Compliance reference
What may lawfully be subcontracted, and what may not.
Whether SWC Solutions may subcontract a requirement, and how much of it, depends on three things: which government is buying, whether the award is reserved, and the dollar value. Three regimes ask three different questions. Federal contracts ask who does the work. Washington asks who owns the company. Grants ask how you bought it. Every figure and citation below is verifiable at its source.
Three regimes, three different questions
Reserved awards above the simplified acquisition threshold cap what may be paid to firms that are not similarly situated. Below it, nothing applies.
No subcontracting limit and no nonmanufacturer rule exist in Washington procurement statute. Eligibility turns on ownership and size.
No performance percentage. Procurement standards, competition and the subrecipient-or-contractor classification govern instead.
Regulatory text verified against eCFR and the Washington Legislature on 17 September 2026. Dollar thresholds verified 13 September 2026.
Federal contracts
The threshold decides before anything else does.
Between the micro-purchase and simplified acquisition thresholds, the subcontracting limits, the nonmanufacturer rule and the ostensible subcontractor rule are all switched off by regulation.
“The limitations on subcontracting (performance of work) requirements, the ostensible subcontracting rule, and the nonmanufacturer rule do not apply to small business set-aside acquisitions with an estimated value between the micro-purchase threshold and the simplified acquisition threshold.”
13 CFR 121.406(c). The rule points at the FAR 2.101 definitions rather than at fixed numbers, so this band moves whenever those thresholds move.
Above the threshold, the cap depends on what is being bought
| Work type | Ceiling on payments to firms not similarly situated | Authority |
|---|---|---|
| Services | 50%, no materials deduction | 13 CFR 125.6(a)(1) |
| Supplies | 50%, cost of materials excluded | 13 CFR 125.6(a)(2)(i) |
| General construction | 85%, cost of materials excluded | 13 CFR 125.6(a)(3) |
| Special trade construction | 75%, cost of materials excluded | 13 CFR 125.6(a)(4) |
The nonmanufacturer alternative
On a supply contract, a firm that does not manufacture the item is exempt from the percentage entirely. Four conditions replace it, and all four must hold.
- Fewer than 500 employees.
- Primarily engaged in the retail or wholesale trade and normally sells the type of item being supplied.
- Takes ownership or possession of the item with its own personnel, equipment or facilities, in a manner consistent with industry practice.
- Supplies the end item of a small business manufacturer, processor or producer made in the United States, or holds an SBA waiver.
13 CFR 121.406(b)(1)
The safe harbor. “SBA will find that a small business prime contractor is performing the primary and vital requirements of the contract or order, and is not unduly reliant on one or more subcontractors that are not small businesses, where the prime contractor can demonstrate that it, together with any subcontractors that qualify as small businesses, will meet the limitations on subcontracting provisions set forth in ยง 125.6.”
13 CFR 121.103(h)(3)(iii). Meeting the limit and documenting it is the defense against an ostensible subcontractor finding.
Washington State
Washington never asks who does the work.
Washington imposes no limitations on subcontracting and no nonmanufacturer rule. Nothing in RCW 39.26 or RCW 43.60A requires a vendor to self-perform any share of the work. Eligibility for the reserved bands turns on ownership and size, so the whole of the exposure sits in the certification itself.
An in-state business that certifies, under penalty of perjury, that it is owned and operated independently from all other businesses and has either 50 or fewer employees or gross revenue under $7,000,000 annually over the previous three consecutive years. OMWBE certification qualifies independently.
A business certified by the Department of Veterans Affairs to be at least 51% owned and controlled by a veteran, or by an active or reserve member of any branch of the armed forces including the National Guard, Coast Guard and reserves.
What applies instead
- RCW 39.30.060. On public works expected to cost $1,000,000 or more, the bidder must name its HVAC, plumbing and electrical subcontractors at bid time, and its structural steel and rebar subcontractors within 48 hours. This is a disclosure rule, not a cap.
- RCW 39.04.010(5). Millwork delivered but not installed is a goods purchase and runs the Direct Buy ladder. The same millwork fastened to the building is a public work and runs the small works roster.
- RCW 39.26.200. Enterprise Services may fine or debar a contractor for up to three years, including for a conviction connected to obtaining a contract or subcontract.
Grants and federal assistance
A grant is not a purchase.
A grant is financial assistance, not a purchase. No limitations on subcontracting exist. What governs instead is how the money is spent.
- 2 CFR 200.317-200.327. Documented procurement procedures and full and open competition when buying with award funds.
- 2 CFR 200.320(a). Informal methods below the simplified acquisition threshold. A recipient may self-certify a micro-purchase threshold up to $50,000 annually with written justification.
- 2 CFR 200.318. Written standards of conduct covering conflicts of interest in selection, award and administration.
- 2 CFR 200.331. Classify each pass-along as a subaward or a procurement contract. The substance of the relationship is more important than the form of the agreement.
One exception, stricter than anything above
Federally-assisted transportation work carries the only hard self-performance floor in federal law. Performing less than 30% of the total contract cost with your own work force raises a rebuttable presumption that you are not performing a commercially useful function.
“A DBE does not perform a commercially useful function if its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed to obtain the appearance of DBE participation.”
49 CFR 26.55(c)
Subcontracting is lawful and routine. Misrepresentation is what carries criminal exposure.
Taking an award for a socioeconomic status, letting another firm perform and control the work, and collecting a fee for the certification. That is fronting.
- 15 USC 645(a). Penalties for misrepresenting small business or SDVOSB status.
- 31 USC 3729. False Claims Act. Each invoice under a falsely certified contract is a claim, with treble damages.
- 15 USC 632(w). Presumption of loss to the government equal to the full contract value, not the margin, on willful misrepresentation.
Verify every line. 13 CFR 125.6 · 13 CFR 121.406 · 13 CFR 121.103 · 2 CFR 200.320 · 2 CFR 200.331 · 49 CFR 26.55 · RCW 39.26.010 · RCW 43.60A.010 · RCW 39.30.060 · RCW 39.26.200
This page is an operational reference, not legal advice. A specific solicitation's clauses control. Machine-readable form of these rules: rules.json.