Government Contracts Rule Proposes Revisions to FAR Limitations on Subcontracting
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Friday, December 28, 2018

Rule Proposes Revisions to FAR Limitations on Subcontracting 

By Government Contracts Editorial Staff

A proposed rule would amend the Federal Acquisition Regulation Supplement to revise and standardize the limitations on subcontracting, including the nonmanufacturer rule, that apply to small business concerns under FAR Part 19 procurements. The rule implements section 1651 of the National Defense Authorization Act for Fiscal Year 2013 (PL 112-239) and a final rule issued by the Small Business Administration (¶70,425.572). Section 1651 changed the focus of the limitations on subcontracting rules. Instead of requiring a percentage of work to be performed by a prime contractor, the limitations on subcontracting rules now limit subcontracting to a percentage of the overall award amount to be spent by the prime on subcontractors. As a result, the prime contractor is no longer required to track the percentage of costs that it spends performing work itself. Rather, it must track the percentage of the overall award amount (i.e., contract price) that it spends on subcontractors. In addition, the percentage of the award amount that the prime contractor spends on subcontractors who are similarly situated entities is not considered subcontracted for purposes of compliance with the limitations on subcontracting. The rule provides that the limitations on subcontracting and the nonmanufacturer rule clauses are prescribed for small business set-asides that are expected to exceed $150,000, and for requirements set aside for or awarded on a sole-source basis to 8(a) participants, Historically Underutilized Business Zone small business, service-disabled veteran-owned small business, economically disadvantaged women-owned small business, or concerns eligible under the WOSB program. This rule is intended to remedy inconsistencies in the limitations on subcontracting and the nonmanufacturer rule across these small business programs. Comments on this proposed rule, identified by FAR Case 2016-011, are due February 4, 2019. For the text of the rule, see ¶70,006.334.

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