In response to widespread interest in allowing more small business participation in opportunities involving cloud computing, the Small Business Administration (“SBA”) has decided to exclude cloud computing from the limitation on subcontracting rule calculation, in certain circumstances. Thus, beginning December 30, 2019, small businesses are no longer limited in their ability to subcontract out cloud computing services to larger companies, in connection with performing a Government contract set aside for small businesses, where the small business will perform other services that are the primary purpose of the acquisition.
The limitation on subcontracting rule provides that a small business may not subcontract more than 50% of the prime contract amount, under a services contract, to businesses that are other than small. 13 C.F.R. 125.6; 48 C.F.R. 52.219-14. In the cloud computing context, this limitation has had the effect of reducing small business participation in IT service contracts with a substantial cloud computing component. Typically, a small business is not able to commit to a procurement in which it (together with other small businesses, if needed) will provide more than 50% of the services under these contracts. Certainly not where the cloud computing market is currently dominated by juggernauts who are far larger than “small.”
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