[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR125.6]

[Page 437-440]
 
                TITLE 13--BUSINESS CREDIT AND ASSISTANCE
 
                CHAPTER I--SMALL BUSINESS ADMINISTRATION
 
PART 125_GOVERNMENT CONTRACTING PROGRAMS--Table of Contents
 
Sec.  125.6  Prime contractor performance requirements (limitations on 

subcontracting).

    (a) In order to be awarded a full or partial small business set-
aside contract, an 8(a) contract, or an unrestricted procurement where a 
concern has claimed a 10 percent small disadvantaged business (SDB) 
price evaluation preference, a small business concern must agree that:
    (1) In the case of a contract for services (except construction), 
the concern will perform at least 50 percent of the cost of the contract 
incurred for personnel with its own employees.
    (2) In the case of a contract for supplies or products (other than 
procurement from a non-manufacturer in such supplies or products), the 
concern will perform at least 50 percent of the cost of manufacturing 
the supplies or products (not including the costs of materials).
    (3) In the case of a contract for general construction, the concern 
will perform at least 15 percent of the cost of the contract with its 
own employees (not including the costs of materials).
    (4) In the case of a contract for construction by special trade 
contractors, the concern will perform at least 25 percent of the cost of 
the contract with its own employees (not including the cost of 
materials).
    (b) An SDVO SBC prime contractor can subcontract part of an SDVO 
contract (as defined in Sec.  125.15) provided:
    (1) In the case of a contract for services (except construction), 
the SDVO SBC spends at least 50% of the cost of the contract performance 
incurred for personnel on the concern's employees

[[Page 438]]

or on the employees of other SDVO SBCs;
    (2) In the case of a contract for general construction, the SDVO SBC 
spends at least 15% of the cost of contract performance incurred for 
personnel on the concern's employees or the employees of other SDVO 
SBCs;
    (3) In the case of a contract for construction by special trade 
contractors, the SDVO SBC spends at least 25% of the cost of contract 
performance incurred for personnel on the concern's employees or the 
employees of other SDVO SBCs; and
    (4) In the case of a contract for procurement of supplies or 
products (other than procurement from a non-manufacturer in such 
supplies or products), at least 50% of the cost of manufacturing the 
supplies or products (not including the costs of materials), will be 
performed by the SDVO SBC prime contractor or other SDVO SBCs.
    (5) In accordance with Sec.  125.15(b)(3), the SDVO SBC joint 
venture must perform the applicable percentage of work.
    (c) A qualified HUBZone SBC prime contractor can subcontract part of 
a HUBZone contract (as defined in Sec.  126.600 of this chapter) 
provided:
    (1) In the case of a contract for services (except construction), 
the qualified HUBZone SBC spends at least 50% of the cost of the 
contract performance incurred for personnel on the concern's employees 
or on the employees of other qualified HUBZone SBCs;
    (2) In the case of a contract for general construction, the 
qualified HUBZone SBC spends at least 15% of the cost of contract 
performance incurred for personnel on the concern's employees;
    (3) In the case of a contract for construction by special trade 
contractors, the qualified HUBZone SBC spends at least 25% of the cost 
of contract performance incurred for personnel on the concern's 
employees;
    (4) In the case of a contract for procurement of supplies (other 
than procurement from a regular dealer in such supplies), the qualified 
HUBZone SBC spends at least 50% of the manufacturing cost (excluding the 
cost of materials) on performing the contract in a HUBZone. One or more 
qualified HUBZone SBCs may combine to meet this subcontracting 
percentage requirement; and
    (5) In the case of a contract for the procurement by the Secretary 
of Agriculture of agricultural commodities, the qualified HUBZone SBC 
may not purchase the commodity from a subcontractor if the subcontractor 
will supply the commodity in substantially the final form in which it is 
to be supplied to the Government.
    (d) SBA may use different percentages if the Administrator 
determines that such action is necessary to reflect conventional 
industry practices among small business concerns that are below the 
numerical size standard for businesses in that industry group. 
Representatives of a national trade or industry group or any interested 
SBC may request a change in subcontracting percentage requirements for 
the categories defined by six digit industry codes in the North American 
Industry Classification System (NAICS) pursuant to the following 
procedures.
    (1) Format of request. Requests from representatives of a trade or 
industry group and interested SBCs should be in writing and sent or 
delivered to the Associate Administrator of the Office of Government 
Contracting, U.S. Small Business Administration, 409 3rd Street, SW., 
Washington, DC 20416. The requester must demonstrate to SBA that a 
change in percentage is necessary to reflect conventional industry 
practices among small business concerns that are below the numerical 
size standard for businesses in that industry category, and must support 
its request with information including, but not limited to:
    (i) Information relative to the economic conditions and structure of 
the entire national industry;
    (ii) Market data, technical changes in the industry and industry 
trends;
    (iii) Specific reasons and justifications for the change in the 
subcontracting percentage;
    (iv) The effect such a change would have on the Federal procurement 
process; and
    (v) Information demonstrating how the proposed change would promote 
the purposes of the small business, 8(a),

