The FAR’s Limitations on Subcontracting and IDIQ Contracts

Here’s a question I get with some frequency: “do I have to comply with the FAR’s subcontracting limitations for every task or delivery order?”  You will be happy to learn that the GAO, at least, has answered this question “no.”

Although the FAR Limitations on Subcontracting clause, FAR 52.219-14, does not address IDIQs, task or delivery orders, the GAO has held that the subcontracting limitation FAR clause “applies to the contract as a whole and does not require that each delivery order placed under the contract satisfy the requirements of the clause.”  Spectrum Security Servs., Inc., B-297320.2 (Dec. 29, 2005).  According to the GAO in the Spectrum Security Services bid protest, the “contract as a whole” means that where a solicitation provides for the price evaluation of base and option years, the entire contract—both base and all priced options—will be reviewed to determine whether the offer complies with the subcontracting limits.

 So, according to the GAO, that’s the basic rule.  But—and I’m sure you were worried there was a “but” in here somewhere—there is a special compliance rule for IDIQs set-aside for 8(a) contractors. An 8(a) prime contractor does not need to meet the satisfy the subcontracting limits on a task-order-by-task order basis, but it must be able to demonstrate semiannually that it has performed the required percentage of the combined task orders issued to date.  An example of how this might work in practice is included in the applicable regulation, 13 C.F.R. § 124.510.

One more twist: for 8(a) IDIQ contracts including a guaranteed minimum condition, the 8(a) contractor need not meet the required work percentage during the first six months, but cannot subcontract more than 50 percent of the total guaranteed minimal dollar value during that timeframe.  Once the guaranteed minimum is met, the general limitation on subcontracting rule for 8(a) IDIQ contracts, described above, kicks in.  Again, the regulations include an example of how this extra twist might work in real life.

Finally, note that the SBA may waive the subcontracting limits for any particular six month period if the SBA determines that larger amounts of subcontracting are essential during that stage of performance.  Keep in mind, though, that even if the SBA grants a waiver from the limitations on subcontracting for one six-month period, the 8(a) contractor is still required to meet the subcontracting limits for other six-month periods and for the contract as a whole.

Update: A new SBA regulation has superseded the rule discussed in this post.  Effective December 31, 2013, new 13 C.F.R. 125.6(f) states: “The period of time used to determine compliance for a total or partial set-aside contract will be the base term and then each subsequent option period. For an order set aside under a full and open contract or a full and open contract with reserve, the agency will use the period of performance for each order to determine compliance unless the order is competed amongst small and other-than-small businesses (in which case the subcontracting limitations will not apply). However, the contracting officer, in his or her discretion, may require the concern to perform the applicable amount of work or comply with the nonmanufacturer rule for each order awarded under a total or partial set aside contract.”

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