Subcontracting is one of the most practical ways to enter and grow in federal contracting. Instead of competing for a prime contract directly, you partner with a company that holds one and deliver part of the work. For many businesses, it is a lower-barrier way to win federal revenue, build past performance, and learn how federal work runs, all of which strengthen your position for prime work later.
Winning a small business set-aside contract feels like crossing a finish line. The award letter comes in, the team celebrates, and then someone on the operations side starts asking a question that should have been asked weeks earlier: how much of this work can we actually subcontract out?
That question has a real answer, and the answer matters. Get it wrong and you're not just risking a contract. You're risking a finding that you operated as a pass-through, which is one of the more serious problems a small business contractor can have.
This is the rule that catches more newer contractors than almost any other compliance trap. Here's what's actually going on.
