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OFFICE OF THE UNDER SECRETARY OF DEFENSE
3000 DEFENSE PENTAGON
WASHINGTON, DC 20301-3000
ACQUISITION
AND SUSTAINMENT
In reply refer to
DARS Tracking Number: 2021-O0008, Revision 1
MEMORANDUM FOR COMMANDER, UNITED STATES CYBER
COMMAND (ATTN: ACQUISITION EXECUTIVE)
COMMANDER, UNITED STATES SPECIAL OPERATIONS
COMMAND (ATTN: ACQUISITION EXECUTIVE)
COMMANDER, UNITED STATES TRANSPORTATION
COMMAND (ATTN: ACQUISITION EXECUTIVE)
DEPUTY ASSISTANT SECRETARY OF THE ARMY
(PROCUREMENT)
DEPUTY ASSISTANT SECRETARY OF THE NAVY
(PROCUREMENT)
DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE
(CONTRACTING)
DEFENSE AGENCY AND DOD FIELD ACTIVITY DIRECTORS
SUBJECT: Class Deviation—Limitations on Subcontracting for Small Business
This class deviation revises and supersedes Class Deviation 2021-O0008, issued on
September 10, 2021. Effective immediately, contracting officers shall use the clause in the
Attachment, 52.219-14, Limitations on Subcontracting (DEVIATION 2021-O0008), in lieu of the
clause at Federal Acquisition Regulation (FAR) 52.219-14.
This class deviation implements the Small Business Administration’s (SBA’s) final rule
issued on November 29, 2019 (84 FR 65647), which amended its regulations to include certain
exclusions to the limitations on subcontracting for services contracts. These exclusions are addressed
in paragraph (e)(1) of the attached deviation clause. The final rule for FAR Case 2017-019 published
in the Federal Register on September 23, 2022 (87 FR 58219), and effective October 28, 2022,
modified the FAR to incorporate the limitations on subcontracting requirements for small business
joint ventures in SBA’s final rule issued on July 25, 2016 (81 FR 48558), resulting in revisions to
paragraph (g) of FAR clause 52.219-14. These revisions are included in the attached deviation
clause.
This class deviation remains in effect until incorporated into the FAR or until otherwise
rescinded. My point of contact is Ms. Jeanette Snyder, who is available via email at
jeanette.m.snyder4.civ@mail.mil.
John M. Tenaglia
Principal Director,
Defense Pricing and Contracting
Attachment:
As stated
Attachment
Class Deviation 2021-O0008, Revision 1
Limitations on Subcontracting for Small Business
Changes are indicated by a change bar in the right-hand margin.
52.219-14 Limitations on Subcontracting (DEVIATION 2021-O0008)
Use the following clause in lieu of the Federal Acquisition Regulation (FAR) clause 52.219-14,
as prescribed at FAR 19.507(e):
LIMITATIONS ON SUBCONTRACTING (FEB 2023) (DEVIATION 2021-O0008)
(a) This clause does not apply to the unrestricted portion of a partial set-aside.
(b) Definition. Similarly situated entity, as used in this clause, means a first-tier
subcontractor, including an independent contractor, that—
(1) Has the same small business program status as that which qualified the prime
contractor for the award (e.g., for a small business set-aside contract, any small business concern,
without regard to its socioeconomic status); and
(2) Is considered small for the size standard under the North American Industry
Classification System (NAICS) code the prime contractor assigned to the subcontract.
(c) Applicability. This clause applies only to—
(1) Contracts that have been set aside for any of the small business concerns identified in
19.000(a)(3);
(2) Part or parts of a multiple-award contract that have been set aside for any of the small
business concerns identified in 19.000(a)(3);
(3) Contracts that have been awarded on a sole-source basis in accordance with subparts
19.8, 19.13, 19.14, and 19.15;
(4) Orders expected to exceed the simplified acquisition threshold and that are—
(i) Set aside for small business concerns under multiple-award contracts, as described
in 8.405-5 and 16.505(b)(2)(i)(F); or
(ii) Issued directly to small business concerns under multiple-award contracts as
described in 19.504(c)(1)(ii);
(5) Orders, regardless of dollar value, that are—
(i) Set aside in accordance with subparts 19.8, 19.13, 19.14, or 19.15 under multiple-
award contracts, as described in 8.405-5 and 16.505(b)(2)(i)(F); or
(ii) Issued directly to concerns that qualify for the programs described in subparts
19.8, 19.13, 19.14, or 19.15 under multiple-award contracts, as described in 19.504(c)(1)(ii); and
(6) Contracts using the HUBZone price evaluation preference to award to a HUBZone
small business concern unless the concern waived the evaluation preference.
