FAR subcontracting is defined by the FAR solicitation provision of a small business contract, wherein the subcontractor is to provide materials or services to the prime contractor for the purposes of completing the assigned job.

The purpose of the FAR solicitation provision is to ensure that a small business is doing a significant portion of the work as spelled out in the contract, meaning they aren’t contracting out to larger companies after having been awarded the contract. After all, what would be the point of having small business contracts made available if the work is really going to end up going to the bigger, already-established companies?

The FAR solicitation provision is essentially incorporated into the contract, making it a clause, and generally specifies the percentage of work to be done by the subcontractor. This may include, construction, services, and supplies and must be included in the case of small businesses, if the total dollar amount of the subcontractor’s work will exceed $150,000. Additionally, if the prime contractor has a fixed-rate contract, then permission to utilize the services of a subcontractor is only required for those actions that are unpriced or not cited within the contract.

If there is not an approved purchasing system in place between the prime contractor and the client, then consent will need to be obtained in the following scenarios regarding a subcontractor:

  • Is fixed-price
  • Involves cost reimbursement
  • Hourly rate for labor
  • Payment for time and materials

Even if there is an approved purchasing system in place, the contractor should still obtain written consent from the client, also known as the contracting officer.

More on the Limitations of FAR Subcontracting

As mentioned above, the FAR subcontracting provision is required for subcontracting work whose dollar amount will exceed $150,000 as it pertains to small businesses. Additionally, this includes all contracts that are awarded under FAR subpart 19.8, “Contracting with the Small Business Administration”.

Some key requirements of this include:

  • A minimum of 50 percent of the cost of the contract is to be expended to the employees of the concern
  • Not including the cost of materials, the concern is expected to perform work for a minimum of 50 percent of the cost of manufacturing the needed supplies
  • At least 15 percent of the work as it relates to the cost of contract will be performed by the concern’s own employees, not including the cost of materials
  • If using special-rate contractors, then the concern’s own employees will perform at least 25 percent of the work as it relates to the overall cost of the contract

Compliance with all of the above is generally overseen by the Contracting Officer, or Contracting Officer Technical Representative, although historically these reviews have been rather limited in scope. While there certainly are those contracting personnel who will track the amount of work being done by the small business, truth be told, many do not.

Things tend to be made a bit stickier considering that there is not much of a remedy for noncompliance (for example, as a small business, you are not going to be required to return the monies that had been awarded to you in the contract), and compliance is based on the percentage/cost of the overall contract period, which can vary widely from one small business to another. This also makes it quite difficult to track and record potential cases of noncompliance. As a small business, even if you find yourself falling short, say halfway through the project, on the percentage of work you should be doing, there is not too much to be worried about, as it really only matters what percentage you did by the end of the contract period.

As there are not really any remedies in place to address issues of noncompliance, most likely nothing would affect your existing contract, rather it would potentially affect future contracts you may wish to obtain, essentially meaning that if you are found to be in noncompliance, then you may not receive future contracts, or your business may at least be placed into something of a, “blackout period” wherein you cannot apply to or receive new contracts for a certain period of time. If nothing else, it can also potentially damage your professional reputation as a small business.

If you need help with FAR subcontracting, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.