What Is a Small Business Subcontracting Plan?
A small business subcontracting plan is a written document required by FAR 19.702 that describes how a prime contractor (or subcontractor at any tier) will provide maximum practicable opportunities for small businesses to participate as subcontractors. The plan sets percentage goals, identifies how small business sources will be identified, and establishes reporting requirements.
The purpose is straightforward: Congress wants federal procurement dollars to flow down to small businesses, including small disadvantaged businesses, women-owned small businesses, HUBZone small businesses, veteran-owned small businesses, and service-disabled veteran-owned small businesses. The subcontracting plan is the enforcement mechanism.
Dollar Thresholds: When Is a Plan Required?
Under FAR 19.702(a), a subcontracting plan is required when all three conditions are met:
- 1The contract has or is expected to have subcontracting possibilities.
- 2The offeror is not a small business for the applicable NAICS code.
- 3The contract value exceeds the applicable dollar threshold.
General Threshold
$900,000
for supplies and services (eff. Oct 1, 2025)
Any contract for supplies or services (including IT services) with a value exceeding $900,000 requires a subcontracting plan if the other conditions are met. This includes individual task and delivery orders. (Raised from $750,000 via routine inflation adjustment, effective October 1, 2025.)
Construction Threshold
$2,000,000
for construction of a public facility (eff. Oct 1, 2025)
Construction of a public facility has a higher threshold of $2 million before the subcontracting plan requirement kicks in. (Raised from $1.5 million via routine inflation adjustment, effective October 1, 2025.)
Key exception: Contracts performed entirely outside the United States are exempt. Contracts for personal services are also exempt. Additionally, small business concerns are never required to submit a subcontracting plan, regardless of contract value (though they may subcontract voluntarily).
Who Must Submit a Subcontracting Plan?
The requirement applies to other than small businesses. Specifically:
Large business prime contractors
Must submit a plan with any offer for a contract that exceeds the threshold. The plan is evaluated as part of the source selection and becomes a material term of the contract. Failure to submit one makes the offer non-responsive or ineligible for award.
Large business subcontractors
Per FAR 19.702(a)(1), when a subcontract exceeds the threshold and has further subcontracting opportunities, the large business subcontractor must also submit a plan. The prime contractor is responsible for ensuring compliance down the chain.
Small businesses: exempt
Small business concerns (as defined by the SBA size standard for the applicable NAICS code) are never required to submit a subcontracting plan. However, a small business that grows past its size standard may be required to submit plans on future contracts.
Required Plan Elements (FAR 52.219-9)
The subcontracting plan clause at FAR 52.219-9 (Small Business Subcontracting Plan) prescribes the required elements. The contracting officer reviews the plan for adequacy, and it must include all of the following:
| Element | Description |
|---|---|
| Separate percentage goals | Goals for small business, small disadvantaged business, women-owned small business, HUBZone small business, veteran-owned small business, and service-disabled veteran-owned small business concerns as subcontractors. |
| Total dollars planned for subcontracting | The total estimated dollar value of all planned subcontracting, including both small and non-small business subcontracting. |
| Description of principal goods and services to be subcontracted | A statement of the types of supplies and services to be subcontracted and an identification of those expected to be subcontracted to small businesses. |
| Method for developing goals | A description of the method used to develop the subcontracting goals and how indirect costs were treated. |
| Indirect costs in goals | An explanation of whether indirect costs are included or excluded from the subcontracting goals and the basis for the approach. |
| Name of program administrator | The name of the individual who will administer the plan and a description of their duties. |
| Equitable opportunity procedures | A description of the efforts the contractor will make to ensure that small businesses have an equitable opportunity to compete for subcontracts. |
| Outreach and source lists | How the contractor will identify potential small business subcontractors, including use of SAM.gov, SBA's SubNet, and attendance at small business procurement events. |
| Flowdown of the clause | Assurances that the contractor will include FAR 52.219-8 (Utilization of Small Business Concerns) in all subcontracts that offer further subcontracting opportunities. |
| Reporting (SF-294 and SF-295 / eSRS) | Assurances that the contractor will submit ISR (Individual Subcontracting Report) and SSR (Summary Subcontracting Report) via the Electronic Subcontracting Reporting System (eSRS). |
| Cooperation with reviews | Assurances that the contractor will cooperate in any studies or surveys that may be required and submit periodic reports showing compliance with the plan. |
| Good faith effort documentation | A description of the records the contractor will maintain to demonstrate good-faith efforts to comply with the plan. |
Contractors can choose between an individual plan (for a single contract), a master plan (covering all contracts for a specific plant or division), or a commercial plan (for commercial item contractors, covering the entire production of commercial items). The type of plan determines the scope and reporting cadence.
