Calculation of subcontract percentage

At first glance, I thought perhaps the person who wrote this was a member of the happy-hour shoe at Morton’s playing stump the government. I believe this related to how the percentage of subcontract dollars is calculated (Subcontract Cost/Total Contract Cost = Subcontract Percentage). What Prime Costs are included in the Subcontract Base, i.e. G&A; Profit?

Then I read further into this and found this.

(13 CFR 125.3(a)(1)(iii)): Exclude from the subcontract base - Internally generated costs such as salaries and wages; Employee insurance; Other employee benefits; Payments for petty cash; Depreciation; Interest; Income taxes; Property taxes; Lease payments; Bank fees; Fines, claims, and dues; Original Equipment Manufacturer relationships during warranty periods (negotiated up front with product); Utilities such as electricity, water, sewer, and other services purchased from a municipality or solely authorized by the municipality to provide those services in a particular geographical region; Philanthropic contributions.

What kind of Government Gobbledygook is this – I have no ideal what this means.

Happy Independence Day Everyone