Attachment
Class Deviation 2021-O0008, Revision 1
Limitations on Subcontracting for Small Business
Changes are indicated by a change bar in the right-hand margin.
(d) Independent contractors. An independent contractor shall be considered a subcontractor.
(e) Limitations on subcontracting. By submission of an offer and execution of a contract,
the Contractor agrees that in performance of a contract assigned a North American Industry
Classification System (NAICS) code for—
(1) Services (except construction), it will not pay more than 50 percent of the amount
paid by the Government for contract performance, excluding certain other direct costs and
certain work performed outside the United States (see paragraph (e)(1)(i)), to subcontractors that
are not similarly situated entities. Any work that a similarly situated entity further subcontracts
will count towards the prime contractor’s 50 percent subcontract amount that cannot be
exceeded. When a contract includes both services and supplies, the 50 percent limitation shall
apply only to the service portion of the contract. The following services may be excluded from
the 50 percent limitation:
(i) Other direct costs, to the extent they are not the principal purpose of the
acquisition and small business concerns do not provide the service. Examples include airline
travel, work performed by a transportation or disposal entity under a contract assigned the
environmental remediation NAICS code 562910), cloud computing services, or mass media
purchases.
(ii) Work performed outside the United States on awards made pursuant to the
Foreign Assistance Act of 1961, or work performed outside the United States required to be
performed by a local contractor.
(2) Supplies (other than procurement from a nonmanufacturer of such supplies), it will
not pay more than 50 percent of the amount paid by the Government for contract performance,
excluding the cost of materials, to subcontractors that are not similarly situated entities. Any
work that a similarly situated entity further subcontracts will count towards the prime
contractor’s 50 percent subcontract amount that cannot be exceeded. When a contract includes
both supplies and services, the 50 percent limitation shall apply only to the supply portion of the
contract;
(3) General construction, it will not pay more than 85 percent of the amount paid by the
Government for contract performance, excluding the cost of materials, to subcontractors that are
not similarly situated entities. Any work that a similarly situated entity further subcontracts will
count towards the prime contractor’s 85 percent subcontract amount that cannot be exceeded; or
(4) Construction by special trade contractors, it will not pay more than 75 percent of the
amount paid by the Government for contract performance, excluding the cost of materials, to
subcontractors that are not similarly situated entities. Any work that a similarly situated entity
further subcontracts will count towards the prime contractor’s 75 percent subcontract amount
that cannot be exceeded.
(f) The Contractor shall comply with the limitations on subcontracting as follows:
(1) For contracts, in accordance with paragraphs (c)(1), (2), (3) and (6) of this clause–
Attachment
Class Deviation 2021-O0008, Revision 1
Limitations on Subcontracting for Small Business
Changes are indicated by a change bar in the right-hand margin.
[Contracting Officer check as appropriate.]
__ By the end of the base term of the contract and then by the end of each subsequent
option period; or
__ By the end of the performance period for each order issued under the contract.
(2) For orders, in accordance with paragraphs (c)(4) and (5) of this clause, by the end of
the performance period for the order.
(g) A joint venture agrees that, in the performance of the contract, the applicable percentage
specified in paragraph (e) of this clause will be performed by the aggregate of the joint venture
participants.
(1) In a joint venture comprised of a small business protégé and its mentor approved by
the Small Business Administration, the small business protégé shall perform at least 40 percent
of the work performed by the joint venture. Work performed by the small business protégé in
the joint venture must be more than administrative functions.
(2) In an 8(a) joint venture, the 8(a) participant(s) shall perform at least 40 percent of the
work performed by the joint venture. Work performed by the 8(a) participants in the joint
venture must be more than administrative functions.
(End of clause)