How do 'limitations on subcontracting' apply to a supplies set-aside contract?

For a supplies set-aside, the prime contractor will not pay more than 50 percent of the amount paid by the Government, excluding the cost of materials, to subcontractors that are not similarly situated entities (FAR 52.219-14(e)(2)). This means that the prime's work is considered to be the value added to the materials, such as manufacturing, assembly, or other processing, rather than the raw cost of the components. The cost of materials is excluded from the calculation when determining the percentage of work performed by the prime versus subcontractors. Your company does not necessarily need to manufacture the parts themselves, but the value of the work performed on those parts, beyond just the material cost, must meet the 50 percent threshold.