How workshare is actually negotiated

The argument is about the denominator

Two companies agree on "about twenty percent" in a first call and both hang up satisfied. Six weeks later one means twenty percent of total contract value including all option years, and the other means twenty percent of funded direct labor hours in the base period. Those readings can differ by a factor of five on the same award. Nobody lied and nobody disagreed about the number. They disagreed about what it was a percentage of, and neither wrote it down.

A percentage is a fraction, and federal subcontracting keeps at least six denominators in circulation, each natural from somebody's seat. The capture lead thinks in total evaluated price, because that is what the cost volume shows. The program manager thinks in direct labor hours, because that is the staffing plan. The contracts group thinks in "amount paid by the Government," because that is the regulation's phrase. The subcontractor thinks in revenue it will invoice, which is smaller than all of them.

Pick one and name it in the first written exchange. The regulation supplies a good default: both 13 CFR 125.6 and FAR 52.219-14 measure the subcontracting limits against "the amount paid by the Government" for contract performance. It is a defined phrase contracts staff on both sides recognize, which makes it hard to argue with later.

Denominator	What it actually counts	Why it moves
Total contract value, all options	The press-release number, including options that may never be exercised	Ceiling values on indefinite-delivery vehicles are not obligations
Funded value, current period	Money actually obligated right now	Incremental funding and continuing resolutions move it mid-period
Amount paid by the Government	The phrase 13 CFR 125.6 and FAR 52.219-14 use for subcontracting limits	Stable and defined, so it is the best default for a teaming agreement
Direct labor hours	Staffing-plan share, ignoring price	A high-rate sub holds a large dollar share on a small hour share, and the reverse
Direct labor dollars, unburdened	Salary cost before overhead, G&A, and fee	Strips out the wrap-rate gap that motivates many teaming decisions
Subcontract value invoiced	What the sub bills, including its own fee and materials	The only number that reaches the sub's bank account, and usually the smallest

Where the number comes from before anyone asks for it

Small firms treat the percentage as something won through persuasion. On most bids it is a residual: the prime runs three or four calculations, and the space left over is what a teammate can hold. Knowing which one binds tells a sub which argument moves the number and which bounces.

Price to win. If the award turns on price, moving hours to a lower wrap rate is worth real money. A specialist firm without a large corporate indirect structure prices the same labor category well below a prime's fully burdened rate. On that bid the prime wants the sub's share larger, and the negotiation is about which labor categories move.

The subcontracting plan. Under FAR 19.702 an other-than-small prime must submit a subcontracting plan when the award is expected to exceed the threshold and subcontracting opportunities exist. That threshold rose to $900,000 in the inflation adjustment finalized August 27, 2025 and effective October 1, 2025, with $2 million for construction of a public facility. FAR 19.704 requires separate percentage goals for small business, veteran-owned, service-disabled veteran-owned, HUBZone, small disadvantaged, and women-owned small business concerns, plus a named administrator. Goals are reported through the Electronic Subcontracting Reporting System — the Individual Subcontract Report semiannually for the periods ending March 31 and September 30, and the Summary Subcontract Report within 30 days after the Government's fiscal year ends. Missing a goal is not automatically a violation; FAR 19.705-7 says failure to meet one does not by itself show a lack of good faith effort. Where the contracting officer finds bad faith, liquidated damages equal the dollar amount by which each goal was missed. A prime carrying a plan needs socioeconomic dollars, and that is a lever certified small firms rarely use.

The evaluated weakness. If the customer has criticized the prime for slow analytics, thin data engineering, or late software, the specialist teammate answers that criticism. Shares negotiated against this motive are the most durable, because cutting the sub reopens the weakness the prime was closing.

The ceiling. On a set-aside there is a hard limit above which the prime cannot go, and it is the one constraint goodwill will not move.

The ceilings and floors the law sets

Several regimes cap or floor a share, and they do not use the same denominator or bind the same party. Read the table as boundaries on the negotiating range, not as targets.

