Can my sub hire its own sub on a set aside job, and does that lower tier count against the limitations?

Yes, your subcontractor can hire its own sub on a federal set-aside job, and that lower-tier work counts against the limitations on subcontracting. Federal contracts follow the FAR, and your prime contract with the government will dictate the terms for subcontracting, including lower tiers. The prime contractor is generally responsible for the performance of all subcontractors, including second-tier subs.

Your prime contract should have a clause like FAR 52.219-14, Limitations on Subcontracting. For services, which court reporting is, the prime contractor will not pay more than 50 percent of the amount paid by the Government to subcontractors that are not similarly situated entities. This means the work performed by your first-tier subcontractor, and any second-tier subcontractors they bring on, will count towards that 50 percent limitation if those subs are not similarly situated to your firm.

Even though your sub would be paying the second-tier firm directly, the work still falls under your prime contract. It is standard practice for prime contractors to approve any lower-tier subcontractors to maintain oversight and ensure compliance with contract terms and the limitations on subcontracting. You are ultimately responsible for ensuring the work is performed correctly and that all terms of the contract are met, regardless of how many tiers of subcontractors are involved.