# Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 3 and 49

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2026-12562

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** June 23, 2026
- **Citation:** 91 FR 37698

## Text

OFFICE OF MANAGEMENT AND BUDGET
Office of Federal Procurement Policy
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Parts 3, 49, and 52
[FAR Case 2026-007, Docket No. FAR-2026-0007, Sequence No. 1]
RIN 9000-AO92
Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 3 and 49

AGENCY:

Office of Federal Procurement Policy (OFPP), Office of Management and Budget (OMB); Department of Defense (DoD); General Services Administration (GSA); and National Aeronautics and Space Administration (NASA).

ACTION:

Proposed rule.

SUMMARY:

OFPP, DoD, GSA, and NASA (collectively referred to as the Federal Acquisition Regulatory Council or FAR Council) are proposing to amend the Federal Acquisition Regulation (FAR) to implement Executive Order (E.O.) 14275, Restoring Common Sense to Federal Procurement. The E.O. directs the elimination of excessive acquisition regulations to stop the inefficient use of American taxpayer dollars. The FAR Council is issuing twelve proposed rules that collectively will streamline the FAR in its entirety. This rule proposes revisions to FAR parts 3 and 49.

DATES:

Interested parties should submit written comments to the Regulatory Secretariat Division at the address shown below on or before July 23, 2026, to be considered in the formation of the final rule.

ADDRESSES:

Submit comments in response to FAR Case 2026-007 to the Federal eRulemaking portal at
https://www.regulations.gov.
Follow the instructions for sending comments.

Instructions:
Please submit comments only and cite “FAR Case 2026-007” in all correspondence related to this case. Include your name, company name (if any), and “FAR Case 2026-007” on any attached document. Comments received generally will be posted without change to
https://www.regulations.gov,
including any personal and/or business confidential information provided. Public comments may be submitted as an individual, as an organization, or anonymously (see frequently asked questions at
https://www.regulations.gov/faq
). To confirm receipt of your comment(s), please check
https://www.regulations.gov,
approximately two to three days after submission to verify posting.

Docket:
For access to the docket to read background documents or comments received, go to
https://www.regulations.gov/FAR-2026-007.

FOR FURTHER INFORMATION CONTACT:

For clarification of content, contact
FARpolicy@gsa.gov
or call 202-969-4075 and cite “FAR Case 2026-007.” For information pertaining to status, publication schedules, or alternate instructions for submitting comments if
https://www.regulations.gov
cannot be used, contact the Regulatory Secretariat Division at 202-501-4755 or
GSARegSec@gsa.gov.
Please cite “FAR Case 2026-007.”

SUPPLEMENTARY INFORMATION:

I. Background

E.O. 14275,
Restoring Common Sense to Federal Procurement
(April 15, 2925), resets the foundation for Federal buying by requiring the FAR Council to produce a streamlined FAR that is simpler, clearer, and structured for speed. According to the E.O., the FAR has evolved from its original purpose (
i.e.,
to establish uniform procedures across executive departments and agencies), into an excessive and overcomplicated regulatory framework and bureaucracy. While meant to “deliver, on a timely basis, the best value product or service to the customer, while maintaining the public's trust and fulfilling public policy objectives,” the FAR has become an expensive barrier to achieving those objectives. As a result, the E.O. directed the FAR Council and OMB to create an agile, effective, and efficient regulation that contains only provisions required by statute or essential to sound procurement.

To implement E.O. 14275, OMB issued Memorandum M-25-26, Overhauling the Federal Acquisition Regulation, which announced the “Revolutionary FAR Overhaul” (RFO) and created a roadmap for producing simpler regulations aligned to statute, rewritten in plain language, and including nonstatutory requirements that are necessary to conducting a sound procurement. The memorandum described a new streamlined vision for the FAR, to be maintained alongside nonregulatory governmentwide guidance to provide a common-sense authoritative foundation for nimble response and delivery of mission capability.

This new vision represents a paradigm shift where over-engineered regulations designed for paperwork and compliance are replaced with streamlined regulations focused on core stewardship principles and nonregulatory guidance that will be used in concert with the streamlined FAR focused on proven buying strategies, critical thinking, market awareness (including to expand awareness of goods, products, and materials offered in the United States), and risk literacy to enhance workforce problem-solving. The significant reduction of unnecessary mandates is intended to clarify and reinforce the contracting officer's discretion to determine the best way to apply policies and practices. The newly established, nonregulatory guidance, which has been inspired by acquisition innovation advocates, category managers, other experienced practitioners, and many years of feedback from the contractor community—is expected to facilitate contracting officers' use of their discretion more efficiently and effectively to make smarter buying decisions.

OMB Memorandum M-25-26 also directed the FAR Council to complete the regulatory overhaul in two phases, each with robust public input. The FAR Council conducted its phase one effort in fiscal year 2025 by issuing model class deviations to replace each part in the FAR until such time as formal rulemaking occurred. This proposed rule is one of a series that constitute the FAR Council's phase two effort to obtain public comment through formal rulemaking.

II. Discussion and Analysis

A summary of proposed changes to existing FAR parts 3 and 49, and their corresponding provisions and clauses in part 52 are as follows:

A. General

1. General RFO Updates

This proposed rule generally reorganizes the FAR parts into phases of acquisition and simplifies the text into plain language, where possible. The plain language efforts include changes to active voice, edits to improve readability, and reorganization to present information more logically. None of the plain language edits are intended to change existing FAR requirements. The rewriting of the entire FAR also required edits to harmonize the changes being proposed such as updating the cross-references.

This aligns with the Federal plain language guidelines as directed by the Plain Writing Act of 2010 (5 U.S.C. 301 note).

2. Standardization of Prescriptions

This rule proposes revisions to standardize prescriptions for provisions and clauses. These changes are intended to provide better clarity around the applicability of provisions and clauses such as whether they apply to commercial products and commercial services.

3. Use of “Must” Instead of “Shall”

Additional revisions are being proposed throughout the FAR text and FAR provisions and clauses to replace the use of the term “shall” with “must” or “will,” as appropriate, to impose requirements.

4. Non-Statutory Requirements

Section 4 of the E.O. required amendments to the FAR to ensure it contains only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security. The FAR Council reviewed all non-statutory requirements to determine if they are still relevant and essential to sound procurement in today's contracting environment based on the criteria from section 4 of the E.O. The proposed rule retains non-statutory requirements that further one or more of the elements of sound procurements, including those requirements that serve as guardrails to protecting taxpayer interests and promote taxpayer confidence in the procurement system. Non-statutory requirements that were beneficial but not essential were retained in the non-regulatory guidance documents. Other non-statutory requirements that did not meet these standards, were removed. The Council considered the extent to which regulation is the most efficient means for capturing the benefit of the policy. For example, most “how to” requirements were found to be more appropriately suited for non-regulatory coverage which better enables a contracting officer to use discretion in determining the application of a strategy to a given situation and limits the risk of overapplication, which can create wasteful burden on the contracting parties.

As part of the RFO, the FAR Council has created a number of non-regulatory resources, including the FAR Companion, which provides insight from experienced practitioners across the government on using more streamlined practices and processes. The migration of significant coverage to non-regulatory guidance is intended to ensure that the benefits of the policy are not outweighed by the compliance burden of a more rigidly written regulation that is prone to application in an overly broad manner. This approach was explained to the public in a set of “frequently asked questions” that were posted on the Revolutionary FAR Overhaul homepage shortly after the initiative was launched.

B. Summary of Proposed Changes to FAR Part 3, Improper Business Practices and Personal Conflicts of Interest

1. Retain Statutorily Based Requirements

FAR part 3 was reviewed comprehensively to distinguish provisions and clauses grounded in statute from those that were discretionary, duplicative, or informational in nature, consistent with the policy objectives of Executive Order No. 14275,
Restoring Common Sense to Federal Procurement,
90 FR 16447 (2025). As a result of this review, this rule retains all statutory requirements governing improper business practices and personal conflicts of interest, including 10 U.S.C. 4651; 10 U.S.C. 4655; 41 U.S.C. 4704; 18 U.S.C. 208; 18 U.S.C. 218; 41 U.S.C. 2101
et seq.;
41 U.S.C. 3509; 41 U.S.C. 4712; 41 U.S.C. 8701
et seq.;
and Executive Order No. 12731,
Principles of Ethical Conduct for Government Officers and Employees;
among others. These authorities ensure that the FAR continues to provide clear, stable, and enforceable ethical standards, advancing the objectives of Executive Order No. 14275, to promote regulatory discipline, usability, and common-sense procurement.

2. Remove Obsolete and Duplicative Sections

The revisions to FAR part 3 eliminate provisions that are obsolete, duplicative, or nonstatutory in nature. These revisions include removal of references to the superseded Executive Order No. 11222,
Prescribing Standards of Ethical Conduct for Government Officers and Employees,
30 FR 6469 (1965), in subsection 3.101-3,
Agency Requirements;
removal of section 3.301,
General,
which was informational in nature; removal of agency guidance in section 3.406,
Records;
streamlining of section 3.700,
Scope of Subpart;
and removal of section 3.907,
Whistleblower Protections Under the American Recovery and Reinvestment Act of 2009,
which is now obsolete because all funds appropriated under the Act are expired. Additionally, outdated antitrust violation instructions were removed.

These changes do not deviate from existing statutory authorities or ethical standards. Instead, they streamline the regulatory text, improve internal consistency, and enhance clarity and usability for contracting officers and contractors by removing provisions that are obsolete, duplicative, or no longer applicable.

3. Clarification of Procedures for Reviewing Improperly Marked Information

This rule revises FAR 3.104-4 to modernize and clarify the procedures for protecting contractor bid or proposal information and source selection information. The revision updates cross-references to FAR sections 14.303(a), 14.301(c), 41.211-3(a)(3), and 15.108, and adds a new process for reviewing markings that appear to be improperly applied. The changes require contracting officers to notify the offeror or contractor and provide a written justification period before canceling or ignoring markings and allow agencies to adjust the response period based on the needs of the acquisition. The rule replaces outdated references to technical data procedures in FAR part 27 with language tailored to procurement integrity determinations under FAR part 3, including clarifying the appropriate dispute avenues under applicable protest and claims processes. Additionally, the rule codifies statutory Freedom of Information Act (FOIA) protections by stating that proposals remain exempt from disclosure under 41 U.S.C. 4702 regardless of marking disputes and clarifies when agencies must modify procedures to comply with agency FOIA regulations. Collectively, these changes reinforce statutory protections, align processes with procurement integrity requirements, and improve clarity and usability for contracting officers, offerors, and contractors.