Regime	The limit	Who it binds and how it is measured
Set-aside, services other than construction	No more than 50% of the amount paid by the Government to firms that are not similarly situated	13 CFR 125.6 and FAR 52.219-14. Binds the small prime. Compliance by the end of the base term and each option, or of each order's period of performance
Set-aside, supplies	Same 50%, excluding the cost of materials	Applies where the prime is not a nonmanufacturer
Set-aside, general construction	85%, excluding the cost of materials	The most permissive of the four. Special trade construction sits at 75%
SBIR Phase I	The awardee performs at least two-thirds of the research or analytical effort	SBA SBIR/STTR Policy Directive. One-third at most is left for all subcontractors and consultants. Deviation needs written approval from the funding agreement officer
SBIR Phase II	The awardee performs at least one-half	Measured by the budget. The other half may be split across subcontracts and consultants
STTR, either phase	Small business at least 40%, research institution at least 30%	The remaining 30% is negotiable. Deviations are not permitted, making this the least flexible split in federal work
Prototype other transaction	No percentage. A nontraditional contractor or nonprofit research institution must participate "to a significant extent"	10 U.S.C. 4022. Alternatives: all significant non-Government participants are small or nontraditional, or one third of project cost comes from non-Federal sources

Two mechanics inside 13 CFR 125.6 reach the sub directly. Work performed by a similarly situated entity — a first-tier subcontractor with the same small business program status as the prime, and small under the NAICS code assigned to its subcontract — is excluded from the limit, but only to the extent it performs with its own employees. Anything it passes further down counts against the prime's 50 percent, so a sub planning to use second-tier subcontractors owes the prime that disclosure early.

SBA's final rule issued April 27, 2023 and effective May 30, 2023 also tightened how compliance is proven. On multi-agency set-aside vehicles the ordering agency uses each order's period of performance, and evidence includes invoices, copies of subcontracts, and a list of the value of tasks performed. That is why a prime's contracts group asks a sub to characterize its second-tier spend before signing.

What makes a stated share survive to award

The ordering below ranks drafting features by how often each decides the outcome when scope moves. These are editorial weights, not a measured statistic. The top three are mechanical and cheap to ask for.

The percentage a court will not enforce

Federal teaming law is short and mostly unhelpful to a subcontractor. FAR 9.601 defines a contractor team arrangement, and FAR 9.603 recognizes one when the relationships are fully disclosed in an offer or before the arrangement becomes effective. FAR 9.604 lists limitations that all run the Government's way, including its rights to require consent to subcontracts, provide for equitable data rights, pursue competitive breakout, and hold the prime fully responsible for performance regardless of any team arrangement. There is no referee for a workshare dispute. Whatever protection a sub has, it wrote itself.

State contract law is where the real answer lives, and it splits. Virginia produced the two decisions most often cited against subcontractors. In Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013), aff'd 549 F. App'x 211 (4th Cir. 2014), a teaming agreement promised Cyberlock 49 percent of the work on an Office of Personnel Management contract and attached a three-page statement of work. The court held it an unenforceable agreement to agree. The language was the problem: work was "anticipated to be performed," the sub's role was "presently understood by the parties," and a termination clause triggered on failure to reach agreement after a reasonable period of good faith negotiation. That last clause conceded on the page that material terms remained open.

Five years later the Supreme Court of Virginia reached the same result on a better agreement. In CGI Federal Inc. v. FCi Federal, Inc., 295 Va. 506, 814 S.E.2d 183 (June 7, 2018), the teaming agreement attached a statement of work detailing the anticipated post-award workshare, and it still failed. The court held the amended agreement "at most" imposed a framework for good faith negotiations of a final subcontract, and said courts should not impose a subcontract on parties who expressly agreed to negotiate material terms in the future. An exhibit alone is not enough. The operative language has to make the subcontract mandatory rather than anticipated.