Goals and Reporting
The government sets annual government-wide small business subcontracting goals, currently at 23% overall for small businesses. Individual agencies may set higher targets. Your plan must include separate percentage goals for each small business category:
Small Business (SB)
23% government-wide goal
Small Disadvantaged Business (SDB)
5% government-wide goal
Women-Owned Small Business (WOSB)
5% government-wide goal
HUBZone Small Business
3% government-wide goal
Veteran-Owned Small Business (VOSB)
3% government-wide goal
Service-Disabled VOSB (SDVOSB)
3% government-wide goal
Reporting is done through the Electronic Subcontracting Reporting System (eSRS) at esrs.gov. Contractors submit two reports:
- 1Individual Subcontracting Report (ISR): Filed semi-annually, reports actual subcontracting performance against goals on each individual contract.
- 2Summary Subcontracting Report (SSR): Filed annually, summarizes all subcontracting activity across all government contracts for the reporting entity.
Limitations on Subcontracting (FAR 52.219-14)
Separate from the subcontracting plan, FAR 52.219-14 (Limitations on Subcontracting) restricts how much of a set-aside contract a small business prime can subcontract out. This protects against "pass-through" arrangements where a small business wins a set-aside but immediately subcontracts most of the work to a large business.
Services (non-construction)
The small business prime must perform at least 50% of the cost of contract performance incurred for personnel with its own employees.
Supplies (manufacturing)
The small business prime must perform at least 50% of the cost of manufacturing the supplies (not including the cost of materials).
Supplies (non-manufacturer)
If the small business is not a manufacturer, it must supply the product of a domestic small business manufacturer or processor, unless a waiver is granted.
Construction
The small business prime must perform at least 15% of the cost of the contract with its own employees (not including the cost of materials).
Note: These limitations apply specifically to contracts set aside for small businesses under FAR 19.5 and to 8(a), HUBZone, SDVOSB, and WOSB sole-source or set-aside contracts. They do not apply to unrestricted contracts where a small business happens to win. Similarly worded provisions exist at FAR 52.219-27 and 52.219-29.
Penalties for Noncompliance
The government takes subcontracting plan compliance seriously. Consequences include:
- 1Liquidated damages: Per FAR 52.219-16, if a contractor fails to make a good-faith effort to comply with its plan, the government may assess liquidated damages in the amount of the difference between the goal and the actual subcontracting achievement, multiplied by the contract price. This is actual money.
- 2Past performance ratings: Failure to meet subcontracting goals is documented in the Contractor Performance Assessment Reporting System (CPARS) and affects future contract awards.
- 3Administrative actions: The contracting officer can issue a cure notice or show-cause letter. Persistent noncompliance can lead to contract termination for default.
- 4False Claims Act exposure: Submitting a subcontracting plan with no intention of complying can create liability under the False Claims Act (31 U.S.C. 3729). Material misrepresentation of small business subcontracting activity has been the basis for qui tam lawsuits.
Good faith effort matters: The government does not require contractors to meet their goals exactly. What it requires is a good faith effort to meet them. Documenting your outreach to small businesses, maintaining source lists, attending matchmaking events, and providing written explanations when goals are not met all constitute evidence of good faith.
IT Services Implications
IT services contracts are particularly affected by subcontracting plan requirements because they routinely exceed the $900,000 threshold and involve extensive subcontracting for specialized skills. Key considerations for IT contractors:
Multiple NAICS codes on BPAs and IDIQs
Large IT vehicles (SEWP, Alliant, CIO-SP4) often span multiple NAICS codes. The subcontracting plan may need to address goals at the order level, not just the base contract. Check the ordering guide for the specific vehicle.
Cloud and SaaS subcontracting
When a large prime uses a small business cloud or SaaS provider, those license costs can count toward subcontracting goals. This is a common area where IT contractors undercount their small business subcontracting.
Cybersecurity subcontractor flowdown
IT services contracts involving CUI trigger DFARS 252.204-7012 flowdown to subcontractors. This creates a tension: the prime must include small businesses in subcontracting, but those small businesses must also meet NIST 800-171 cybersecurity requirements on DoD contracts, which many small firms lack.
Mentor-protege programs
Large IT contractors can use the SBA mentor-protege program or DoD's mentor-protege program to build small business capacity. Costs incurred under an approved mentor-protege agreement can receive credit toward subcontracting goals.
Need help navigating subcontracting plan requirements?
ClariFAR searches the full FAR and DFARS corpus and returns the exact clause text with a plain-English explanation. Ask about specific thresholds, plan elements, or reporting requirements.