Subpart 3.5
Other Improper Business Practices
FAR Subpart 3.5 prohibits buying-in, kickbacks, and unreasonable subcontractor sales restrictions to ensure ethical and competitive federal contracting.
Overview
FAR Subpart 3.5, "Other Improper Business Practices," addresses a range of unethical or prohibited behaviors in federal contracting beyond bribery and conflicts of interest. This subpart specifically covers buying-in (the practice of submitting below-cost bids to secure contracts), subcontractor kickbacks (illegal payments or gratuities to influence subcontract awards), and unreasonable restrictions on subcontractor sales (improper limitations imposed by prime contractors on their subcontractors' ability to sell to the government). The purpose is to ensure fair competition, integrity in subcontracting, and to prevent practices that could undermine the government's interests or inflate costs.
Key Rules
- Buying-in (3.501)
- Prohibits contractors from submitting unrealistically low bids with the intent to increase contract price later through change orders or follow-on contracts.
- Subcontractor Kickbacks (3.502)
- Forbids any form of kickbacks or improper payments between prime contractors and subcontractors, requiring reporting and prevention measures.
- Unreasonable Restrictions on Subcontractor Sales (3.503)
- Prevents prime contractors from placing unjustified restrictions on subcontractors' ability to sell directly to the government or other customers.
Responsibilities
- Contracting Officers: Must identify and address buying-in, investigate kickbacks, and ensure subcontractors are not subject to unreasonable sales restrictions.
- Contractors: Must avoid below-cost bidding, prohibit and report kickbacks, and refrain from imposing improper sales restrictions on subcontractors.
- Agencies: Oversee compliance, investigate violations, and enforce corrective actions as needed.
Practical Implications
- This subpart exists to protect the government from inflated costs, fraud, and anti-competitive practices.
- Contractors must maintain ethical bidding and subcontracting practices, with robust internal controls to detect and prevent violations.
- Common pitfalls include failing to recognize buying-in, not reporting suspected kickbacks, or imposing unnecessary restrictions on subcontractors, all of which can result in penalties or contract termination.