C. Summary of Proposed Changes to FAR Part 49

1. Retain Statutorily Based Subparts

FAR part 49 was comprehensively reviewed to identify the portions of the termination framework that remain required to implement statutory authorities governing contract terminations. As a result of this review, this rule retains all statutory requirements, including 10 U.S.C. 3201
et seq.;
41 U.S.C. 3301 et seq; 41 U.S.C. 3901; 40 U.S.C. 502; 41 U.S.C. 1303; 41 U.S.C. 3901; 41 U.S.C. ch 13; 41 U.S.C. 6502; 41 U.S.C. 7101-7109; 10 U.S.C.

3201
et seq.;
among others. These authorities implement longstanding requirements, including the Government's right to terminate contracts for convenience, principles for determining fair compensation, statutory rights to recover excess costs following default, and the requirement to settle subcontractor claims in accordance with applicable statutes and judicial precedent. These subparts also incorporate statutory provisions governing the Government's ability to recover funds when contracts are voided or rescinded (49.700-49.705), and statutory accounting, payment, and property transfer requirements associated with termination actions. Preserving these statutory subparts ensures alignment with long-standing case law, maintains the integrity of the Government's termination authority, and continues to provide contracting officers and contractors with the legally required procedures for administering termination actions.

2. Remove Obsolete, Duplicative, or Nonstatutorily Based Sections

This rule removes or streamlines provisions in part 49 that are obsolete, duplicative of other FAR parts, or purely informational in nature and therefore unnecessary to retain in regulation. Several sections, including FAR 49.108-7 (Government Assistance in Settling Subcontracts), FAR 49.113 (Cost Principles), and FAR 49.405 (Completion by Another Contractor), contained narrative guidance or explanatory text that duplicated requirements addressed elsewhere in the FAR, such as cost principles in FAR part 31, property management in part 45, inspection and acceptance in FAR part 46, and Government claims and recovery authorities in FAR parts 1, 32, and 33. Additional outdated or duplicative material, including explanatory text related to termination inventory, settlement forms, and administrative practices now addressed through standardized processes or cross-referenced authorities, has been removed or consolidated into existing subparts. These revisions are consistent with the objectives of Executive Order No. 14275,
Restoring Common Sense to Federal Procurement.
Removing non-statutory and duplicative sections strengthens regulatory discipline, improves readability, reduces redundancy, and promotes consistent application of termination procedures while maintaining clear, stable, and enforceable requirements aligned with current statutes, case law, and modern acquisition practices.

3. Revise Audit of Prime Contractor and Subcontractor Termination Settlement Proposals From Mandatory to Permissive

This rule proposes revisions to FAR 49.107, Audit of Prime Contract Settlement Proposals and Subcontract Settlements, to replace the mandatory termination settlement proposal audit requirement with a permissive, risk-based approach. The revisions remove the certified cost or pricing data threshold as a trigger for audit and provide the termination contracting officer (TCO) discretion to determine whether audit support is appropriate based on the facts and risk of the settlement. These changes maintain appropriate oversight of risk associated proposals prepared in a noncompetitive environment, while improving flexibility in the administration of contract termination settlements, allowing audit resources to be applied where risk warrants and reducing unnecessary administrative burden for both the Government and contractors.

4. Revise Termination Settlement Proposal and Inventory Schedule Submission Timeframes

This rule proposes revisions to the timeframes for the submission of termination settlement proposals and inventory schedules in FAR sections 49.206-1, 49.206-3, 49.302(a), 49.303-1, 49.303-2, and 49.304-2, as well as the corresponding contract termination clauses at FAR 52.249-2, 52.249-3, 52.249-5, and 52.249-6. The revisions shorten the timeframe for submission of inventory schedules from 120 days to 60 days following termination and revises the timeframe for extension requests to within 30 days of termination notice rather than 120 days. The rule also revises the timeframe for submission of termination settlement proposals from 1 year to 90 days and revises the contractor extension request timeframe from 1 year to 60 days.

These changes are intended to improve the efficiency of the settlement process by addressing delays experienced under the current framework. The existing timeframes have, in practice, extended the overall resolution period for terminations, resulting in administrative inefficiencies for both contractors and the Government. The proposed reduction in required submission time is expected to support a more timely and orderly settlement process while maintaining flexibility where appropriate. Contractors may still request additional time when warranted by the complexity of a particular settlement, and contracting officers retain the discretion to consider and approve such requests on a reasonable basis. The Council does not anticipate that these changes will impose additional burden; rather, they streamline the process and clarify the expectations for timely submission to support more efficient closeout of terminated contracts.

5. Streamline and Improve Readability and Organization

This rule also proposes revisions to FAR part 49 to improve clarity, organization, and usability while preserving existing statutory authorities and long-standing termination policy. The revisions reorganized and streamlined regulatory text across Section 49.000,
Scope of Part,
Subpart 49.1,
General Principles;
Subpart 49.2,
Additional Principles for Fixed-Price Contracts Terminated for Convenience;
Subpart 49.3,
Additional Principles for Cost-Reimbursement Contracts Terminated for Convenience;
Subpart 49.4,
Termination for Default;
Subpart 49.5,
Contract Termination Clauses;
and Subpart 49.6,
Contract Termination Forms and Settlement Agreements,
without altering substantive rights or obligations.

This rule proposes to implement improved readability as a result of the plain-language edit. Sections 49.001,
Definitions,
and 49.002,
Applicability,
are retained and updated for plain language with a simpler structure. In addition, nonsubstantive comments were addressed through clarifying and corrective revisions. These included revising informal advisory language at 49.202,
Determining Profit,
with a plain-language edit stating that the TCO may use
any reasonable method
to determine a fair profit, taking into account specified factors; and restoring previously removed text specifying the interest rate computation for excess payments at 49.112-1,
Partial Payments,
to reflect applicable statutory requirements. Further nonsubstantive revisions corrected formatting, indentation, and spacing and reserved deleted sections to improve navigability and internal consistency.

6. Clarify Default Termination Procedures

This rule clarifies the organization and application of procedures in FAR subpart 49.4,
Termination for Default,
to ensure consistent use of cure notices and show-cause notices in accordance with long standing FAR practice. This rule refines the text to more clearly distinguish when a contracting officer should issue a cure notice versus when a show-cause notice is practicable, and

to preserve the established framework for determining the Government's rights following a contractor default. These revisions improve clarity, support consistent application of Default termination procedures, and reduce the potential for misinterpretation in administrative or judicial law.

D. Summary of Changes to FAR Part 52, Contract Clauses

1. Plain Language Update

As part of the broader plain language initiative, the term “shall” has been replaced with “must” throughout all affected clauses and prescriptions in this rulemaking to promote clarity and consistency. These updates will streamline contract drafting and compliance, reduce ambiguity, and save time for both contracting officers and contractors.

2. Clarification of FAR Clause Applicability to Commercial Products and Commercial Services

This rule clarifies the applicability of FAR part 52 clause prescriptions to commercial acquisitions to ensure consistent treatment across the FAR. Conforming revisions were made to prescriptions associated with FAR parts 3 and 49 to accurately reflect when clauses apply to commercial products and commercial services. Affected prescriptions include those at FAR 3.103-1, 3.104-9, 3.202, 3.404, 3.502-3, 3.503-2, 3.808, 3.906, 3.909-3, 3.1004, 3.1106, 49.502, 49.503, 49.504, and 49.505.

In addition, termination clauses at 52.249-2, 52.249-3, 52.249-5, 52.249-6, were revised to conform with timeframes for the submission of termination settlement proposals and inventory schedules, consistent with proposed changes at 49.206-3, 49.302(a), 49.303-1, 49.304-2, and 49.404-2. These conforming revisions ensure alignment between FAR part 49 and its associated clauses without introducing new termination rights or obligations.

3. Part 52 Renumbering

As a result of the RFO, the FAR Council is considering establishing a new FAR subpart in part 52 and relocating and renumbering all provisions and clauses under this new subpart. This means, if subpart 52.4 was used, all provisions and clauses would begin with 52.4 instead of 52.2. This change is anticipated to prevent confusion and increase compliance by creating a clear distinction between versions of a provision or clause prior to the RFO. Other benefits include avoiding potential clause numbering conflicts and information system and data collection impacts. The FAR Council welcomes comments on the potential impact of such a change on contractors, government personnel, and other stakeholders.

III. Applicability to Contracts and Subcontracts Valued at or Below the Simplified Acquisition Threshold and for Commercial Products, Commercially Available Off-The-Shelf Items, and Commercial Services

The following sections address the applicability of provisions and clauses prescribed in FAR parts 3 and 49 to solicitations and contracts valued at or below the simplified acquisition threshold (SAT) and those for the acquisition of commercial products, commercially available off-the-shelf (COTS) items, and commercial services. Prescriptions for provisions and clauses in these parts have been updated to reflect applicability to commercial acquisitions.

A. Contracts and Subcontracts Valued at or Below the Simplified Acquisition Threshold

This proposed rule, if finalized, does not alter the prescriptions of provisions and clauses included in this proposed rule to change their applicability to contracts and subcontracts valued at or below the SAT.

B. Contracts and Subcontracts for Commercial Products, Commercially Available Off-The-Shelf Items, and Commercial Services

41 U.S.C. 1906 governs the applicability of laws to contracts for the acquisition of commercial products and commercial services and gives the FAR Council the authority to determine to apply a law to contracts or subcontracts for the acquisition of commercial products and commercial services. 41 U.S.C. 1907 exempts contracts for commercially available off-the-shelf (COTS) items from certain provisions of law unless the Administrator for Federal Procurement Policy determines that doing so would not be in the best interest of the Federal Government.

Section 839 of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232) required the FAR Council and the Administrator of Federal Procurement Policy to review prior determinations under 41 U.S.C. 1906 and 41 U.S.C. 1907, as well as the applicability of provisions and clauses to contracts and subcontracts for commercial products, COTS items, and commercial services that do not implement statute or Executive order, and propose amendments to the FAR to eliminate or exempt such requirements from commercial acquisitions, unless there are specific reasons to retain particular requirements.

