated, and the prime and similarly situated subs must perform at least $1,200,000. [13 CFR 125.6, Prime contractor limitations on subcontracting] The same math at the 75% special trade limit means that if the government pays you $300,000 after materials are taken out, no more than $225,000 of it can go to subs that are not similarly situated. [FAR 52.219-14, Limitations on Subcontracting]

When compliance is measured

For contracts, the contracting officer sets the measuring period: either by the end of the base term and then each option period, or by the end of the performance period for each order. [FAR 52.219-14, Limitations on Subcontracting] Contracting officers may ask you to prove compliance at any time, with invoices, copies of subcontracts, or a list of the value of tasks performed. [13 CFR 125.6, Prime contractor limitations on subcontracting] Keep those records from day one.

What happens if you go over

If an agency finds you missed the limit at the end of performance, it must give you a chance to explain. Without extenuating circumstances beyond your control, the agency may not give a satisfactory or higher past performance rating for that factor. [13 CFR 125.6, Prime contractor limitations on subcontracting] Violations are also subject to penalties under 15 U.S.C. 645(d), with the fine treated as the greater of $500,000 or the amount spent on subcontractors above the permitted level. [13 CFR 125.6, Prime contractor limitations on subcontracting]

Common questions

Does the cost of materials count as subcontracting?: No. For general construction and special trade contracts, SBA’s rule says the cost of materials is excluded and not considered subcontracted. [13 CFR 125.6, Prime contractor limitations on subcontracting]
Can I sub work to another SDVOSB on an SDVOSB set-aside?: Yes. A first-tier sub with the same program status that is small under the subcontract NAICS code is similarly situated, and work it performs with its own employees does not count against your limit. [FAR 52.219-14, Limitations on Subcontracting] [13 CFR 125.6, Prime contractor limitations on subcontracting]
Do independent contractors count as subcontractors?: Yes. The FAR clause says an independent contractor shall be considered a subcontractor. [FAR 52.219-14, Limitations on Subcontracting]
Does the limit apply to small set-aside jobs?: Under SBA’s rule, the limits do not apply to small business set-aside contracts above the micro-purchase threshold and at or below the simplified acquisition threshold. [13 CFR 125.6, Prime contractor limitations on subcontracting]

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Sources

Checked against these sources on October 14, 2026. Rules change, so always read the current solicitation and regulation. This guide is general information, not legal advice.