What are the 'limitations on subcontracting' rules for a federal services set-aside contract?

For a federal services set-aside contract, 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 rule comes from FAR 52.219-14(e)(1). The purpose of the limitation on subcontracting is to ensure that the small business prime contractor performs a significant portion of the work itself, especially on set-aside contracts designed to benefit small businesses. When you are assessing your team, identify which subcontractors qualify as "similarly situated entities" because their portion of the work does not count against your 50 percent limit. These are typically small businesses that hold the same small business status as the prime for the particular set-aside. You will need to track the actual work performed by your team members to ensure compliance throughout the contract period.