In accordance with section 839 of the NDAA for FY 2019 and their authorities under 41 U.S.C. 1906 and 1907, the FAR Council reviewed the applicability of the provisions and clauses associated with the FAR parts covered by this proposed rule.

The following table reflects the FAR Council and Administrator of Federal Procurement Policy's proposed determination regarding the applicability of the provisions and clauses to solicitations and contracts for commercial products, COTS items, and/or commercial services. In making proposed applicability determinations, the FAR Council considered factors such as whether the provision or clause advances national security or economic security, contributes to the resilience of contractors and subcontractors in the Federal marketplace, or advances uniformity and clarity in the performance of basic functions that are essential to sound procurement.

Accordingly, this proposed rule, if finalized, would revise provision and clause prescriptions to clearly reflect applicability to commercial acquisitions as outlined in the table. An “X” in the following table indicates the provision or clause will apply to that category of commercial acquisition, as prescribed:

Provision/clause no.
Title
Commercial products
Commercial services
COTS items

52.203-2
Certificate of Independent Price Determination

52.203-3
Gratuities
X
X
X

52.203-5
Covenant Against Contingent Fees

52.203-6
Restrictions on Subcontractor Sales to the Government
X
X
X

52.203-6 Alt I
Restrictions on Subcontractor Sales to the Government

52.203-7
Anti-Kickback Procedures

52.203-8
Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity

52.203-10
Price or Fee Adjustment for Illegal or Improper Activity

52.203-11
Certification and Disclosure Regarding Payments to Influence Certain Federal Transactions
X
X
X

52.203-12
Limitation on Payments to Influence Certain Federal Transactions
X
X
X

52.203-13
Contractor Code of Business Ethics and Conduct
X
X
X

52.203-14
Display of Hotline Poster(s)

52.203-16
Preventing Personal Conflicts of Interest

52.203-17
Contractor Employee Whistleblower Rights
X
X
X

52.203-18
Prohibition on Contracting with Entities that Require Certain Internal Confidentiality Agreements or Statements—Representation
X
X
X

52.203-19
Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements
X
X
X

52.249-1
Termination for Convenience of the Government (Fixed Price) (Short Form)

52.249-1 Alt I
Termination for Convenience of the Government (Fixed-Price) (Short Form)

52.249-2
Termination for Convenience of the Government (Fixed-Price)

52.249-2 Alt I
Termination for Convenience of the Government (Fixed-Price)

52.249-2 Alt II
Termination for Convenience of the Government (Fixed-Price)

52.249-2 Alt III
Termination for Convenience of the Government (Fixed-Price)

52.249-3
Termination for Convenience of the Government (Dismantling, Demolition, or Removal of Improvements)

52.249-3 Alt I
Termination for Convenience of the Government (Dismantling, Demolition, or Removal of Improvements)

52.249-4
Termination for Convenience of the Government (Services) (Short Form)

52.249-5
Termination for Convenience of the Government (Educational and Other Nonprofit Institutions)

52.249-6
Termination (Cost-Reimbursement)

52.249-6 Alt I
Termination (Cost-Reimbursement)

52.249-6 Alt II
Termination (Cost-Reimbursement)

52.249-6 Alt III
Termination (Cost-Reimbursement)

52.249-6 Alt IV
Termination (Cost-Reimbursement)

52.249-7
Termination (Fixed-Price Architect-Engineer)

52.249-8
Default (Fixed-Price Supply and Service)

52.249-8 Alt I
Default (Fixed-Price Supply and Service)

52.249-9
Default (Fixed-Price Research and Development)

52.249-10
Default (Fixed-Price Construction)

52.249-10 Alt I
Default (Fixed-Price Construction)

52.249-10 Alt II
Default (Fixed-Price Construction)

52.249-10 Alt III
Default (Fixed-Price Construction)

52.249-12
Termination (Personal Services)

52.249-14
Excusable Delays

The FAR Council also reviewed subcontract flow down requirements in clauses associated with the FAR parts covered by this proposed rule. The following table reflects the FAR Council and Administrator of Federal Procurement Policy's proposal regarding whether those clauses flow down to subcontracts for commercial products, COTS items, and/or commercial services. This proposed rule, if finalized, would revise the subcontract paragraphs in these clauses to clearly state whether the clause flows down to commercial subcontracts, as outlined in the table. An “X” in the following table indicates the provision or clause will apply to subcontracts for that category of commercial subcontracts, as described in the clause:

Clause No.
Title

Commercial
products

Commercial
services

COTS
items

52.203-6
Restrictions on Subcontractor Sales to the Government

52.203-6 Alt I
Restrictions on Subcontractor Sales to the Government
X
X
X

52.203-7
Anti-Kickback Procedures

52.203-12
Limitation on Payments to Influence Certain Federal Transactions
X
X
X

52.203-13
Contractor Code of Business Ethics and Conduct
X
X
X

52.203-14
Display of Hotline Poster(s)

52.203-16
Preventing Personal Conflicts of Interest

52.203-17
Contractor Employee Whistleblower Rights
X
X
X

52.203-19
Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements
X
X
X

IV. Expected Impact of the Rule

The intended impact of the RFO, as stated in E.O. 14275, is to restore the Government's ability to “deliver on a timely basis the best value product or service to the customer, while maintaining the public's trust and fulfilling public policy objectives.” Each of the RFO rulemakings is designed to contribute to this impact by emphasizing mission first, by aligning acquisition activities directly to achieving the agency's overarching objectives and serving the public interest and elevating the importance of fiscal responsibility. The proposed RFO rules focus on three goals in particular: (1) timely acquisition and delivery, (2) lower cost and accountability in all spending, and (3) increased competition.

Timeliness
. Timely acquisition and delivery are essential for mission success. To this end, RFO rules propose to eliminate mandates that unnecessarily interfere with agency discretion to determine the best way to procure products and services. The proposed RFO rules highlight more clearly streamlined and simplified authorities that allow buyers to use their time more efficiently and are expected to reduce time between solicitation and award. The proposed RFO rules are expected to make it easier for contracting officers to leverage commercial practices that are familiar to the commercial marketplace. This is expected to make it easier for sellers to engage and respond to Government solicitations more rapidly.

Lower cost.
E.O. 14271, Ensuring Commercial, Cost-Effective Solutions in Federal Contracts (April 15, 2025), directs the Government to utilize, to the maximum extent practicable, the commercial marketplace and the innovations of private enterprise to provide better, more cost-effective services to taxpayers, as envisioned by the Federal Acquisition Streamlining Act. The procurement of custom products and services where a suitable or superior commercial solution would have fulfilled the Government's needs has resulted in avoidable waste to the detriment of American taxpayers.

To address these concerns, consistent with associated responsibilities in section 839 of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232), the FAR Council reviewed prescriptions for provisions and clauses to ensure all prescriptions are clear regarding their applicability to acquisitions for commercial products and services. Currently, many prescriptions do not specify applicability to commercial acquisitions and leave the applicability determination to contracting officer interpretation. By specifically stating when a provision or clause can be applied to commercial acquisitions, proposed RFO rules should decrease the likelihood of inclusion of provisions and clauses in commercial acquisitions that are not required by law and drive greater consistency in the terms and conditions used in these contracts. In turn, these changes should increase the participation of commercial sellers, who are unwilling or unable to manage the cost of complying with noncommercial requirements, and also improve taxpayer access to affordable commercial solutions.

Some RFO rules propose to delete requirements placed on commercial or noncommercial sellers that are not related to performance of the contract, drive up cost without attendant performance benefits, and may misdirect efforts away from innovation, investment and economic growth. Greater emphasis on timeliness should reduce bidders' carrying costs, enabling them to pass those savings on to customers through lower prices.

Increased competition
. Since enactment of the Competition in Contracting Act of 1984 (Title VII of Pub. L. 98-369), competition has been the cornerstone of the Federal acquisition system. The benefits of competition are well established: competition saves money for the taxpayer, improves contractor performance, curbs fraud, and promotes accountability for results. Competition also drives contractor resilience and positions the U.S. market to develop a strategic advantage for the nation.

According to data in the SAM Contract Award Management, roughly 45 percent of contract dollars were awarded in FY 2025 either without competition or with competition that received only one offer. Of equal concern, the Federal marketplace has seen a significant decline over the past 20 years in the number of businesses—especially small businesses—participating in the Federal supplier base. Studies suggest that high compliance costs lead to the misallocation of resources away from more profitable activities and discourage innovation, investment, and economic growth (Council of Economic Advisers, Executive Office of the President. June 2025. The Economic Benefits of Current Deregulatory Policies.
https://www.whitehouse.gov/wp-content/uploads/2025/03/The-Economic-Benefits-of-Current-Deregulatory-Efforts.pdf
). This may shelter incumbent contractors and stifle competition, reducing startup activity and job formation.

The RFO rules seek to increase participation in agency competitions and the resilience of the Federal supplier base, which includes commercial entities, small businesses, manufacturers, and nontraditional suppliers. The RFO will achieve this outcome by removing regulatory mandates that are not rooted in statute or essential to sound procurement, promoting greater reliance on practices that reduce transaction costs, and improving the quality of communications with offerors and potential offerors. Access to a broader range of solutions in a more dynamic marketplace will drive better return for each taxpayer dollar spent and increase taxpayer confidence in the Federal acquisition system.

The Government has conducted a regulatory impact analysis (RIA) for the RFO rulemaking inclusive of this proposed rule for FAR parts 3 and 49. The RIA includes a discussion of the anticipated effects of the rulemakings as follows:

1. FAR Part 3

This proposed rule streamlines FAR part 3 to improve clarity, consistency, and ease of use without altering statutory requirements or the substantive compliance environment for offerors and contractors. It removes obsolete and duplicative text (
e.g.,
references to Executive Order 11222 and sections 3.301, 3.406, and 3.907), updates internal cross references, and adopts plain language edits to enhance readability and navigability for the acquisition workforce. The rule also clarifies procedures at FAR 3.104-4 for reviewing markings on contractor bid or proposal information and source selection information.

