In plain English
FAR 52.226-5, Restrictions on Subcontracting Outside Disaster or Emergency Area, is a contract clause prescribed at FAR 26.206(c), most recently dated Nov 2007. The complete official text is reproduced below, verbatim, from GSA's published FAR source files.
Its text contains no sentence requiring insertion into subcontracts; see the flowdown section below for what that does and does not mean.
Does it flow down to subcontracts?
No flowdown mandate found in the clause text
We scanned the full clause text and found no sentence directing the contractor to insert this clause into subcontracts. That is a statement about the text, not legal advice: a prime contractor may still flow terms down contractually, an agency supplement (DFARS, VAAR, …) may add requirements, and clauses listed below (if any) may order this clause into subcontracts from the outside.
Where it's prescribed
As prescribed in 26.206(c), insert the following clause:
Prescribing reference: FAR 26.206(c).
The official text, verbatim
As prescribed in 26.206(c), insert the following clause:
Restrictions on Subcontracting Outside Disaster or Emergency Area (Nov 2007)
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(a) Definitions. The definitions of the following terms used in this clause are found in the Small Business Administration regulations at 13 CFR 125.6(e): cost of the contract, cost of contract performance incurred for personnel, cost of manufacturing, cost of materials, personnel, and subcontracting.
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(b) The Contractor agrees that in performance of the contract in the case of a contract for-
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(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the Contractor or employees of other businesses residing or primarily doing business in the area designated in the clause at FAR 52.226-4, Notice of Disaster or Emergency Area Set-Aside;
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(2) Supplies (other than procurement from a nonmanufacturer of such supplies). The Contractor or employees of other businesses residing or primarily doing business in the set-aside area shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials;
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(3) General construction. The Contractor will perform at least 15 percent of the cost of the contract, not including the cost of materials, with its own employees or employees of other businesses residing or primarily doing business in the set-aside area; or
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(4) Construction by special trade Contractors. The Contractor will perform at least 25 percent of the cost of the contract, not including the cost of materials, with its own employees or employees of other businesses residing or primarily doing business in the set-aside area.
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(End of clause)