Far 3.502

SUBPART 3.5—OTHER IMPROPER BUSINESS PRACTICES

3.502-2

Subpart 3.5—Other Improper Business
Practices

“Prime contract” means a contract or contractual action
entered into by the United States for the purpose of obtaining
supplies, materials, equipment, or services of any kind.
“Prime Contractor” means a person who has entered into
a prime contract with the United States.
“Prime Contractor employee” means any officer, partner,
employee, or agent of a prime contractor.
“Subcontract” means a contract or contractual action
entered into by a prime contractor or subcontractor for the purpose of obtaining supplies, materials, equipment, or services
of any kind under a prime contract.
“Subcontractor” (1) means any person, other than the
prime contractor, who offers to furnish or furnishes any supplies, materials, equipment, or services of any kind under a
prime contract or a subcontract entered into in connection
with such prime contract; and (2) includes any person who
offers to furnish or furnishes general supplies to the prime
contractor or a higher tier subcontractor.

3.501 Buying-in.
3.501-1 Definition.
“Buying-in,” as used in this section, means submitting an
offer below anticipated costs, expecting to—
(1) Increase the contract amount after award
(e.g., through unnecessary or excessively priced change
orders); or
(2) Receive follow-on contracts at artificially high
prices to recover losses incurred on the buy-in contract.
3.501-2 General.
(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 multiyear 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 15-2, paragraph A,
column (2) under “Formats for Submission of Line Item Summaries”) and treatment of unreasonable price quotations (see
15.405).
3.502 Subcontractor kickbacks.
3.502-1 Definitions.
As used in this section—
“Kickback” means any money, fee, commission, credit,
gift, gratuity, thing of value, or compensation of any kind
which is provided, directly or indirectly, to any prime contractor, prime contractor employee, subcontractor, or subcontractor employee for the purpose of improperly obtaining or
rewarding favorable treatment in connection with a prime
contract or in connection with a subcontract relating to a prime
contract.
“Person” means a corporation, partnership, business association of any kind, trust, joint-stock company, or individual.

3.502-2 Subcontractor kickbacks.
The Anti-Kickback Act of 1986 (41 U.S.C. 51-58) was
passed to deter subcontractors from making payments and
contractors from accepting payments for the purpose of
improperly obtaining or rewarding favorable treatment in
connection with a prime contract or a subcontract relating to
a prime contract. The Act—
(a) Prohibits any person from—
(1) Providing, attempting to provide, or offering to provide any kickback;
(2) Soliciting, accepting, or attempting to accept any
kickback; or
(3) Including, directly or indirectly, the amount of any
kickback in the contract price charged by a subcontractor to a
prime contractor or a higher tier subcontractor or in the contract price charged by a prime contractor to the United States.
(b) Imposes criminal penalties on any person who knowingly and willfully engages in the prohibited conduct
addressed in paragraph (a) of this subsection.
(c) Provides for the recovery of civil penalties by the
United States from any person who knowingly engages in
such prohibited conduct and from any person whose
employee, subcontractor, or subcontractor employee provides, accepts, or charges a kickback.
(d) Provides that—
(1) The contracting officer may offset the amount of a
kickback against monies owed by the United States to the
prime contractor under the prime contract to which such kickback relates;
(2) The contracting officer may direct a prime contractor to withhold from any sums owed to a subcontractor under
a subcontract of the prime contract the amount of any kickback which was or may be offset against the prime contractor
under paragraph (d)(1) of this subsection; and
(FAC 2005–13)

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FAC 2005–31 MARCH 19, 2009
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(3) An offset under paragraph (d)(1) or a direction
under paragraph (d)(2) of this subsection is a claim by the
Government for the purposes of the Contract Disputes Act
of 1978.
(e) Authorizes contracting officers to order that sums withheld under paragraph (d)(2) of this subsection be paid to the
contracting agency, or if the sum has already been offset
against the prime contractor, that it be retained by the prime
contractor.
(f) Requires the prime contractor to notify the contracting
officer when the withholding under paragraph (d)(2) of this
subsection has been accomplished unless the amount withheld
has been paid to the Government.
(g) Requires a prime contractor or subcontractor to report
in writing to the inspector general of the contracting agency,
the head of the contracting agency if the agency does not have
an inspector general, or the Department of Justice any possible violation of the Act when the prime contractor or subcontractor has reasonable grounds to believe such violation may
have occurred.
(h) Provides that, for the purpose of ascertaining whether
there has been a violation of the Act with respect to any prime
contract, the Government Accountability Office and the
inspector general of the contracting agency, or a representative of such contracting agency designated by the head of the
agency if the agency does not have an inspector general, shall
have access to and may inspect the facilities and audit the
books and records, including any electronic data or records, of
any prime contractor or subcontractor under a prime contract
awarded by such agency.
(i) Requires each contracting agency to include in each
prime contract exceeding $100,000 for other than commercial
items (see Part 12), a requirement that the prime contractor
shall—
(1) Have in place and follow reasonable procedures
designed to prevent and detect violations of the Act in its own
operations and direct business relationships (e.g., company
ethics rules prohibiting kickbacks by employees, agents, or
subcontractors; education programs for new employees and
subcontractors, explaining policies about kickbacks, related

3.5-2

FEDERAL ACQUISITION REGULATION
company procedures and the consequences of detection; procurement procedures to minimize the opportunity for kickbacks; audit procedures designed to detect kickbacks;
periodic surveys of subcontractors to elicit information about
kickbacks; procedures to report kickbacks to law enforcement
officials; annual declarations by employees of gifts or gratuities received from subcontractors; annual employee declarations that they have violated no company ethics rules;
personnel practices that document unethical or illegal behavior and make such information available to prospective
employers); and
(2) Cooperate fully with any Federal agency investigating a possible violation of the Act.
(j) Notwithstanding paragraph (i) of this subsection, a
prime contractor shall cooperate fully with any Federal government agency investigating a violation of Section 3 of the
Anti-Kickback Act of 1986 (41 U.S.C. 51-58).
3.502-3 Contract clause.
The contracting officer shall insert the clause at 52.203-7,
Anti-Kickback Procedures, in solicitations and contracts
exceeding the simplified acquisition threshold, other than
those for commercial items (see Part 12).
3.503 Unreasonable restrictions on subcontractor sales.
3.503-1 Policy.
10 U.S.C. 2402 and 41 U.S.C. 253g require that subcontractors not be unreasonably precluded from making direct
sales to the Government of any supplies or services made or
furnished under a contract. However, this does not preclude
contractors from asserting rights that are otherwise authorized
by law or regulation.
3.503-2 Contract clause.
The contracting officer shall insert the clause at 52.203-6,
Restrictions on Subcontractor Sales to the Government, in
solicitations and contracts exceeding the simplified acquisition threshold. For the acquisition of commercial items, the
contracting officer shall use the clause with its Alternate I.