A small prime on a set-aside has a number it cannot exceed. How much of the money it can pass to subcontractors that are not on its team depends on the clause, and the answer changes with what the supplier is. We are a small reseller, so we sit on the supplier side of that number, and we have seen both versions of how it goes.
This article explains FAR 52.219-14 and 13 CFR 125.6 for a prime that buys from small suppliers and for a supplier that wants to be easy to count. It does not explain how to qualify for a set-aside. It assumes the prime already holds one.
The short version
| Type of work | Cap on amounts paid to non-similarly situated subcontractors |
|---|---|
| Services (except construction) | 50 percent of the amount the government pays |
| Supplies | 50 percent of the amount paid, excluding the cost of materials |
| General construction | 85 percent, excluding the cost of materials |
| Special trade construction | 75 percent, excluding the cost of materials |
Those figures are in paragraph (e) of FAR 52.219-14 (Oct 2022 version, shown on acquisition.gov under FAC 2026-01) and in 13 CFR 125.6. The caps are on what the prime pays out to firms that are not similarly situated. They are not a requirement that the prime perform a given share with its own people only.
What the clause actually counts
Three ideas carry the math.
The base is what the government pays. The percentage is measured against the amount paid to the prime for performance. For supplies, the cost of materials comes out of the base first, which is a point of frequent confusion. A prime that treats the whole price as the base overstates its denominator.
Only subcontracting counts against the cap. The clause limits amounts the prime pays to subcontractors. The clause treats an independent contractor as a subcontractor, and 13 CFR 125.6 says leased employees are generally treated as the prime's own work, with an exception for staffing contracts.
Mixed contracts take one cap for one portion. The clause says that for a mixed contract the percentage applies only to the relevant portion, and 125.6 says the contracting officer's NAICS code selects the single cap. A prime should look at how its contract was coded before building the calculation.
The clause also says when the number is measured: at the end of the base term and each option period, or at the end of each order's performance period, as the contracting officer directs. A prime that tracks the number only when invoices go out can discover a problem too late to fix it.
Similarly situated entities: when a supplier does not count against you
A subcontract to a similarly situated entity does not count against the cap, as long as that subcontractor performs the work with its own employees. Paragraph (b) of the clause defines it in two tests. The first-tier subcontractor must hold the same small business program status that qualified the prime for the award, and it must be small under the NAICS size standard the prime assigned to the subcontract.
What that means in practice:
- A supplier's status for this purpose is what it holds for the program in the prime's award, not just that it is "small" in general.
- The size test uses the NAICS code of the subcontract, not the supplier's primary code.
- Work that a similarly situated supplier passes down to others counts toward the prime's cap. A supplier that is similarly situated on paper but subcontracts the work out undoes that benefit.
- A supplier that stops qualifying (it grows out of the size standard, or loses the status) stops being similarly situated for the clause.
This is the place where a supplier helps a prime most, and where a prime should verify rather than trust. We cover how to verify status and size in what a prime should require of a small supplier.
The nonmanufacturer carve-out for supplies
Paragraph (e)(2) says the supplies limitation does not apply to procurement from a nonmanufacturer of such supplies. 13 CFR 125.6 describes nonmanufacturers on supply contracts the same way: the reseller must supply the product of a domestic small business manufacturer, unless SBA grants a waiver. So where a prime is buying supplies from a firm that qualifies as a nonmanufacturer, the clause does not count that purchase against the supplies cap.
Two cautions:
- The carve-out is for a nonmanufacturer of the supplies. A reseller that does not meet the nonmanufacturer conditions is an ordinary subcontractor for this purpose. We explain the conditions in the nonmanufacturer rule explained.
- The prime owns the conclusion. If the supplier's answer about who made the end item is wrong, the prime's calculation is wrong, and the penalties fall on the prime.
What goes wrong, from the supplier's side
A supplier can raise a prime's risk without meaning to. These are the common ways:
- Unclear scope. The purchase order says "supplies and installation" and the supplier does both. The prime has to split the number between a supplies portion and a services portion, and it cannot if the invoice does not.
- Material cost buried in a bundled price. For supplies the cost of materials is excluded, so a prime may need that figure. A supplier that quotes one lump sum makes that hard.