The picture is not uniformly bleak, and the difference is governing law plus drafting. In ATACS Corp. v. Trans World Communications, Inc., 155 F.3d 659 (3d Cir. 1998), the Third Circuit applied Pennsylvania law, held a teaming arrangement enforceable with terms definite enough even without a final executed document, and found the prime in breach when it went to a different supplier against an exclusivity commitment. Virginia courts have enforced them too where the parties clearly intended to be bound: in EG&G, Inc. v. The Cube Corp., a Fairfax County Circuit Court granted specific performance on an agreement promising roughly 49 percent of the work. The through-line is mutuality and definiteness, not the size of the number.

Governing law is a negotiated term, and most subs never negotiate it

The choice-of-law clause sits near the end of a teaming agreement, in the block everyone skims, and it is often the most consequential sentence in the document. A prime headquartered in northern Virginia proposes Virginia law by default, which is among the least favorable bodies of law for enforcing a workshare promise. That is not a reason to refuse the deal. It is a reason to compensate in the operative clauses: if the governing law treats anything left to future negotiation as unenforceable, nothing material can be left to future negotiation. Ask which state's law governs and whether that jurisdiction enforces workshare provisions. A prime's contracts attorney will answer honestly, because it costs them nothing.

Five drafting devices that make a number hold

The priced exhibit. Attach the intended statement of work, labor categories, hours by category, and rates as a numbered exhibit incorporated by reference. It converts a percentage into a scope and makes the later subcontract a fill-in rather than a fresh negotiation. It also gives the prime something to paste into its cost volume, which is why capture managers welcome it.

The execution deadline with default terms. A clause requiring the parties to execute a subcontract within a stated number of days after award, with the exhibit operating as the terms if they do not, addresses the exact defect the Virginia cases turned on. The words to fight for are "shall execute," not "shall negotiate in good faith toward."

The proportional reduction formula. Scope gets cut; write down what happens when it does. A clause reducing the sub's scope proportionally within its exhibit and no further prevents the common outcome in which a ten percent cut to the program becomes a sixty percent cut to the sub's line. Pair it with a floor below which the sub may withdraw without penalty.

The named-element allocation. Tie the scope to identified line items, work breakdown elements, or data deliverables rather than a percentage alone. A percentage is an accounting outcome. A named deliverable either exists in the contract or does not, which makes disputes short.

The order-level allocation. On an indefinite-delivery vehicle, write the mechanism for allocating future orders into the teaming agreement, because the base award allocates almost nothing.

What erodes the number between the bid and the award

• Descope in negotiations — the Government trims requirements or drops an option. Without a proportional-reduction clause, the prime picks where the cut lands.
• Funding under the proposed value — incremental funding and continuing resolutions mean year one runs below the proposed price, shrinking any share tied to total contract value.
• Cost realism pressure — if the Government probes the cost volume, subcontracted hours at a questioned rate get repriced, and the prime holds the pen.
• A change in similarly situated status — if the sub's size status or second-tier spend shifts, the prime's arithmetic changes and the share moves to stay compliant. Not negotiable.
• Key personnel loss — availability honest at bid time can stop being true after a twelve-month evaluation, which is why the substitution path belongs in writing at signature.
• Consent to subcontract — under FAR 44.201-1 and FAR 52.244-2 the contracting officer's consent can be required, especially on cost-reimbursement, time-and-materials, labor-hour, and letter contracts.

Where a subcontractor's bargaining power actually sits

Bargaining power is not constant, and the strongest moment comes earlier than most firms think. The shape below is typical for a mid-size services or systems pursuit. Durations vary; the ordering does not.

On an indefinite-delivery vehicle, the base-award percentage means little

A team that wins a multiple-award vehicle has won the right to compete for orders, not the work. Teaming agreements for these awards often carry a headline percentage with no object, because at the base award there is nothing to take a percentage of. What matters is how future orders get allocated.

Three mechanisms are worth asking for by name. A scope reservation names a capability area for which the sub is the designated performer, so orders landing there route to it. A right of first proposal gives the sub a window to price scope in its area before the prime shops it. Order-level minimums with a review trigger let the parties revisit the arrangement if the sub's cumulative share falls below a stated floor. None guarantees revenue. All three convert a meaningless headline number into a process the sub can point at.

