3.501-2 General
Source: FAR 3.501-2 on acquisition.gov
Contracting officers must actively prevent contractors from recovering buying-in losses through change orders or follow-on contracts by securing comprehensive price commitments and using additional safeguards.
Overview
FAR 3.501-2 addresses the issue of "buying-in," where a contractor submits an unrealistically low bid to win a contract, intending to recover losses through future contract modifications or follow-on contracts. This section outlines the responsibilities of contracting officers to prevent contractors from recouping buying-in losses through change orders or subsequent contracts subject to cost analysis. It also encourages the use of multiyear contracting or priced options to secure price commitments for the entire program, thereby reducing the opportunity for buying-in. Additional safeguards, such as the amortization of nonrecurring costs and careful evaluation of unreasonable price quotations, are recommended to further protect the government's interests.
Key Rules
- Prevention of Buying-In Loss Recovery
- Contracting officers must ensure contractors do not recover buying-in losses through change orders or follow-on contracts.
- Price Commitment Strategies
- Agencies should seek price commitments for as much of the program as practical, using multiyear contracts or priced options.
- Additional Safeguards
- Use tools like amortization of nonrecurring costs and scrutiny of unreasonable price quotations to prevent loss recovery.
Responsibilities
- Contracting Officers: Must monitor pricing actions, use program-wide price commitments, and apply additional safeguards to prevent buying-in and loss recovery.
- Contractors: Should avoid bidding below cost with the intent to recover losses later; must provide realistic and reasonable pricing.
- Agencies: Should structure solicitations and contracts to minimize buying-in opportunities and enforce compliance.
Practical Implications
- This section exists to protect the government from poor contract performance and increased costs due to buying-in practices.
- It impacts daily contracting by requiring vigilance in pricing, contract structuring, and post-award modifications.
- Common pitfalls include failing to secure adequate price commitments or overlooking attempts to recover losses through change orders or follow-on contracts.
(a) Buying-in may decrease competition or result in poor contract performance. The contracting officer must take appropriate action to ensure buying-in losses are not recovered by the contractor through the pricing of-
(1) Change orders; or
(2) Follow-on contracts subject to cost analysis.
(b) The Government should minimize the opportunity for buying-in by seeking a price commitment covering as much of the entire program concerned as is practical by using-
(1) Multiyear contracting, with a requirement in the solicitation that a price be submitted only for the total multi-year quantity; or
(2) Priced options for additional quantities that, together with the firm contract quantity, equal the program requirements (see subpart 17.2).
(c) Other safeguards are available to the contracting officer to preclude recovery of buying-in losses (e.g., amortization of nonrecurring costs (see 15.408, Table 15-1, paragraph A, column (2) under "Formats for Submission of Line Item Summaries") and treatment of unreasonable price quotations (see 15.405).