- Silent sub-subcontracting. The supplier quietly hands the work to another firm. If the supplier was counted as similarly situated, the prime's cap now includes that work.
- Status that changed. The supplier was small and certified when the subcontract started and is not now. Nobody told the prime.
- Wrong manufacturer information. The supplier says an item is made by a small U.S. manufacturer when it is not.
What a supplier can do to help the prime
None of this takes much effort. A supplier that wants to be easy to count should:
- State in writing what it is: manufacturer, nonmanufacturer reseller, or services provider, for each line.
- Name the manufacturer and the country of origin for each end item.
- Break out materials from labor and other charges on the quote and the invoice when the order has both.
- Say whether it will perform with its own employees or subcontract any of the work.
- Tell the prime if its size or status changes during the subcontract.
- Match its legal name, UEI and invoice details to its SAM record, so the prime's records line up.
What a prime should do on its side
- Run the calculation before the award is signed, with the supplier list you expect to use, and again when you change suppliers.
- Classify each supplier as similarly situated, nonmanufacturer, or other, and keep the evidence.
- Track by period. Set up the number so you can see it at the end of the base and each option, or order, as your contracting officer directs.
- Keep a supplier file with status, size, manufacturer information and written scope, because that is what you will point to if the contracting officer asks.
- Check your contract's version. Some agencies are issuing class deviations while the FAR is rewritten, and the clause in your contract may not read the way the current page does.
What happens if the number is missed
13 CFR 125.6 says violations carry the penalties in 15 U.S.C. 645(d), which it describes as a fine of the greater of $500,000 or the amount subcontracted above the permitted level. It also says that if a prime misses the cap, the agency must give it a chance to explain extenuating circumstances, and without a valid explanation the agency may withhold a satisfactory past performance rating. The failure to honor a subcontract with a similarly situated entity may be grounds for debarment. Read the rule for the full wording. We mention it to say the number is worth the file.
One more exemption: 125.6 states that set-asides valued between the micro-purchase threshold and the simplified acquisition threshold are exempt, which is the same band the nonmanufacturer rule exempts. See the micro-purchase threshold explainer for the current figures, and confirm the exemption against your solicitation.
How Lunula Supply handles it
We are a small, minority-owned, SAM-registered supplier and reseller in Chicago (CAGE 9GWP3), primary NAICS 423990. When a small prime buys supplies from us, we give it the facts its calculation needs.
- We say what we are on each line, and we identify the manufacturer and the country of origin, sent with the quote or order.
- We label the channel (manufacturer, distributor or retail) on every sourcing line.
- We confirm every order line by line in writing, so scope and quantities match what the prime is counting.
- We invoice after delivery through the system the contract names, matched to the order.
- One contact stays with the prime from acknowledgment through warranty, including if something about our status needs to be confirmed.
If you are a prime building a supplier file, contact us or see what we supply. For the full onboarding view, read what a prime should require of a small supplier.
Frequently asked questions
What are the percentages in FAR 52.219-14?
Paragraph (e) sets 50 percent for services (except construction), 50 percent for supplies excluding the cost of materials, 85 percent for general construction excluding materials, and 75 percent for special trade construction excluding materials. Check the clause version in your contract.
What is a similarly situated entity?
It is a first-tier subcontractor that holds the same small business program status that qualified the prime for the award and is small under the NAICS size standard the prime assigned to the subcontract. Work it performs with its own employees does not count against the prime's cap.
Does buying from a reseller count against the supplies limit?
Not if the reseller is a nonmanufacturer of the supplies. The clause says the supplies limitation does not apply to procurement from a nonmanufacturer. A reseller that does not meet the nonmanufacturer conditions is treated as an ordinary subcontractor.
Who is responsible if the limit is exceeded?
The prime, because the clause is the prime's promise to the government. A supplier does not carry the penalty, but its information drives the calculation, which is why primes should verify it.
General information, not legal advice. Clause text was checked against acquisition.gov (FAC 2026-01) and 13 CFR 125.6 on the publish date. The FAR is being rewritten, so verify the current text. Your contract's terms control.