The subcontracting-limit arithmetic changes shape here too, since compliance for orders under multiple-award contracts is determined by the end of each order's period of performance rather than across the vehicle. A prime can be compliant on one order and out of room on the next.

Price and payment are part of workshare

A share is only worth what the sub is paid for it, and when. FAR 15.404-3 makes the prime responsible for cost or price analyses establishing the reasonableness of proposed subcontract prices, and for including the results in its own proposal. Where the prime must submit certified cost or pricing data, it must obtain and analyze the subcontractor's data before award, and pass that data to the Government when the subcontract is $20 million or more, or exceeds the certified cost or pricing data threshold and is more than 10 percent of the prime's proposed price. That threshold rose from $2 million to $2.5 million on October 1, 2025.

On payment, FAR 52.232-40 requires a contractor receiving accelerated payments from the Government to pay its small business subcontractors within 15 days after receipt, and to include the substance of the clause in all subcontracts with small business concerns. Whether that clause is in the prime contract is a specific question worth asking at teaming time, and more useful than a general request for "prompt payment."

When a larger share is the wrong thing to ask for

There is a point past which a bigger number hurts the team. Under the ostensible subcontractor rule at 13 CFR 121.103(h)(3), a subcontractor that is not similarly situated and that performs the primary and vital requirements of a contract or order, or on which the prime is unusually reliant, is treated as affiliated with the prime and the two are analyzed as joint venturers for size purposes. On a set-aside, that finding can cost the prime the award and the sub the work.

SBA built a safe harbor into the analysis: for a set-aside covering services, specialty trade construction, or supplies, SBA will find the small prime performs the primary and vital requirements and is not unduly reliant on non-small subcontractors where the prime, together with any small business subcontractors, will meet the subcontracting limits in 13 CFR 125.6. That argues for a similarly situated sub and against a large share held by a firm that is not small under the relevant code. Asking for a percentage that would make the sub the obvious performer of the contract's central purpose asks the prime to accept a size protest.

What to have in writing before the proposal goes out

• The denominator, as a defined term — one sentence saying what the percentage is a percentage of, over what period.
• The scope exhibit with statement of work, labor categories, hours, and rates, incorporated by reference.
• A subcontract execution deadline in days after award, with the exhibit as default terms if none is executed.
• A proportional reduction formula and a minimum-scope floor below which the sub may withdraw without penalty.
• The line items, work breakdown elements, or data deliverables the scope maps to, identified by name.
• Governing law and dispute forum, with operative clauses written to survive that jurisdiction.
• Key personnel and the substitution path — who is committed, at what percentage, and what happens if award slips.
• Payment terms, including whether FAR 52.232-40 is in the prime contract.
• Second-tier subcontracting disclosure, since work a similarly situated sub passes down counts against the prime's limit.
• An order allocation mechanism for any indefinite-delivery vehicle.

A note on the regulation shifting underneath this

The Revolutionary FAR Overhaul, launched by Executive Order 14275 on April 15, 2025, is rewriting large portions of the FAR, and the parts governing this material are in motion. Agencies have been operating on class deviation texts while the rulemaking catches up; the Defense Department issued Class Deviation 2026-O0037, Revision 1 covering FAR Part 19 on July 24, 2026, and formal rulemaking opened June 23, 2026 with four proposed rules spanning 20 FAR parts. Verify the deviation text your contracting activity is applying rather than relying on a section number alone. The substance here is anchored in statute and in SBA's regulations at 13 CFR — the subcontracting limits, the affiliation rules, the SBIR and STTR splits — and those have not moved. Section numbering in Parts 9, 19, and 44 may.

Bottom line

The percentage is the least important part of a workshare negotiation, and it is where almost all the conversation goes. What decides whether a sub still holds its share the day the subcontract is signed is a short list of unglamorous things: a defined denominator, a priced scope exhibit, an execution deadline with default terms, a written rule for what happens when scope shrinks, and governing law chosen with open eyes. A firm that brings those five is easier to team with, not harder, because each removes an argument the prime would otherwise have later. Ask for the scope, define the fraction, and let the number be the arithmetic it always was.

Frequently asked questions