Benefits to the Government include a more coherent framework for protecting sensitive information and applying procurement integrity provisions, reduced time spent reconciling outdated cross references, and fewer procedural errors associated with inconsistent review practices. By presenting requirements in plain language and removing redundant narrative, the rule supports faster onboarding, more consistent training, and improved day to day application of ethical and integrity standards across agencies. Benefits to industry are indirect but meaningful. Clearer, more predictable processes for markings review, faster resolution of questions tied to proprietary or source selection information, and a FAR part

that is easier to navigate, especially for small businesses and commercial providers unfamiliar with legacy constructs. Associated burdens are negligible and one time in nature (
e.g.,
familiarization and routine updates to agency guidance and training materials), as the rule does not introduce new reporting, recordkeeping, certifications, or contractor systems changes.

2. FAR Part 49

This proposed rule modernizes FAR part 49 to improve clarity, efficiency, and usability while preserving long-standing statutory rights and principles. Substantive revisions replace the mandatory audit trigger for termination settlement proposals with a permissive, risk-based approach; reduces the settlement proposal submission timeframe from one year to 90 days; revises the contractor extension request timeframe to 60 days; and shortens the inventory schedule submission timeframe from 120 days to 60 days, with extension requests due within 30 days of termination notice. The rule also removes duplicative or nonstatutory sections, clarifies default termination procedures, and reinstates standard termination case file documentation to support transparent, orderly closeout. Collectively, these changes establish clearer expectations, align oversight to risk, and streamline administration of both convenience and default terminations.

Benefits to the Government include better allocation of audit resources to higher-risk settlements, shorter termination durations, and faster contract closeout and funds reallocation. Benefits to industry include reduced administrative burden associated with automatic audits when risk does not warrant them, earlier resolution of termination actions that improves cash flow and reduces carrying costs, and more predictable documentation and interaction expectations under revised timelines. Associated burdens are minimal and primarily transitional. Contractors may need to front-load existing work earlier in the process, and agencies will update internal policies and provide targeted training to reinforce risk-informed judgment and revised timeframes. No new reporting, recordkeeping, or information collections are introduced by these changes, and substantive termination rights and settlement principles remain unchanged.

V. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is a significant regulatory action and, therefore, was subject to review under Section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993.

VI. Executive Order 14192

This rule is subject to E.O. 14192, Unleashing Prosperity Through Deregulation. This proposed rule, if finalized as proposed, is anticipated to be an E.O. 14192 deregulatory action. See discussion in the “Expected Impact of the Rule” section of this preamble.

VII. Regulatory Flexibility Act

This proposed rule, if finalized, may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act 5 U.S.C. 601-612. However, an Initial Regulatory Flexibility Analysis (IRFA) is as follows:

1. Reasons for the action.

Executive Order (E.O.) 14275, Restoring Common Sense to Federal Procurement, directs the elimination of excessive acquisition regulations to stop the inefficient use of American taxpayer dollars. The E.O. directs the first comprehensive end-to-end overhaul of the FAR in its 40-year history. The E.O. establishes the policy that the FAR should “contain only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security interests.” In response to E.O. 14275, the Office of Management and Budget issued memorandum M-25-26, Overhauling the Federal Acquisition Regulation. The Memo directed the FAR Council to complete a “revolutionary overhaul” of the FAR. Therefore, the FAR Council is issuing twelve proposed rules that collectively will streamline the FAR in its entirety.

2. Objectives of, and legal basis for, the rule

The revolutionary FAR overhaul (RFO) rewrite represents a paradigm shift in Federal acquisition. It emphasizes streamlining, clarity, and accessibility, while ensuring that the regulation focuses only on statutory mandates and foundational procurement principles. The RFO is designed to simplify compliance for contracting professionals, improve acquisition speed and agility, and reinforce mission outcomes over process formalities.

The basis for the RFO is E.O. 14275. The authority for promulgation of the FAR is 41 U.S.C. 1121(b); 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113.

3. Description of and an estimate of the number of small entities to which the rule will apply

All small entity concerns who want to contract with the Federal Government will have to familiarize themselves with the reorganized, streamlined, and revised FAR, including the content of this rulemaking. As of January 2026, there are 401,196 entities registered in the System for Award Management (SAM) that were small for at least one North American Industry Classification System (NAICS) code they had selected.

FAR Part 3:

Proposed revisions to FAR part 3 apply broadly to all Federal offerors and contractors, including small entities across all sectors. In addition to nonsubstantive revisions that reorganize and streamline regulatory text, clarify existing requirements through plain-language edits, correct internal cross-references, and remove duplicative or outdated provisions, the rule includes a substantive revision aligning the procedures for reviewing improperly marked contractor information in FAR 3.104-4(b) and 3.104-4(d) with the procedures set forth in FAR 27.404-5.

Because these changes do not impose new reporting, recordkeeping, or compliance obligations on contractors, including small entities, and do not require changes to internal systems, ethics programs, or business practices, they are not expected to result in significant additional costs. The revisions do not affect contractor pricing, competition, or participation in Federal acquisitions; however, the revisions will make the FAR easier to navigate and reduce confusion for small entities by providing clearer guidance and standardized formats. While small entities may need to update internal procedures to align with the reorganized structure, the overall effect is expected to reduce administrative burden and improve transparency. Familiarization costs are anticipated to be minimal, primarily involving time spent reviewing the new structure.

FAR Part 49:

Proposed revisions to FAR Part 49 affect contractors whose contracts are terminated for convenience or default,

including small entities prime contractors across all sectors. The rule includes substantive revisions that revise audit practices for termination settlement proposals and adjust procedural timeframes for the submission of inventory schedules and termination settlement proposals, as well as nonsubstantive revisions that streamline and clarify termination procedures across multiple subparts and clauses.

The substantive revisions replace the mandatory termination settlement proposal audit requirement with a permissive, risk-based approach that allows TCOs to determine whether audit support is appropriate based on the facts and risk of the settlement. The revisions also remove the certified cost or pricing data threshold as a trigger for audit.

In addition, the rule revises default submission timeframes for inventory schedules and termination settlement proposals and revises the timing for requesting extensions, while retaining the ability for contractors to request additional time. These changes do not alter the scope or content of termination settlement proposals, inventory schedules, or subcontract settlements, and do not introduce new documentation, reporting, or audit requirements.

The nonsubstantive revisions reorganize and streamline regulatory text, remove nonstatutory requirements, improve consistency and usability as a result of the plain-language edit, while preserving long standing statutory authorities and established termination principles. These revisions do not change contractor rights or obligations.

Because the revisions are procedural in nature, preserve existing termination rights and settlement principles, and do not expand the information required from contractors or the documentation needed to support termination settlement proposals or inventory schedules, and do not impose new compliance, reporting, or recordkeeping requirements on small entities, the negative impact of the proposed revisions on small entities is not expected to be substantial.

The revisions retain contractor flexibility through extension request provisions for submission timeframes and shift audit practices to a risk-based and discretionary framework and adjust default submission timeframes without changing the substantive requirements applicable to termination settlement proposals or inventory schedules.

While the revised submission timeframes may require contractors to prepare and submit existing information earlier in the termination process, any potential cost impacts are expected to be limited, administrative in nature, and offset by efficiencies gained through earlier engagement, reduced settlement durations, and a corresponding decrease in administrative costs once associated with prolonged termination actions. In addition, due to the infrequent occurrence of contract terminations, only a limited number of contractors will be minimally impacted at any given time. Accordingly, the revisions are not expected to result in a significant negative economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act.

FAR Part 52:

The changes in FAR part 52 clarify the applicability of provisions and clauses associated with updates to prescriptions in FAR parts 3 and 49. In addition to these clarifications, the rule includes plain language edits, such as improvements to readability, updates to active voice, and replacement of the term “shall” with “must,” to promote consistency across prescriptions and clauses. Any costs are negligible and limited to internal policy updates. Therefore, the changes are not expected to have a significant economic impact on a substantial number of small entities.

4. Description of projected reporting, recordkeeping, and other compliance requirements of the rule.

This proposed rule, if finalized, does not contain any new reporting, recordkeeping, or other compliance requirements.

FAR Part 3:

Revisions to FAR Part 3 do not introduce new reporting, recordkeeping, or information collection requirements for contractors, subcontractors, or offerors, including small entities. The changes are limited to organizational and editorial revisions, clarification of existing requirements through plain-language edits, correction of internal cross-references, and alignment of FAR part 3 with part 27. Contractors remain subject to the same ethical, procurement integrity, and conflict of interest obligations that existed prior to the rule, and no new certifications, disclosures, or documentation submissions are required.

The revisions do not impose new compliance obligations or require changes to contractor systems, staffing, training, or internal controls. Because the rule does not add or modify information collections, it does not result in increased paperwork burden under the Paperwork Reduction Act. The changes are intended to support clearer understanding and more consistent application of existing requirements without creating new compliance responsibilities for contractors or the Government.

FAR Part 49:

Revisions to FAR Part 49 do not establish new reporting or recordkeeping requirements related to contract terminations, including termination settlement proposals or inventory schedules. Contractors are not required to submit additional information beyond what is already required under existing termination procedures. The revisions adjust procedural timeframes for the submission of termination settlement proposals and inventory schedules, clarify existing FAR text, and promote a risk-based approach to the administration of termination proposal audits, without expanding documentation or data submission requirements.

The rule does not require contractors to modify accounting systems, recordkeeping practices, or internal termination procedures, nor does it impose new compliance steps or documentation obligations. Because the revisions do not create new or revised information collections, they do not increase paperwork burden under the Paperwork Reduction Act. The changes are limited to improving clarity, promoting efficiency, and removing nonstatutory and outdated text, and do not introduce additional compliance requirements for contractors or the Government.

FAR Part 52:

This proposed rule does not contain any new reporting, recordkeeping, or other compliance requirements under FAR part 52. The updates clarify the applicability of prescriptions and clauses to commercial acquisitions and make conforming revisions to clauses associated with FAR parts 3 and 49. These changes are editorial and organizational in nature and do not impose new compliance obligations.

5. Relevant Federal rules which may duplicate, overlap, or conflict with the rule.

The proposed rule, if finalized, would not duplicate, overlap, or conflict with other Federal rules.

6. Description of any significant alternatives to the rule which accomplish the stated objectives of applicable statutes, and which minimize any significant economic impact of the rule on small entities.

There are no significant alternatives that would minimize the impact of the rule on small entities.

