The Small Business Administration is moving to tighten its limitations-on-subcontracting rule for small-business and veteran-owned set-aside contracts, according to a client alert published by JD Supra on November 2. The rule governs how much of a set-aside contract's work a prime actually has to perform itself versus hand off to subs.
Here's the mechanic: on a construction set-aside, SBA already requires the prime to perform a minimum share of the contract cost with its own workforce — the rule exists so a small or veteran-owned firm doesn't just win the award and flip the whole job to a larger sub who didn't qualify for the set-aside in the first place. The alert reports SBA plans to apply stricter scrutiny to how that self-performance percentage gets calculated and documented going forward.
Why a New York contractor should read past the headline: there are federal VA and GSA set-asides on this paper's own board right now — the VA's Bronx chiller pump job and the East Orange electrical and plumbing job among them — where exactly this rule applies. A veteran-owned or small-business prime that wins one of those awards and plans to sub out the bulk of the work to a larger non-qualifying firm is the scenario SBA is tightening up on.
For a GC or sub on the other side of that relationship — a larger firm that regularly partners with a small or veteran-owned prime to chase federal set-asides — the stricter limitation means rewriting how that teaming arrangement gets documented. A subcontracting plan that looked fine under the old guidance could get flagged under the new one if the prime's self-performed share doesn't hold up on paper.
What to do next
If you're a small or veteran-owned firm holding or bidding a federal set-aside, get your self-performance percentage documented now — payroll records, equipment logs, superintendent assignments — before SBA's stricter review standard takes effect, not after an award gets challenged.
If you're a larger firm teaming with a set-aside prime, revisit that teaming agreement with the actual labor split in mind. A subcontracting plan built around the prime doing paperwork and your crew doing the work is the exact arrangement this rule is written to catch.