Overview
Buying-in is the practice of submitting a bid or proposal at a price below anticipated costs with the intent to recover losses later through contract modifications or high-priced follow-on contracts. This section establishes the government's policy to discourage this practice to ensure fair competition and prevent poor contract performance.
Key Rules
- Definition of Buying-in: Submitting an offer below cost with the expectation of increasing the contract amount post-award (via change orders) or receiving follow-on contracts at inflated prices to recoup initial losses.
- Contracting Officer Mandate: The Contracting Officer (CO) must ensure that buy-in losses are not recovered through change orders or follow-on contracts that are subject to cost analysis.
- Mitigation Strategies: To minimize buy-in opportunities, the government should seek price commitments for the entire program using:
- Multiyear contracting where a single price is submitted for the total multi-year quantity.
- Priced options for additional quantities that cover the full program requirements.
- Cost Safeguards: COs are encouraged to use specific accounting safeguards, such as the amortization of nonrecurring costs and the identification of unreasonable price quotations, to preclude loss recovery.
Practical Implications
- Financial Risk to Contractors: Firms that "low-ball" a bid to win a contract may be legally barred from recovering those losses in future negotiations, potentially leading to significant financial strain or performance failures.
- Enhanced Scrutiny: Proposals that appear significantly underpriced will trigger closer inspection of cost realism and may lead to more rigid contract structures (like firm-fixed-price with options) to protect the government's interests.