The Regulatory Secretariat Division has submitted a copy of the IRFA to the

Chief Counsel for Advocacy of the Small Business Administration. A copy of the IRFA may be obtained from the Regulatory Secretariat Division. The FAR Council invites comments from small business concerns and other interested parties on the expected impact of this proposed rule on small entities.

The FAR Council will also consider comments from small entities concerning the existing regulations in subparts affected by the rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite “5 U.S.C. 610 (FAR Case 2026-007)” in correspondence.

VIII. Paperwork Reduction Act

This rule includes information collections under the Paperwork Reduction Act (44 U.S.C. 3501-3521). Following are the specific collections associated with each FAR part in this rule as previously approved by OMB followed by how each collection would be affected by the proposed rule. If a FAR part is not listed below, then there are no information collections associated with the part.

Part 3

OMB Control No 9000-0018, Federal Acquisition Regulation Part 3: Improper Business Practices and Personal Conflicts of Interest—FAR sections affected: 52.203-2, 52.203-7, 52.203-13, and 52.203-16. The changes under this proposed rule, if finalized, would not affect the information collection or the paperwork burden previously approved by OMB. The collection would remain unchanged.

Part 49

OMB Control No 9000-0012, Termination Settlement Proposal Forms (SFs 1435 through 1440); FAR Section Affected: SFs 1435 through 1440. The changes under this proposed rule, if finalized, would not affect the information collection or the paperwork burden previously approved by OMB. The collection would remain unchanged.

IX. Severability

If any portion (
e.g.,
section, clause, sentence) of this rule is held to be invalid or unenforceable facially, or as applied to any entity or circumstance, it shall be severable from the remainder of this rule, and shall not affect the remainder thereof, or its application to entities not similarly situated or to other dissimilar circumstances. The various portions of this rule are independent and serve distinct purposes. Even if one aspect were rendered invalid, the other benefits of the rule would still be applicable.”

List of Subjects in 48 CFR Parts 3, 49, and 52

Government procurement.

William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy.

Therefore, OFPP, DoD, GSA, and NASA propose amending 48 CFR parts 3, 49, and 52 as set forth below:

1. Revise parts 3 and 49 to read as follows:

PART 3—IMPROPER BUSINESS PRACTICES AND PERSONAL CONFLICTS OF INTEREST

Sec.
3.000
Scope of part.

Subpart 3.1—Safeguards

3.101
Standards of conduct.
3.101-1
General.
3.101-2
Solicitation and acceptance of gratuities by Government personnel.
3.101-3
Agency regulations.
3.102
[Reserved]
3.103
Independent pricing.
3.103-1
Solicitation provision.
3.103-2
Evaluating the certification.
3.104
Procurement integrity.
3.104-1
Definitions.
3.104-2
General.
3.104-3
Statutory and related prohibitions, restrictions, and requirements.
3.104-4
Disclosure, protection, and marking of contractor bid or proposal information and source selection information.
3.104-5
Disqualification.
3.104-6
Ethics advisory opinions regarding prohibitions on a former official's acceptance of compensation from a contractor.
3.104-7
Violations or possible violations.
3.104-8
Criminal and civil penalties, and further administrative remedies.
3.104-9
Contract clauses.

Subpart 3.2—Contractor Gratuities to Government Personnel

3.201
Applicability.
3.202
Contract clause.
3.203
Reporting suspected violations of the Gratuities clause.
3.204
Treatment of violations.

Subpart 3.3—Reports of Suspected Antitrust Violations

3.301
[Reserved]
3.302
Definitions.
3.303
Reporting suspected antitrust violations.

Subpart 3.4—Contingent Fees

3.400
Scope of subpart.
3.401
Definitions.
3.402
Statutory requirements.
3.403
Applicability.
3.404
Contract clause.
3.405
Misrepresentations or violations of the Covenant Against Contingent Fees.

Subpart 3.5—Other Improper Business Practices

3.501
Buying-in.
3.501-1
Definition.
3.501-2
General.
3.502
Subcontractor kickbacks.
3.502-1
Definitions.
3.502-2
Subcontractor kickbacks.
3.502-3
Contract clause.
3.503
Unreasonable restrictions on subcontractor sales.
3.503-1
Policy.
3.503-2
Contract clause.

Subpart 3.6—Contracts with Government Employees or Organizations Owned or Controlled by Them

3.601
Policy.
3.602
Exceptions.
3.603
Responsibilities of the contracting officer.

Subpart 3.7—Voiding and Rescinding Contracts

3.700
Scope of subpart.
3.701
Purpose.
3.702
Definition.
3.703
Authority.
3.704
Policy.
3.705
Procedures.

Subpart 3.8—Limitations on the Payment of Funds to Influence Federal Transactions

3.800
Scope of subpart.
3.801
Definitions.
3.802
Statutory prohibition and requirement.
3.803
Exceptions.
3.804
Policy.
3.805
Exemption.
3.806
Processing suspected violations.
3.807
Civil penalties.
3.808
Solicitation provision and contract clause.

Subpart 3.9—Whistleblower Protections for Contractor Employees

3.900
Scope of subpart.
3.901
Definitions.
3.902
Classified information.
3.903
Policy.
3.904
Complaints.
3.904-1
Procedures for filing complaints.
3.904-2
Procedures for investigating complaints.
3.905
Remedies and enforcement of orders.
3.905-1
Remedies.
3.905-2
Enforcement of orders.
3.906
Contract clause.
3.907
[Reserved]
3.908
[Reserved]
3.909
Prohibition on providing funds to an entity that requires certain internal confidentiality agreements or statements.
3.909-1
Prohibition.
3.909-2
Representation by the offeror.
3.909-3
Solicitation provision and contract clause.

Subpart 3.10—Contractor Code of Business Ethics and Conduct

3.1000
Scope of subpart.
3.1001
Definitions.
3.1002

Policy.

3.1003
Requirements.
3.1004
Contract clauses.

Subpart 3.11—Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions

3.1100
Scope of subpart.
3.1101
Definitions.
3.1102
Policy.
3.1103
Procedures.
3.1104
Mitigation or waiver.
3.1105
Violations.
3.1106
Contract clause.

Authority:

41 U.S.C. 1121(b); 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113.

3.000
Scope of part.
This part prescribes policies and procedures for avoiding improper business practices and personal conflicts of interest and for dealing with their apparent or actual occurrence.

Subpart 3.1—Safeguards

3.101
Standards of conduct.

3.101-1
General.
Government business must be conducted in a manner above reproach. Except as authorized by statute or regulation, business must be conducted with complete impartiality and without preferential treatment for anyone. Transactions involving public funds require the highest degree of public trust and impeccable standards of conduct. The general rule is to avoid any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships. Many Federal laws restrict Government personnel actions. Beyond these restrictions, official conduct must meet a standard where personnel would have no reluctance to fully disclose their actions to the public.

3.101-2
Solicitation and acceptance of gratuities by Government personnel.
(a) As a rule, and as required by Executive Order 12731, no Government employee may solicit or accept, directly or indirectly, any gratuity, gift, favor, entertainment, loan, or anything of monetary value from anyone who—

(1) Has or is seeking to obtain Government business with the employee's agency;

(2) Conducts activities that are regulated by the employee's agency; or

(3) Has interests that may be substantially affected by the performance or nonperformance of the employee's official duties.

(b) Certain limited exceptions are authorized in agency regulations.

3.101-3
Agency regulations.

(a) Agencies must prescribe
Standards of Conduct
as required by 5 CFR part 735. These agency standards contain—

(1) Agency-authorized exceptions to 3.101-2; and

(2) Disciplinary measures for persons violating the standards of conduct.

(b) Requirements for employee financial disclosure and restrictions on private employment for former Government employees are contained in Office of Personnel Management and agency regulations implementing Public Law 95-521, which amended 18 U.S.C. 207.

3.102
[Reserved]

3.103
Independent pricing.

3.103-1
Solicitation provision.
Insert the provision at 52.203-2, Certificate of Independent Price Determination, in solicitations, other than those for commercial products or commercial services, for firm-fixed-price contracts or fixed-price contracts with economic price adjustment, unless-

(a) The purchase uses simplified acquisition procedures from part 13;

(b) The solicitation only requests technical proposals under two-step sealed bidding; or

(c) The solicitation is for utility services with rates established by law or regulation.

3.103-2
Evaluating the certification.

(a)
Evaluation guidelines.

(1) The following activities are not considered “disclosure” as used in paragraph (a)(2) of the Certificate of Independent Price Determination (the certificate):

(i) A firm has published price lists, rates, or tariffs for items the Government is buying.

(ii) A firm has told potential customers about upcoming new or revised price lists for items the Government is buying.

(iii) A firm has sold the same items to commercial customers at the same prices offered to the Government.

(iv) A firm participates in a reverse auction (explained in part 17).

(2) For paragraph (b)(2) of the certificate, an individual may use a blanket authorization to act as an agent for the person(s) responsible for determining the offered prices if—

(i) The proposed contract is clearly within the scope of the authorization; and

(ii) The person giving the authorization is responsible for determining the offered prices at the time the certification is made for that offer.

(3) For joint offers from multiple companies, each company's certification applies only to its own activities.

(b)
Rejecting potentially collusive offers.

(1) If an offeror removes or modifies paragraph (a)(1), (a)(3), or (b) of the certificate, the contracting officer must reject their bid or proposal.

(2) If an offeror deleted or modified paragraph (a)(2) of the certificate—

(i) The offeror must furnish with its offer a signed explanation about how prices were disclosed;

(ii) The chief of the contracting office must review both the changed certificate and explanation;

(iii) The chief must determine in writing if the disclosure was made for the purpose or had the effect of limiting competition;

(iv) If the determination finds the disclosure was made for the purpose or had the effect of limiting competition, the bid must be rejected; and

(v) If the determination finds no competition issues, the bid or proposal may be considered for award.

(3) When rejecting offers under paragraphs (b)(1) or (b)(2), or when suspecting false certification, the contracting officer must report the situation to the Attorney General in accordance with 3.303.

(4) The determination in paragraph (2) does not prevent prosecution of criminal or civil actions involving the transactions to which the certificate relates.

