FAR 36.205—Statutory cost limitations.
Plain-English Summary
FAR 36.205 addresses statutory cost limitations for construction contracts and explains how those legal ceilings affect both solicitation drafting and award decisions. It covers four main topics: the prohibition on awarding contracts above statutory cost limits, the requirement to stay within the underlying statutory authorization even after adding Government-imposed contingencies and overhead, the need to identify limited items separately in solicitations, the requirement for separately priced schedules, and the rule that offers exceeding statutory limits must be rejected unless a lawful exemption applies. It also allows the contracting officer, when it is in the Government’s interest, to structure the solicitation so that separate contracts may be awarded for individual items that are within or subject to the applicable limitations. Finally, it requires rejection of materially unbalanced offers even when the nominal prices appear to fit within the statutory cap. In practice, this section protects agencies from obligating funds in violation of law, forces offerors to price constrained work transparently, and helps contracting officers avoid awards that are legally invalid or economically distorted.
Key Rules
No award above statutory limits
Construction contracts may not be awarded at a cost to the Government that exceeds statutory cost limitations unless the applicable limitation is lawfully waived in writing for that specific contract. The Government also may not award a contract whose total cost, including Government-imposed contingencies and overhead, exceeds the statutory authorization.
Solicitations must identify limited items
If a solicitation includes one or more items subject to statutory cost limitations, it must list the applicable limitation for each affected item in a separate schedule. This gives offerors clear notice of the legal ceiling that applies to each constrained item.
Separate pricing is mandatory
The solicitation must state that offers without separately priced schedules will not be considered. Each schedule price must include an approximate apportionment of all estimated direct costs, allocable indirect costs, and profit so the Government can evaluate compliance with the limitation.
Offers over the limit must be rejected
The Government must reject any offer whose prices exceed applicable statutory limitations unless a law or agency procedure provides a relevant exemption. The contracting officer may, if it serves the Government’s interest, include a solicitation provision allowing separate contracts for individual items that are within or subject to the statutory limits.
Materially unbalanced offers are unacceptable
The Government must also reject an offer that appears within statutory limits only because it is materially unbalanced. An offer is unbalanced when some work is priced significantly below cost and other work is overstated, creating a distorted pricing structure that can undermine fair evaluation and contract performance.
Responsibilities
Contracting Officer
Ensure the solicitation identifies any items subject to statutory cost limitations, states the applicable limitation for each item, and requires separately priced schedules. Reject offers that exceed statutory limits or are materially unbalanced, unless a valid exemption applies, and obtain any required written waiver before award when a limitation would otherwise be exceeded.
Agency
Provide and follow any applicable statutory waivers, exemptions, or agency procedures that authorize exceptions to the normal cost-limit rules. Ensure procurement planning and funding decisions do not result in awards that exceed statutory authorization.
Offeror/Contractor
Prepare separate pricing for each limited item, include an approximate apportionment of direct costs, indirect costs, and profit, and ensure the total offer complies with all applicable statutory limitations. Avoid pricing structures that are materially unbalanced or that depend on exceeding legal ceilings.
Legal/Policy Officials
Advise on whether a statutory limitation can be waived, whether an exemption applies, and whether a solicitation provision permitting separate contracts is appropriate under the governing law and agency procedures.
Practical Implications
Contracting officers must check statutory ceilings early, before solicitation release and again before award, because a compliant technical proposal can still be unawardable if the price exceeds the legal limit.
Offerors need to understand that pricing is not just a commercial exercise; for limited items, the solicitation may require separate schedules and a transparent allocation of costs and profit.
A bid can be rejected even if the total price seems acceptable when the pricing pattern is materially unbalanced, so front-loaded or back-loaded pricing strategies can create award risk.
If the agency wants flexibility to award only certain constrained items, the solicitation should expressly allow separate contracts; otherwise, the Government may be forced to reject an otherwise useful offer.
Common pitfalls include failing to identify the correct statutory limitation, omitting separate schedule pricing, assuming a waiver exists without written support, and overlooking unbalanced pricing that masks noncompliance with the statutory cap.
Official Regulatory Text
(a) Contracts for construction shall not be awarded at a cost to the Government- (1) In excess of statutory cost limitations, unless applicable limitations can be and are waived in writing for the particular contract; or (2) Which, with allowances for Government-imposed contingencies and overhead, exceeds the statutory authorization. (b) Solicitations containing one or more items subject to statutory cost limitations shall state- (1) The applicable cost limitation for each affected item in a separate schedule; (2) That an offer which does not contain separately-priced schedules will not be considered; and (3) That the price on each schedule shall include an approximate apportionment of all estimated direct costs, allocable indirect costs, and profit. (c) The Government shall reject an offer if its prices exceed applicable statutory limitations, unless laws or agency procedures provide pertinent exemptions. However, if it is in the Government’s interest, the contracting officer may include a provision in the solicitation which permits the award of separate contracts for individual items whose prices are within or subject to applicable statutory limitations. (d) The Government shall also reject an offer if its prices are within statutory limitations only because it is materially unbalanced. An offer is unbalanced if its prices are significantly less than cost for some work, and overstated for other work.