Overview
FAR 36.205 establishes the requirements and constraints for awarding construction contracts that are subject to maximum spending limits imposed by law. It ensures that the Government does not enter into contracts that exceed legislative funding authorizations and dictates how solicitations must be structured to monitor these limits.
Key Rules
- Award Prohibitions: Construction contracts cannot be awarded if the cost exceeds statutory limitations (unless a written waiver is obtained) or if the total cost—including Government contingencies and overhead—exceeds the statutory authorization.
- Solicitation Requirements: Solicitations must explicitly state the cost limitation for each affected item in separate schedules and inform offerors that failure to provide separately priced schedules will result in disqualification.
- Cost Apportionment: Each schedule price must include a proportional share of all estimated direct costs, allocable indirect costs, and profit.
- Mandatory Rejection: The Government must reject offers that exceed statutory limits (unless exemptions apply) or offers that stay within limits only through "material unbalancing" (understating costs for some work while overstating others).
- Separable Awards: If in the Government's interest, the Contracting Officer may include provisions allowing for the award of separate contracts for individual items that fall within the legal cost limits.
Practical Implications
- Pricing Integrity: Contractors must ensure their bids are "balanced"; attempting to circumvent a cost cap on one line item by shifting those costs to a different line item will lead to the rejection of the entire proposal.
- Budgetary Compliance: Contracting Officers must account for internal Government overhead and contingencies when evaluating a bid against a statutory limit, meaning the "winning" bid must often be significantly lower than the actual legislative cap to leave room for these administrative costs.