3.104
Procurement integrity.

3.104-1
Definitions.
As used in this section—

Agency ethics official
means the designated agency ethics official described in 5 CFR 2638.104 or other designated person, including-

(1) Deputy ethics officials described in 5 CFR 2638.104(e), to whom authority under 3.104-6 has been delegated by the designated agency ethics official; and

(2) Alternate designated agency ethics officials described in 5 CFR 2638.104(d).

Compensation
means wages, salaries, honoraria, commissions, professional fees, and any other form of payment, provided directly or indirectly for services rendered. Compensation is indirectly provided if it is paid to an entity other than the individual, specifically in exchange for services provided by the individual.

Contractor bid or proposal information
means any of the following information submitted to a Federal agency as part of or in connection with a bid or proposal to enter into a Federal

agency procurement contract, if that information has not been previously made available to the public or disclosed publicly:

(1) Cost or pricing data (as defined by 10 U.S.C. 3701(1) with respect to procurements subject to that section, and 41 U.S.C. 3501(a)(1), with respect to procurements subject to that section).

(2) Indirect costs and direct labor rates.

(3) Proprietary information about manufacturing processes, operations, or techniques marked by the contractor in accordance with applicable law or regulation.

(4) Information marked by the contractor as “contractor bid or proposal information” in accordance with applicable law or regulation.

(5) Information marked in accordance with 52.215-1(e).

Decision to award a subcontract or modification of subcontract
means a decision to designate award to a particular source.

Federal agency procurement
means the acquisition (by using competitive procedures and awarding a contract) of goods or services (including construction) from non-Federal sources by a Federal agency using appropriated funds. For broad agency announcements and small business innovation research programs, each proposal received by an agency counts as a separate procurement for purposes of 41 U.S.C. chapter 21.

In excess of $10,000,000
means—

(1) The value, or estimated value, at the time of award, of the contract, including all options;

(2) The total estimated value at the time of award of all orders under an indefinite-delivery, indefinite-quantity, or requirements contract;

(3) Any multiple award schedule contract, unless the contracting officer documents a lower estimate;

(4) The value of a delivery order, task order, or an order under a Basic Ordering Agreement;

(5) The amount paid or to be paid in settlement of a claim; or

(6) The estimated monetary value of negotiated overhead or other rates when applied to the Government portion of the applicable allocation base.

Official
means—

(1) An officer, as defined in 5 U.S.C.2104;

(2) An employee, as defined in 5 U.S.C.2105;

(3) A member of the uniformed services, as defined in 5 U.S.C.2101(3); or

(4) A special Government employee, as defined in 18 U.S.C.202.

Participating personally and substantially in a Federal agency procurement
means—

(1) Active and significant involvement of an official in any of the following activities directly related to that procurement:

(i) Drafting, reviewing, or approving the specification or statement of work for the procurement.

(ii) Preparing or developing the solicitation.

(iii) Evaluating bids or proposals or selecting a source.

(iv) Negotiating price or terms and conditions of the contract.

(v) Reviewing and approving the award of the contract.

(2) “Participating personally” means participating directly and includes the direct and active supervision of a subordinate's participation in the matter.

(3) “Participating substantially” means that the official's involvement is of significance to the matter. Substantial participation requires more than official responsibility, knowledge, perfunctory involvement, or involvement on an administrative or peripheral issue. Participation may be substantial even though it is not determinative of the outcome of a particular matter. A finding of substantiality should be based not only on the effort devoted to a matter, but on the importance of the effort. While a series of peripheral involvements may be insubstantial, the single act of approving or participating in a critical step may be substantial. However, the review of procurement documents solely to determine compliance with regulatory, administrative, or budgetary procedures, does not constitute substantial participation in a procurement.

(4) Generally, an official will not be considered to have participated personally and substantially in a procurement solely by participating in the following activities:

(i) Agency-level boards, panels, or other advisory committees that review program milestones or evaluate and recommend alternative technologies or approaches for broad agency-level missions or objectives.

(ii) General technical, engineering, or scientific work with broad application not directly tied to a specific procurement, even if that work later becomes part of a procurement.

(iii) Clerical functions supporting a particular procurement.

(iv) For OMB Circular A-76 procurements, participation in management studies, preparation of in-house cost estimates, preparation of “most efficient organization” analyses, or providing data or technical support for others to develop performance standards, statements of work, or specifications.

Source selection evaluation board
means any board, team, council, or other group that evaluates bids or proposals.

3.104-2
General.
(a) This section implements 41 U.S.C. chapter 21, Restrictions on Obtaining and Disclosing Certain Information. The senior procurement executive of the agency must approve any agency supplementation to 3.104. This includes specific definitions identifying individuals who occupy positions specified in 3.104-3(d)(1)(ii), and any required clauses. A law may establish a higher level of approval for that agency.

(b) Agency officials need to remember that other statutes and regulations also address similar prohibited conduct, for example—

(1) The offer or acceptance of a bribe or gratuity is prohibited by 18 U.S.C. 201 and 10 U.S.C. 4651. 5 U.S.C. 7353 and 5 CFR part 2635 prohibit accepting certain gifts;

(2) Contact with an offeror during an acquisition may constitute “seeking employment” (see 5 CFR part 2635 and 3.104-3(c)(2)). Government employees cannot participate personally and substantially in any matter that would affect the financial interests of a person with whom they are seeking employment, as prohibited by 18 U.S.C. 208 and 5 CFR part 2635. An employee negotiating or seeking employment with an offeror or who has an arrangement concerning future employment with an offeror must follow the disqualification requirements in 5 CFR 2635.604 and 2635.606. The prohibition in 18 U.S.C. 208 may require employee disqualification from participation in the acquisition even if their duties are not considered “participating personally and substantially” as defined in 3.104-1;

(3) Post-employment restrictions under 18 U.S.C. 207 and 5 CFR part 2641 prohibit certain activities by former Government employees. This includes representing a contractor before the Government regarding any contract or other particular matter involving specific parties where the former employee participated personally and substantially while employed by the Government. Additional restrictions apply to certain senior Government employees and for matters under an employee's official responsibility;

(4) Parts 14 and 15 restrict the release of procurement information and other

contractor information that must be protected under 18 U.S.C. 1905;

(5) The Privacy Act (5 U.S.C. 552a), the Trade Secrets Act (18 U.S.C. 1905), and other laws may prohibit releasing information both before and after award (see 3.104-4); and

(6) Using nonpublic information for an employee's private interest or another's benefit and engaging in financial transactions using nonpublic information are prohibited by 5 CFR 2635.703.

3.104-3
Statutory and related prohibitions, restrictions, and requirements.

(a)
Prohibition on disclosing procurement information (41 U.S.C. 2102).

(1) A person described in paragraph (a)(2) of this subsection must not knowingly disclose contractor bid or proposal information or source selection information before a Federal agency awards the procurement contract to which the information relates. This restriction applies except when disclosure is allowed by law. (See 3.104-4(a).)

(2) Paragraph (a)(1) of this subsection applies to any person who—

(i) Is a present or former official of the United States, or a person who is acting or has acted for or on behalf of, or who is advising or has advised the United States with respect to, a Federal agency procurement; and

(ii) By virtue of that office, employment, or relationship, has or had access to contractor bid or proposal information or source selection information.

(b)
Prohibition on obtaining procurement information (41 U.S.C. 2102).
A person must not knowingly obtain contractor bid or proposal information or source selection information before a Federal agency awards the procurement contract to which the information relates. This restriction applies except when obtaining such information is allowed by law.

(c)
Actions required when an agency official contacts or is contacted by an offeror regarding non-Federal employment (41 U.S.C. 2103).

(1) An agency official who participates personally and substantially in a Federal agency procurement for a contract over the simplified acquisition threshold must take specific actions if they contact or are contacted by an offeror in that Federal agency procurement about possible non-Federal employment for that official. The official must—

(i) Promptly report the contact in writing to the official's supervisor and to the agency ethics official; and

(ii) Either reject the possibility of non-Federal employment or disqualify himself or herself from further personal and substantial participation in that Federal agency procurement (see 3.104-5). This disqualification remains until the agency authorizes the official to resume participation in that procurement, according to the requirements of 18 U.S.C. 208 and applicable agency regulations, because—

(A) The person is no longer an offeror in that Federal agency procurement; or

(B) All discussions with the offeror regarding possible non-Federal employment have ended without an agreement or arrangement for employment.

(2) A contact is any action included as “seeking employment” in 5 CFR 2635.603(b). Unsolicited communications from offerors regarding possible employment also count as contacts.

(3) Agencies must retain reports of employment contacts for 2 years from the date the report was submitted.

(4) Even if conduct complies with 41 U.S.C. 2103, other criminal statutes and the Standards of Ethical Conduct for Employees of the Executive Branch may prohibit it. See 3.104-2(b)(2).

(d)
Prohibition on former official's acceptance of compensation from a contractor (41 U.S.C. 2104).

(1) A former official of a Federal agency must not accept compensation from a contractor as an employee, officer, director, or consultant for 1 year after the former official—

(i) Served, when the contractor was selected or awarded a contract, as the procuring contracting officer, the source selection authority, a member of a source selection evaluation board, or the chief of a financial or technical evaluation team in a procurement where that contractor received a contract in excess of $10,000,000;

(ii) Served as the program manager, deputy program manager, or administrative contracting officer for a contract in excess of $10,000,000 awarded to that contractor; or

(iii) Personally made for the Federal agency a decision to—

(A) Award a contract, subcontract, modification of a contract or subcontract, or a task order or delivery order in excess of $10,000,000 to that contractor;

(B) Establish overhead or other rates for that contractor's contracts valued in excess of $10,000,000;

(C) Approve issuing a contract payment or payments in excess of $10,000,000 to that contractor; or

(D) Pay or settle a claim in excess of $10,000,000 with that contractor.

(2) The 1-year prohibition begins on the date—

(i) Of contract award for positions described in paragraph (d)(1)(i) of this subsection, or the date of contractor selection if the official was not serving in the position on the date of award;

(ii) The official last served in one of the positions described in paragraph (d)(1)(ii) of this subsection; or

(iii) The official made one of the decisions described in paragraph (d)(1)(iii) of this subsection.

(3) The prohibition in paragraph (d)(1) of this subsection does not prevent a former official from accepting compensation from any division or affiliate of a contractor that does not produce the same or similar products or services than the entity responsible for the contract referred to in paragraph (d)(1).

