“Congratulations! Your woman-owned small business (WOSB), Sun Corp, has just been awarded a contract. This particular contract was set aside for WOSBs, meaning only WOSBs may be considered for award. Small Corp is a relatively new company, and you have determined that you will need some help to successfully complete performance of the contract. As luck would have it, you are acquainted with the owner of Moon Corp, and Moon Corp is in the business of doing the exact type of work that Sun Corp needs help with. While diligently reading through the contract prior to its execution, you notice the following language:
Performance of this contract must comply with the subcontracting limitations set forth in FAR 19.505 and 13 C.F.R. § 125.6…”
“Being the responsible business owner you are, you contact your attorney to see what those provisions are all about. After a few questions, your attorney informs you that Moon Corp is considered “other than small.” As such, the provision limits the how much work Sun Corp, as prime contractor, is permitted to outsource to Moon Corp, as subcontractor, while remaining in compliance with the terms of the contract…”
“So what is this ‘similarly situated’ you speak of? I’m glad you asked! A similarly situated entity is a subcontractor that is the same socio-economic designation as the prime contractor. 13 C.F.R. § 125.1. That means, in our example if Moon Corp was also a WOSB, it would be a similarly situated entity for subcontracting purposes. This is important to know because subcontracting to similarly situated entity does not count towards the subcontracting limits outlined above. 13 C.F.R. § 125.6(c). However, any work that the subcontractor further subcontracts will count towards those limits. Below are a couple hypotheticals for illustration, assuming the services being provided are not construction, and therefore fall under a services category of contract…”
“Example 1: Sun Corp, a WOSB, enters into an agreement with Moon Corp, an “other than small” business for Moon Corp to provide IT services. Sun Corp cannot pay Moon Corp more than 50% of the amount paid by the government.
Example 2: Sun Corp, a WOSB, enters into an agreement with Moon Corp, also a WOSB, to provide IT services. Sun Corp does not have to limit the amount paid to Moon Corp because they are similarly situated entities…” Read the full article here.
Source: Limitations on Subcontracting Part 1: What They Are and How They Apply – By Stephanie Ellis, March 24, 2022. SmallGovCon.
