The National Defense Authorization Act of fiscal 2013 contained a big change in limitations on subcontracting for small federal contractors.

Under the new law, a small business may subcontract up to 50% of the value of a service contract. The provision will go into effect once regulations are promulgated and made final.

That is a major change from the previous subcontracting limitations, which were based on percentages of personnel costs only.

The previous regulation stated that the small business must incur at least 50% of the labor costs with its own employees, for service and supply contracts.

For construction contracts, the requirement was 15% to 25%. That remains the same.

The new requirement should make it easier for contractors to determine whether they are in compliance with the limits, according to Steven Koprince, government contracts attorney.

Small contractors may find it less difficult to comply because they will not need to break down their costs into labor, supply and other categories. They can simply use the total contract price as a benchmark.

“Over the years, I have spoken with many small contractors who mistakenly believed that the current regulation is based on the total contract price, and were very surprised to learn that they were supposed to be calculating their personnel costs,” Koprince wrote in a recent blog entry.

But some service contractors are likely to be disappointed that they no longer may exclude the costs of materials and supplies.

“Many small companies may be forced to perform more work at the prime contract level in order to remain in compliance,” Koprince said.

The new law also may make subcontracting rules easier to enforce.

“The current system is difficult to enforce because proposals often do not contain cost breakdowns. This provision will make the subcontracting limit much easier to enforce,” Richard Oliver, government contracts attorney with McKenna Long law firm, told Set-Aside Alert.

More information: Steven Koprince’s blog entry: http://goo.gl/Ye2QA