3.104-4
Disclosure, protection, and marking of contractor bid or proposal information and source selection information.
(a) No person or entity may disclose contractor bid or proposal information or source selection information to any person other than those authorized to receive that information, in accordance with applicable agency regulations or procedures, by the agency head or contracting officer. This restriction applies except as specifically provided in this subsection.

(b) Contractor bid or proposal information and source selection information must be protected from unauthorized disclosure according to 14.303(a), 14.301(c), 14.211-3(a)(3), 15.207, applicable law, and agency regulations.

(c) Individuals who are unsure if specific information is source selection information, as defined in 2.101, should consult with agency officials. Individuals preparing material that may be source selection information as described in paragraph (10) of the “source selection information” definition in 2.101 must mark the cover page and each page they believe contains source selection information with this legend: “Source Selection Information—See FAR 2.101 and 3.104.” Although information in paragraphs (1) through (9) of the definition in 2.101 counts as source selection information whether or not marked, all reasonable efforts must be made to mark such material with the same legend.

(d) The contracting officer must notify the offeror or contractor in writing and follow the procedures in paragraphs (d)(1)-(3) of this section if the contracting officer believes proprietary information, contractor bid or proposal information, or information marked under 52.215-1(e) has been inappropriately marked.

(1) Agencies must not cancel or ignore markings unless they first provide a written request asking the offeror or contractor to submit a written justification substantiating the proprietary markings. The contracting officer must establish a reasonable response date that does not exceed 60 days.

(2) If the offeror or contractor either fails to respond or fails to provide a written justification substantiating the markings within the time afforded, the Government may cancel or ignore the markings.

(3) If the offeror or contractor provides a written justification substantiating the markings, consider the justification.

(i) Upon determining that the markings are authorized, notify the offeror or contractor in writing.

(ii) If the contracting officer determines that the markings are not authorized, obtain concurrence at one level above the contracting officer, and provide the offeror or contractor a written determination regarding the appropriateness of the markings. The determination must state that the Government will cancel or ignore the markings and that the information will no longer be subject to disclosure prohibitions, unless the offeror or contractor seeks relief through applicable remedies (
e.g.,
filing a pre-award protest or, if after award, pursuing a claim under the Disputes clause or litigation in a court of competent jurisdiction). Do not cancel or ignore the markings until final resolution of the matter through these processes.

(iii) Modify the foregoing procedures in accordance with agency regulations implementing the Freedom of Information Act (5 U.S.C. 552) as necessary to respond to a request. Regardless of any dispute over markings, proposals in their entirety remain exempt from disclosure under 41 U.S.C. 4702 (see 24.202(a)).

(e) This section does not restrict or prohibit—

(1) An offeror or contractor from disclosing its own bid or proposal information or the recipient from receiving that information. During reverse auctions, agencies may reveal offered price(s) to all offerors, but must not reveal any offeror's identity except for the awardee's identity after making an award resulting from the auction (see subpart 17.8);

(2) The disclosure or receipt of information, not otherwise protected, relating to a canceled Federal agency procurement before contract award, unless the Federal agency plans to resume the procurement;

(3) Individual meetings between a Federal agency official and an offeror or potential offeror for, or recipient of, a contract or subcontract under a Federal agency procurement, provided that unauthorized disclosure or receipt of contractor bid or proposal information or source selection information does not occur; or

(4) The Government's use of technical data in a manner consistent with the Government's rights in the data.

(f) This section does not authorize—

(1) Withholding any information from a proper request by Congress, any committee or subcommittee thereof, a Federal agency, the Comptroller General, or an Inspector General of a Federal agency, except as otherwise authorized by law or regulation. Any release containing contractor bid or proposal information or source selection information must clearly identify the information as contractor bid or proposal information or source selection information related to a Federal agency procurement. The release must also notify the recipient that disclosure of the information is restricted by 41 U.S.C. chapter 21;

(2) Withholding information from, or restricting its receipt by, the Comptroller General during a protest against the award or proposed award of a Federal agency procurement contract;

(3) Releasing information after award of a contract or cancellation of a procurement if such information is offeror or contractor bid or proposal information or source selection information that relates to another procurement; or

(4) Disclosing, soliciting, or receiving bid or proposal information or source selection information after award if such actions are prohibited by law. (See 3.104-2(b)(5) and part 24.)

3.104-5
Disqualification.

(a)
Contacts through agents or other intermediaries.
Employment contacts between an employee and an offeror conducted through agents or other intermediaries may require disqualification under 3.104-3(c)(1). These contacts may also require disqualification under other statutes and regulations. (See 3.104-2(b)(2).)

(b)
Disqualification notice.
An agency official who must disqualify himself or herself under 3.104-3(c)(1)(ii) must submit the contact report required by 3.104-3(c)(1). The official must also promptly submit written notice of disqualification from further participation in the procurement to the contracting officer, the source selection authority (if different from the contracting officer), and the agency official's immediate supervisor. At a minimum, the notice must—

(1) Identify the procurement;

(2) Describe the nature of the agency official's participation in the procurement and specify the approximate dates or time period of participation; and

(3) Identify the offeror and describe its interest in the procurement.

(c)
Resumption of participation in a procurement.

(1) The official must remain disqualified until the agency, at its sole and exclusive discretion, authorizes the official to resume participation in the procurement according to 3.104-3(c)(1)(ii).

(2) After the conditions of 3.104-3(c)(1)(ii)(A) or (B) have been met, the head of the contracting activity (HCA), after consultation with the agency ethics official, may authorize the disqualified official to resume participation in the procurement, or may determine that an additional disqualification period is necessary to protect the procurement process integrity. When determining the disqualification period, the HCA must consider any factors that create an appearance that the disqualified official acted without complete impartiality. The HCA should document the reinstatement decision in writing.

(3) Government officers or employees must also comply with 18 U.S.C. 208 and 5 CFR part 2635 regarding resumed participation in procurement matters. A government officer or employee may not resume participating in a procurement matter affecting the financial interest of someone with whom they are seeking employment, unless the individual receives—

(i) A waiver pursuant to 18 U.S.C. 208(b)(1) or (b)(3); or

(ii) An authorization according to the requirements of subpart F of 5 CFR part 2635.

3.104-6
Ethics advisory opinions regarding prohibitions on a former official's acceptance of compensation from a contractor.

(a) An official or former official of a Federal agency may request advice from the appropriate agency ethics official before accepting compensation from a contractor. This applies when the individual does not know whether 41

U.S.C. 2104 (see 3.104-3(d)) prevents them from accepting such compensation.

(b) The request for an advisory opinion must be in writing, include all relevant information reasonably available to the official or former official, and be dated and signed. The request must include information about the—

(1) Procurement(s), or decision(s) on matters under 3.104-3(d)(1)(iii), involving the particular contractor. This includes contract or solicitation numbers, dates of solicitation or award, a description of the supplies or services procured or to be procured, and contract amount;

(2) Individual's participation in the procurement or decision, including the dates or time periods of that participation, and the nature of the individual's duties, responsibilities, or actions; and

(3) Contractor, including a description of the products or services produced by the division or affiliate of the contractor from whom the individual proposes to accept compensation.

(c) The agency ethics official should issue an opinion within 30 days after receiving a complete request, or as soon as practicable after that. The opinion should address whether the proposed conduct would violate 41 U.S.C. 2104.

(d)(1) If the request does not include complete information, the agency ethics official may ask the requester to provide more information. The ethics official may also request information from other persons, including the source selection authority, the contracting officer, or the requester's immediate supervisor.

(2) When issuing an opinion, the agency ethics official may rely on the accuracy of information provided by the requester or other agency sources. This applies unless the official has reason to believe the information is fraudulent, misleading, or otherwise incorrect.

(3) If the requester receives a written opinion from the agency ethics official stating they may accept compensation from a particular contractor and accepts such compensation in good faith reliance on that opinion, neither the requester nor the contractor will be found to have knowingly violated 41 U.S.C. 2104. However, if the requester or contractor has actual knowledge or reason to believe the opinion is based on fraudulent, misleading, or otherwise incorrect information, their reliance on the opinion will not be considered good faith.

3.104-7
Violations or possible violations.
(a) A contracting officer who receives information about a violation or possible violation of procurement integrity laws (41 U.S.C. 2102, 2103, or 2104) must determine if this affects the pending award or contractor selection.

(1) If the contracting officer determines there is no impact on the procurement, the contracting officer must forward the information about the violation, including documentation supporting the “no impact” determination, and send these materials to the individual designated per agency procedures.

(i) If that individual agrees with the “no impact” assessment, the contracting officer may continue with the procurement.

(ii) If that individual disagrees, that person must promptly forward all information to the HCA and advise the contracting officer to withhold award.

(2) If the contracting officer determines the violation does impact the procurement, the contracting officer must promptly forward all information to the HCA.

(b) The HCA must review all available information and, following agency procedures, take appropriate action, such as—

(1) Advise the contracting officer to continue with the procurement;

(2) Begin an investigation;

(3) Refer the information disclosed to appropriate criminal investigative agencies;

(4) Conclude that a violation occurred; or

(5) Recommend that the agency head determine that the contractor, or someone acting for the contractor, has engaged in conduct constituting an offense punishable under 41 U.S.C. 2105, for the purpose of voiding or rescinding the contract.

(c) Before concluding that an offeror, contractor, or person has violated 41 U.S.C. chapter 21, the HCA may request information from appropriate parties regarding the violation or possible violation.

(d) If the HCA concludes that 41 U.S.C. chapter 21 has been violated, the HCA may direct the contracting officer to—

(1) If a contract has not been awarded—

(i) Cancel the procurement;

(ii) Disqualify an offeror; or

(iii) Take other appropriate actions to protect Government interests.

(2) If a contract has been awarded—

(i) Apply appropriate contractual remedies, including profit recapture under the clause at 52.203-10 (Price or Fee Adjustment for Illegal or Improper Activity), or, if the contract has been rescinded, recovery of the amount expended under the contract.

