SBA Plans Stricter Limitations-on-Subcontracting For Set-Aside Contracts
Construction Contractors Should Take Particular Note
November 2, 2026
By: Bret S. Wacker, Ronald D. Sullivan, Jeffrey M. Gallant, Colleen Jarrott, J. Chris White
The U.S. Small Business Administration (SBA) has announced its intention to revise the regulations governing limitations on subcontracting for set-aside and sole-source awards, in response to an SBA Office of Inspector General (OIG) report from September 30, 2026. The report focused on federal-wide compliance with these rules, particularly in the construction sector.
SBA aims to finalize draft revisions to 13 C.F.R. § 125.6 by April 1, 2027, introducing new subcontracting thresholds and enhanced oversight, reporting, tracking, data collection, and enforcement mechanisms. However, the specific changes to subcontracting percentage limits remain unclear.
Governing Framework
Limitations on subcontracting are governed by:
- The Small Business Act, 15 U.S.C. § 657s
- 13 C.F.R. § 125.6
- FAR 52.219-14
These rules apply to set-aside contracts for covered services, supply, general construction, and specialty trade construction. The primary objective is to ensure that small businesses receive a fair share of government contracts while preventing excessive subcontracting.
Current Subcontracting Caps:
- Services: 50%
- Supplies: 50% (excluding material costs)
- General Construction: 85% (excluding material costs)
- Specialty Trade Construction: 75% (excluding material costs)
These caps apply to contracts above the simplified acquisition threshold and to programs such as 8(a), HUBZone, SDVOSB, and WOSB, regardless of contract value.