 Okay today, we're going to talk about something that Maria's been getting a lot of questions asked on and that is Can I just sub out the whole contract? I? Know it may seem silly to a lot of people out there But surprisingly enough we've been getting that question asked so much that Apparently the rumor reel is going around and telling people that they can get a contract Sub about the whole thing and make money and we are here to dispel any rumors Any myths any misconceptions again this industry can be Very convoluted, but it doesn't help when people spread misinformation, and so my job here is to rebut that information that people are spreading and Put back into place or put back into your brains the correct information So that you when you're going out there and you're doing things and you're talking to folks You don't sound like an idiot pretty much right? We want you to have all of the facts so that you can make the correct decisions because again If you know how to play the game, and you know the rules of the game Then you can be successful But if someone is giving you the wrong rules, then how can you even have a possible chance at winning the game? I don't want to see you get in trouble. I don't want to see you on front page news or in your local news right talking about this contractor Took a deal brokered the whole deal, and he violated 52.2.9 52.2 19th-4 Limitations on subcontracting so today we're going to talk about The fact that no you cannot subcontract an entire contract So let's look at 52.2 19-4 Limits on subcontracting this is the part of the regulations that talks about how it is you're supposed to handle it When you get a contract from the government, how do you handle performing a certain percentage of that work now? Let's note that This does not apply to unrestricted solicitations nor does apply to some contractors So again, if it's not a small business set aside of any sorts or If you are a subcontractor that got a big contract then this does not apply to you It only applies if you are a prime contractor on a some sort of Set-aside type of project right whether it be small business woman on a day whatever what not so again That's when this thing comes into play Now the limits of subcontracting very simple It says if you provide a service you have to perform 50% of the work That's it. So if you provide a first service, you've got to perform 50% of the work If you provide supplies now This one's a little bit trickier if you provide supplies and it says other than from non-manufacturer of supplies You've got to do 50% of supplies now if the government puts out a quote for let's say for iPads or for 14 CDs or laptops the case may be That doesn't apply to you because you are this other than non-manufacturer So you're a non-manufacturer so again in that particular instance You could sell them the supply you could resell right a product and not be part of that 50% So that on the supply side that kind of goes out the window because it was very few of us are actually manufacturing That comes into play when you are actual manufacturer and let's say you are making a search for the government Then in that case you'd have to make 50% of the shirts But if you are reselling some a product that's actually off the shelf type of product This goes out the window So again, mostly it's gonna apply to people in services. So who are those people in services? We're talking about janitorial right logistics Okay transportation that kind of stuff those are services Okay, if you have if you do accounting right or if you do legal services or if you do Financial services right so those are all services that fall into 30% Construction construction is a little bit trickier Construction there's essentially there's two criteria if it's general construction which falls under the prefix of 236 You've got to self-perform 15% of the work if it's specialty construction, which falls in the prefix of 238 Then 25% of the work is what you have to perform specialty trades or your trades like air conditioning electrical and Plumbing and then general construction will be you know the big boys, right? So when they give you a big project and you've got to do multiple trades in that project That falls under 236 and it's only 15% of work. So you could essentially Sub out the majority of the work now Eric what does this mean right? How do I look at this stuff? So the way that you look at this is essentially If you get a contract Let's say two hundred thousand dollars Right and it's a service contract a janitorial contract if you get a contract for two hundred thousand dollars janitorial contract then You cannot award More than a hundred thousand dollars of that contract to subcontractors So if you get a contract for two hundred thousand janitorial You cannot award more than a hundred thousand dollars of subs now in your hundred thousand dollars up here Can be your profit? management overhead So in your hundred thousand dollars can be your profit if you got a 20% profit Right now it takes your eighty thousand dollars of actual work that you've got to do if you take out your management cost Maybe it's 40,000 worth of work together makes sense So again you technically inside of a 200,000 on a contract There's gonna be some management and there's gonna be some profit. So what we what we do is here Right if we say this is our fine line up here Inside and you're gonna say you're the prime You get to you know inside of your 50% you're allowed to put your profit in that 50% Right, so it's not that you have to do a hundred thousand dollars worth of actual work But you cannot sub out more than a hundred thousand dollars to a subcontractor So again when you look at it just think of creative ways in which you can meet this goal the other thing That you're allowed to do which I think is something a better strategy So I'm a visual person Okay So you got a box now, let's say You want it to Let's say you're the prime and you're gonna you have a company that's gonna do all the work for you, right? You prime you've got a company. They're gonna do all this work for you. Okay now You're the prime You're just getting started. You're a woman on business. You're an a day your hub zone. Whatever case, baby You're like Eric, but I've got a company. They're gonna do everything for me. I don't have to do anything I don't have to think right? Okay. Perfect. However, because of the regulations and the rules You have to perform 50% of the work What I tell people that we've done in the past which You know, I highly suggest that people do is if you've got to perform 50% of the work Then what I would say is take if there's if you know, there's gonna be one two three four Folks one two three four, so the sixteen people working on this job How many people do you need to do 50% of your work eight? So what I would do is I would hire I Would literally hire eight people onto my contract So I would go off but hire eight people onto my contract to do this work And so now what do you have you've got eight people That you put on your payroll that are gonna manage this project and then you have eight people Right from the subcontractor that is going to do their 50% of work And that's one way that we can get around hitting that 50% goal is that we just take the people from the Who was essentially who has employees we put them over here on our payroll, right using a payroll company and Now we've satisfied our 50% requirement. So that's another way which you can hit your 50% goals Right is to take those people and putting them over here And that's a way that you can hit those goals and that goes for construction as well So it's anything in construction down here If we're looking at it and we're saying okay and construction I've got to do 25% of work here, right? So you got to do 25% of work Well, if you figure on the job, you're gonna get 15 to 20% profit that right here mostly is gonna be Pretty much all profit. It's gonna cover that 15 to 20% Right. So again, you can technically sub out the bulk of the work And you just got to make sure the numbers make sense, right? You could but if they're if you have a shortfall then you could do the same approach here, which is taking The employees from the subcontractor putting them on your payroll just for the period of that project And that will allow you to make a plan. I Know a question that people are gonna ask because I've been asked this question before What about 1099s? 1099ers and the answer is no a 1099 is not an employee a 1099 is technically a contractor So again, that doesn't work in this scenario. You have to put them on your payroll a 1099ers a contractor So again a 1099 for the purpose of the IRS is what they are someone that's not employed by your firm that This goes against the whole point of self-performing work You have to perform it with your own labor your own staff your own employees. So 1099ers do not count towards self-performing and Adhering to the limitation subcontracting that does not work So I just wanted to come on and share this with everyone and dispel some of these myths that we've been hearing out there Perpetuating amongst the GovCon world and community and I and it and I understand it Listen, you know, you're getting your information from here. You're getting information from over there You're getting from your cousin. You're getting it from Ray Ray them and all these people that May not have already done the level of contracts that it takes to have had to meet these types of obligations So again, if you're dealing with really, you know much smaller type of vehicles It probably doesn't come into play because if you're doing a 30,000 on a contract and you've got a self-perform 75% 30,000 it's really not that big of a deal But when you start getting up to larger larger contracts If you let's say on a $200,000 deal, that's a hundred thousand dollars worth of work And for a lot of people that can be challenging. Okay. Hey, thanks so much Just wanted to come on today and talk about that Maria brought it up to me and I wanted to address it to everyone out there and kind of put this to rest and Hopefully answer some questions for you guys. Thank you