What are the 'limitations on subcontracting' for a general construction set-aside contract?

For a general construction set-aside contract, the prime contractor will not pay more than 85 percent of the amount paid by the Government to subcontractors that are not similarly situated entities, excluding the cost of materials. This rule is found in FAR 52.219-14(e)(3).

This means your company, as the prime, must perform a certain portion of the work with your own employees. The limitation on subcontracting ensures that the small business awarded the contract performs the majority of the value of the work itself. When you are putting together your bid, you need to calculate the value of the work your company will perform versus what you plan to subcontract to other companies that are not similarly situated. The cost of materials is excluded from this calculation, so you focus on the labor and other direct costs.

Keep in mind that these rules apply to federal contracts. State and local government contracts follow their own specific procurement codes and guidelines, which can vary significantly.