Subcontracting refers to the practice of delegating part of the performance of a federal contract to another company — known as a subcontractor — that is not a party to the original government contract. While the prime contractor holds the direct contractual relationship with the federal government, subcontractors carry out specific tasks or provide goods and services in support of fulfilling the overall contract requirements.
Subcontracting is a standard and often necessary business strategy in federal contracting, enabling prime contractors to access specialized expertise, expand capacity, or fulfill regulatory requirements — particularly those related to small business participation.
Understanding the structure, rules, and strategic implications of subcontracting is essential for both prime contractors and subcontractors seeking to succeed in the federal market.
Key Elements of Subcontracting
In federal acquisition, subcontracting generally involves the following structure:
- A prime contractor is awarded a contract directly by a federal agency.
- The prime identifies another entity (the subcontractor) to perform a defined portion of the work.
- The subcontractor has no direct contractual relationship with the government, but works under a legally binding agreement with the prime.
- The prime remains fully responsible to the government for the entire scope of the contract, including work done by subcontractors.
Subcontracting can involve both goods and services, and may range from a small, discrete task (e.g., providing a specific software component) to major project elements (e.g., construction subcontracting, IT implementation support, or logistics services).
Subcontracting in the Context of GSA MAS Contracts
Subcontracting is permitted and widely used under the GSA Multiple Award Schedule (MAS) program. MAS contractors often rely on subcontractors to deliver comprehensive solutions that go beyond their in-house capabilities. However, prime contractors must ensure that:
- Subcontracting does not misrepresent the prime’s core capabilities or violate scope rules.
- All performance obligations are still met according to MAS contract terms.
- The Industrial Funding Fee (IFF) is only calculated on sales made through the MAS contract by the prime — not on sales between the prime and its subcontractors.
- Representations about subcontractor roles (e.g., in GSA Advantage! listings) are accurate and compliant with GSA policies.
Additionally, GSA encourages the use of small business subcontractors and tracks compliance with subcontracting goals.
Types of Subcontracting Relationships
Subcontracting can take many forms depending on contract size, complexity, and requirements. The most common structures include:
- Commercial subcontracting – A vendor provides products or off-the-shelf services to support contract execution.
- Specialized services subcontracting – Experts or niche providers deliver components outside the prime’s core competency.
- Construction subcontracting – Common in design-build and federal facilities work, where primes manage multiple trades.
- Mentor-protégé teaming – Where a large business mentors a small business subcontractor to develop capacity, often within SBA programs.
While subcontracting can be strategic, the prime contractor retains full responsibility for quality, delivery, compliance, and customer satisfaction.
Subcontracting Plans and Small Business Requirements
Large businesses awarded certain federal contracts — including many GSA MAS awards — are required by law to submit and comply with a Subcontracting Plan if the value of the contract exceeds certain thresholds (currently $750,000, or $1.5 million for construction). This plan outlines how the prime will maximize subcontracting opportunities for small businesses, including:
- Small Disadvantaged Businesses (SDB)
- Women-Owned Small Businesses (WOSB)
- Service-Disabled Veteran-Owned Small Businesses (SDVOSB)
- HUBZone Small Businesses
- Other small businesses
GSA monitors compliance through subcontracting reports submitted via the Electronic Subcontracting Reporting System (eSRS). Failure to comply can impact past performance evaluations and lead to contract enforcement actions.
Key Rules and Regulations Governing Subcontracting
Several important regulations define subcontracting obligations in the federal space:
- FAR Part 44 – Outlines policies on subcontracting and consent to subcontract.
- FAR 52.219-9 – Governs small business subcontracting plans.
- FAR 52.219-8 – Requires all prime contractors to promote small business participation.
- FAR 52.244-2 – Specifies when the government must approve certain subcontracts (i.e., “consent to subcontract”).
- FAR Part 19 – Includes small business size standards and socio-economic policies.
Under GSA MAS, subcontracting policies are further governed by GSAR clauses, GSA-specific guidance, and terms incorporated into individual contracts.
Subcontracting vs. Contractor Team Arrangements (CTAs)
Subcontracting is often confused with Contractor Team Arrangements (CTAs) under GSA Schedule contracts, but the two are fundamentally different.
| Feature | Subcontracting | Contractor Team Arrangement (CTA) |
|---|---|---|
| Relationship to Government | Only the prime has privity with the government | All CTA members hold GSA MAS contracts and share privity |
| Billing | Prime invoices the government | Each CTA member invoices directly for its portion |
| Contractual Control | Prime manages subcontractor | CTA members coordinate as equal partners |
| Compliance Responsibility | Prime is responsible for subcontractor performance | Each CTA member is responsible for its own MAS terms |
Understanding the difference is critical for structuring compliant and strategic partnerships under MAS and other federal contract vehicles.
Strategic Considerations for Prime Contractors
For prime contractors, effective use of subcontractors offers several advantages:
- Access to niche expertise or capacity not available in-house
- Ability to scale delivery for large or geographically distributed contracts
- Compliance with small business subcontracting goals
- Flexibility to respond to complex solicitations with broader capabilities
However, it also introduces risks:
- Subcontractor non-performance can jeopardize the entire contract
- Loss of control over quality or schedule
- Compliance issues if subcontractor costs are misrepresented or improperly billed
- Conflict of interest or OCI (Organizational Conflict of Interest) concerns
Primes should maintain detailed subcontractor agreements, conduct due diligence, and establish monitoring and reporting protocols.
Considerations for Subcontractors Entering the Federal Market
For small businesses and new entrants, subcontracting offers a valuable pathway into federal contracting. It allows firms to:
- Gain past performance experience
- Learn federal procurement practices
- Develop relationships with primes and agencies
- Access opportunities that may be too large or complex to pursue alone
Subcontractors should:
- Register in SAM.gov and ensure small business certifications are accurate
- Build a capabilities statement tailored to federal markets
- Seek opportunities to partner with established primes
- Negotiate clear terms regarding deliverables, IP, payment, and risk
While subcontractors don’t have privity with the government, they still bear legal and performance obligations under their agreement with the prime.
Conclusion
Subcontracting is a fundamental element of the federal contracting ecosystem, enabling collaboration, innovation, and inclusion. For prime contractors, it provides the flexibility and specialization needed to meet complex agency requirements. For subcontractors, it serves as a critical entry point into the highly competitive government marketplace.
Whether participating in a GSA MAS contract or any other federal vehicle, understanding the roles, responsibilities, and regulatory framework of subcontracting is essential to maintaining compliance, building successful partnerships, and delivering on government missions effectively.
