FAR 3.501-2—General.
Plain-English Summary
FAR 3.501-2 explains the Government’s basic policy for preventing and responding to “buying-in,” which is when a contractor submits an artificially low price to win an award and then tries to recover the loss later. This section covers the risks of buying-in, the contracting officer’s duty to take action so losses are not recovered through the pricing of change orders or follow-on contracts subject to cost analysis, and the Government’s preferred ways to reduce the opportunity for buying-in in the first place. It specifically addresses using multiyear contracting with a price for the total multi-year quantity, using priced options that together with the firm quantity equal the program requirement, and other safeguards such as amortization of nonrecurring costs and treatment of unreasonable price quotations. In practice, this section is about protecting competition, preventing hidden cost recovery, and avoiding contract performance problems that can arise when a contractor underprices work at the outset. It gives contracting officers tools to structure solicitations and evaluate pricing so the Government pays a fair price across the life of the requirement, not just at award.
Key Rules
Buying-in is harmful
Buying-in can reduce competition and can lead to poor contract performance. The rule recognizes that an unrealistically low initial price may create later pressure on the contractor to recover losses through other pricing mechanisms.
Prevent recovery through changes
The contracting officer must take appropriate action to ensure buying-in losses are not recovered through the pricing of change orders. This means the Government should scrutinize proposed changes to make sure they are not being used to make up for an unprofitable original bid.
Prevent recovery in follow-on awards
The contracting officer must also prevent recovery of buying-in losses through follow-on contracts that are subject to cost analysis. Follow-on pricing should be evaluated to ensure prior losses are not being shifted into the new contract price.
Use program-wide pricing where practical
The Government should minimize buying-in opportunities by seeking a price commitment for as much of the entire program as practical. FAR identifies multiyear contracting and priced options as preferred structures when they fit the acquisition strategy.
Multiyear pricing approach
Under multiyear contracting, the solicitation should require a price for the total multi-year quantity. This reduces the chance that a contractor can underprice an initial quantity and later recover the loss on later quantities.
Priced options as a safeguard
Priced options may be used so that the firm quantity plus the options equal the program requirement. This helps lock in pricing for the broader requirement and limits opportunities to shift costs later.
Other safeguards may apply
The contracting officer may use additional protections, including amortization of nonrecurring costs and treatment of unreasonable price quotations. These tools help identify and prevent pricing structures that would allow recovery of buying-in losses.
Responsibilities
Contracting Officer
Identify and address buying-in risks, take appropriate action to prevent recovery of losses through change orders or follow-on contracts, and structure solicitations to reduce the opportunity for buying-in using multiyear pricing, priced options, or other safeguards.
Government/Agency
Design acquisitions to minimize buying-in opportunities by seeking price commitments for as much of the program as practical and by using acquisition strategies that support fair and stable pricing over the life of the requirement.
Contractor
Submit pricing that reflects a legitimate business basis and avoid using artificially low prices as a strategy to win work with the expectation of recovering losses later through changes, options, or follow-on pricing.
Practical Implications
Contracting officers should look beyond the initial low price and ask whether the contractor may be planning to recover losses later through modifications, options, or future awards.
Solicitation structure matters: if the requirement can be priced as a larger program, multiyear quantity, or option package, that can reduce buying-in risk.
Change orders deserve special scrutiny because they can become a vehicle for hidden cost recovery if the original award was underpriced.
Follow-on acquisitions subject to cost analysis should be checked for signs that prior losses are being rolled into the new price.
Other pricing tools, such as amortization of nonrecurring costs and evaluation of unreasonable price quotations, can help detect and deter buying-in schemes before award.
Official Regulatory Text
(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 ).