[[Page 439]]

SDB, woman-owned business, or HUBZone programs.
    (2) Notice to public. Upon an adequate preliminary showing to SBA, 
SBA will publish in the Federal Register a notice of its receipt of a 
request that it considers a change in the subcontracting percentage 
requirements for a particular industry. The notice will identify the 
group making the request, and give the public an opportunity to submit 
information and arguments in both support and opposition.
    (3) Comments. SBA will provide a period of not less than 30 days for 
public comment in response to the Federal Register notice.
    (4) Decision. SBA will render its decision after the close of the 
comment period. If SBA decides against a change, SBA will publish notice 
of its decision in the Federal Register. Concurrent with the notice, SBA 
will advise the requester of its decision in writing. If SBA decides in 
favor of a change, SBA will propose an appropriate change to this part.
    (e) Definitions. The following definitions apply to this section:
    (1) Cost of the contract. All allowable direct and indirect costs 
allocable to the contract, excluding profit or fees.
    (2) Cost of contract performance incurred for personnel. Direct 
labor costs and any overhead which has only direct labor as its base, 
plus the concern's General and Administrative rate multiplied by the 
labor cost.
    (3) Cost of manufacturing. Those costs incurred by the firm in the 
production of the end item being acquired. These are costs associated 
with the manufacturing process, including the direct costs of 
fabrication, assembly, or other production activities, and indirect 
costs which are allocable and allowable. The cost of materials, as well 
as the profit or fee from the contract, are excluded.
    (4) Cost of materials. Includes costs of the items purchased, 
handling and associated shipping costs for the purchased items (which 
includes raw materials), off-the-shelf items (and similar 
proportionately high-cost common supply items requiring additional 
manufacturing or incorporation to become end items), special tooling, 
special testing equipment, and construction equipment purchased for and 
required to perform on the contract. In the case of a supply contract, 
the acquisition of services or products from outside sources following 
normal commercial practices within the industry are also included.
    (5) Off-the-shelf item. An item produced and placed in stock by a 
manufacturer, or stocked by a distributor, before orders or contracts 
are received for its sale. The item may be commercial or may be produced 
to military or Federal specifications or description. Off-the-shelf 
items are also known as Nondevelopmental Items (NDI).
    (6) Personnel. Individuals who are ``employees'' under Sec.  121.106 
of this chapter except for purposes of the HUBZone program, where the 
definition of ``employee'' is found in Sec.  126.103 of this chapter.
    (7) Subcontracting. That portion of the contract performed by a 
firm, other than the concern awarded the contract, under a second 
contract, purchase order, or agreement for any parts, supplies, 
components, or subassemblies which are not available off-the-shelf, and 
which are manufactured in accordance with drawings, specifications, or 
designs furnished by the contractor, or by the government as a portion 
of the solicitation. Raw castings, forgings, and moldings are considered 
as materials, not as subcontracting costs. Where the prime contractor 
has been directed by the Government to use any specific source for 
parts, supplies, components subassemblies or services, the costs 
associated with those purchases will be considered as part of the cost 
of materials, not subcontracting costs.
    (f) Compliance will be considered an element of responsibility and 
not a component of size eligibility.
    (g) The period of time used to determine compliance will be the 
period of performance which the evaluating agency uses to evaluate the 
proposal or bid. If the evaluating agency fails to articulate in its 
solicitation the period of performance it will use to evaluate the 
proposal or bid, the base contract period, excluding options, will be 
used to determine compliance. In indefinite quantity contracts, 
performance over the guaranteed minimum will be used to determine 
compliance unless the

[[Page 440]]

evaluating agency articulates a different period of performance which it 
will use to evaluate the proposal or bid in its solicitation.
    (h) Work to be performed by subsidiaries or other affiliates of a 
concern is not counted as being performed by the concern for purposes of 
determining whether the concern will perform the required percentage of 
work.
    (i) Where an offeror is exempt from affiliation under Sec.  
121.103(h)(3) of this chapter and qualifies as a small business concern, 
the performance of work requirements set forth in this section apply to 
the cooperative effort of the joint venture, not its individual members.
    (j) Where an offeror is exempt from affiliation under Sec.  
121.103(f)(3) of this chapter and qualifies as a small business concern, 
the performance of work requirements set forth in this section apply to 
the cooperative effort of the team or joint venture, not its individual 
members.

[61 FR 3312, Jan. 31, 1996; 61 FR 39305, July 20, 1996; as amended at 64 
FR 57372, Oct. 25, 1999; 65 FR 45835, July 26, 2000; 69 FR 25266, May 5, 
2004; 69 FR 29208, May 21, 2004; 69 FR 29420, May 24, 2004; 70 FR 14527, 
Mar. 23, 2005; 70 FR 51248, Aug. 30, 2005]