(ii) Void or rescind the contract when:

(A) The contractor or someone acting for the contractor has been convicted for an offense where the conduct constitutes a violation of 41 U.S.C. 2102 for the purpose of either—

(
1
) Exchanging the information for anything of value; or

(
2
) Obtaining or giving anyone a competitive advantage in the award of a Federal agency procurement contract; or

(B) The agency head has determined, based upon a preponderance of the evidence, that the contractor or someone acting for the contractor has engaged in conduct constituting an offense punishable under 41 U.S.C. 2105(a); or

(iii) Take any other appropriate actions in the best interests of the Government.

(3) Refer the matter to the agency suspending and debarring official.

(e) The HCA should recommend or direct an administrative or contractual remedy that matches the severity and effect of the violation.

(f) If the HCA determines that urgent and compelling circumstances justify an award, or award is otherwise in the interests of the Government, the HCA, in accordance with agency procedures, may authorize the contracting officer to award the contract or execute the contract modification after notifying the agency head.

(g) The HCA may delegate authority under this subsection to an individual at least one organizational level above the contracting officer and of General Officer, Flag, Senior Executive Service, or equivalent rank.

3.104-8
Criminal and civil penalties, and further administrative remedies.
Criminal penalties, civil penalties, and administrative remedies may apply to conduct that violates procurement integrity laws in 41 U.S.C. chapter 21 (see 3.104-3). For a special rule about bid protests see 41 U.S.C. 2106. For administrative remedies related to contracts, see 3.104-7.

(a) An official who knowingly fails to follow the requirements of 3.104-3 is subject to penalties and administrative action described in 41 U.S.C. 2105.

(b) An offeror who engages in employment discussion with an official subject to the restrictions of part 3, knowing that the official has not complied with part 3, is subject to the criminal, civil, or administrative penalties set forth in 41 U.S.C. 2105.

(c) An official who refuses to terminate employment discussions (see 3.104-5) may be subject to agency administrative actions under 5 CFR 2635.604(d) if the official's disqualification from participation in a

particular procurement interferes substantially with the individual's ability to perform assigned duties.

3.104-9
Contract clauses.
Insert the following clauses in solicitations and contracts, other than those for commercial products or commercial services, if the acquisition value exceeds the simplified acquisition threshold:

(a) 52.203-8, Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity; and

(b) 52.203-10, Price or Fee Adjustment for Illegal or Improper Activity.

Subpart 3.2—Contractor Gratuities to Government Personnel

3.201
Applicability.
This subpart applies to all executive agencies, except that coverage concerning exemplary damages applies only to the Department of Defense (10 U.S.C. 4651).

3.202
Contract clause.
Insert the clause at 52.203-3, Gratuities, in solicitations and contracts, including those for commercial products or commercial services, if the acquisition value exceeds the simplified acquisition threshold, except those—

(a) For personal services; or

(b) Between military departments or defense agencies and foreign governments that do not obligate any funds appropriated to the Department of Defense.

3.203
Reporting suspected violations of the Gratuities clause.
Agency personnel must report suspected violations of the Gratuities clause to the contracting officer or other designated official in accordance with agency procedures. The agency reporting procedures must be published as an implementation of this section and must clearly specify—

(a) What to report and how to report it; and

(b) The channels through which reports must pass, including the function and authority of each official designated to review them.

3.204
Treatment of violations.
(a) Before taking action against a contractor, the agency head or designee must determine, after notice and hearing under agency procedures, whether the contractor, its agent, or representative, under a contract containing the Gratuities clause:

(1) Offered or gave a gratuity (such as entertainment or a gift) to a Government officer, official, or employee; and

(2) Intended to use this gratuity to obtain a contract or favorable treatment under a contract (this intent typically must be inferred from circumstances).

(b) Agency procedures must give the contractor an opportunity to appear with counsel, submit documentary evidence, present witnesses, and confront any person the agency presents. The procedures should be as informal as practicable, while maintaining principles of fundamental fairness.

(c) When the agency head or designee determines that a violation has occurred, the Government may—

(1) Terminate the contractor's right to proceed;

(2) Initiate debarment or suspension measures described in part 9; and

(3) Assess exemplary damages, if the contract uses money appropriated to the Department of Defense.

Subpart 3.3—Reports of Suspected Antitrust Violations

3.301
[Reserved]

3.302
Definitions.
As used in this subpart—

Identical bids
means bids for the same line item that are determined to be identical as to unit price or total line item amount, with or without the application of evaluation factors (
e.g.,
discount or transportation cost).

3.303
Reporting suspected antitrust violations.
(a) Agencies are required by 41 U.S.C. 3707 and 10 U.S.C. 3307 to report to the Attorney General any bids or proposals that evidence a violation of the antitrust laws. These reports are in addition to those required by part 9.

(b) The antitrust laws are intended to ensure that markets operate competitively. Any agreement or mutual understanding among competing firms that restrains the natural operation of market forces is suspect. Paragraph (c) of this section identifies behavior patterns that are often associated with antitrust violations. Activities meeting the descriptions in paragraph (c) are not necessarily improper, but they are sufficiently questionable to warrant notifying the appropriate authorities, in accordance with agency procedures.

(c) Practices or events that may show violations of antitrust laws include—

(1) The existence of an
industry price list
or
price agreement
to which contractors refer in formulating their offers;

(2) A sudden change from competitive bidding to identical bidding;

(3) Simultaneous price increases or follow-the-leader pricing;

(4) Rotation of bids or proposals where each competitor takes turns being the low bidder, or where certain competitors bid low only on some sizes of contracts and high on other sizes;

(5) Division of the market, so that certain competitors bid low only for contracts awarded by certain agencies, or for contracts in certain geographical areas, or on certain products, and bid high on all other jobs;

(6) Establishment by competitors of a collusive price estimating system;

(7) The filing of a joint bid by two or more competitors when at least one of the competitors has sufficient technical capability and productive capacity for contract performance;

(8) Any incidents suggesting direct collusion among competitors, such as the appearance of identical calculation or spelling errors in two or more competitive offers or the submission by one firm of offers for other firms; and

(9) Statements by current employees, former employees, or competitors that an agreement to restrain trade exists.

(d) Contracting officers must report identical bids when the agency has reason to believe the bids resulted from collusion.

(e) For offers from foreign contractors on contracts to be performed outside the United States and its outlying areas, contracting officers may refer suspected collusive offers to the relevant foreign government authorities for appropriate action.

(f) Agency reports must be addressed to the Attorney General, U.S. Department of Justice, Washington, DC 20530, Attention: Assistant Attorney General, Antitrust Division, and must include—

(1) A brief statement describing the suspected practice and the reason for the suspicion; and

(2) The name, address, and telephone number of an individual in the agency who can be contacted for further information.

Subpart 3.4—Contingent Fees

3.400
Scope of subpart.
This subpart prescribes policies and procedures that restrict contingent fee arrangements for soliciting or obtaining Government contracts to those permitted by 10 U.S.C. 3321(b)(1) and 41 U.S.C. 3901.

3.401
Definitions.
As used in this subpart—

Bona fide agency,
means an established commercial or selling agency, maintained by a contractor for the purpose of securing business, that neither exerts nor proposes to exert

improper influence to solicit or obtain Government contracts nor holds itself out as being able to obtain any Government contract or contracts through improper influence.

Bona fide employee,
means a person, employed by a contractor and subject to the contractor's supervision and control as to time, place, and manner of performance, who neither exerts nor proposes to exert improper influence to solicit or obtain Government contracts nor holds out as being able to obtain any Government contract or contracts through improper influence.

Contingent fee,
means any commission, percentage, brokerage, or other fee that is contingent upon the success that a person or concern has in securing a Government contract.

Improper influence,
means any influence that induces or tends to induce a Government employee or officer to give consideration or to act regarding a Government contract on any basis other than the merits of the matter.

3.402
Statutory requirements.
Contractors' arrangements to pay contingent fees for soliciting or obtaining Government contracts have long been considered contrary to public policy because such arrangements may lead to attempted or actual improper influence. In 10 U.S.C. 3321(b) and 41 U.S.C. 3901, Congress affirmed this public policy but permitted certain exceptions. These statutes—

(a) Require every negotiated contract to include a warranty by the contractor against contingent fees;

(b) Permit, as an exception to the warranty, contingent fee arrangements between contractors and bona fide employees or bona fide agencies; and

(c) Provide that if a contractor breaches or violates this warranty, the Government may annul the contract without liability or deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.

3.403
Applicability.
This subpart applies to all contracts. Statutory requirements for negotiated contracts are, as a matter of policy, extended to sealed bid contracts.

3.404
Contract clause.
Insert the clause at 52.203-5, Covenant Against Contingent Fees, in solicitations and contracts, other than those for commercial products or commercial services, if the acquisition value exceeds the simplified acquisition threshold.

3.405
Misrepresentations or violations of the Covenant Against Contingent Fees.
(a) Government personnel who suspect or have evidence of any of the following must report the matter promptly to the contracting officer or appropriate higher authority according to agency procedures:

(1) Attempted or actual exercise of improper influence;

(2) Misrepresentation of a contingent fee arrangement; or

(3) Other violations of the Covenant Against Contingent Fees.

(b) When specific evidence or other reasonable basis exists to suspect one or more violations described in paragraph (a) of this section, the chief of the contracting office must review the facts and, if appropriate, take or direct one or more of the following actions:

(1) If before award, reject the bid or proposal.

(2) If after award, enforce the Government's right to annul the contract or to recover the fee.

(3) Initiate suspension or debarment action under part 9.

(4) Refer suspected fraudulent or criminal matters to the Department of Justice, as prescribed in agency regulations.

Subpart 3.5—Other Improper Business Practices

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 part 17).

(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 part 15).

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 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.

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,
as used in this section, 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.

3.502-2
Subcontractor kickbacks.

The Anti-Kickback Act of 1986 (now codified at 41 U.S.C. chapter 87, Kickbacks,) 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 Kickbacks statute—

(a) Prohibits any person from—

(1) Providing, attempting to provide, or offering to provide any kickback;

(2) Soliciting, accepting, or attempting to accept any kickbacks; 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 section.

(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 section; and

(3) An offset under paragraph (d)(1) or a direction under paragraph (d)(2) of this section is a claim by the Government for the purposes of 41 U.S.C. chapter 71, Contract Disputes.

(e) Authorizes contracting officers to order that sums withheld under paragraph (d)(2) of this section 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 section 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 Attorney General any possible violation of the Kickbacks statute when the prime contractor or subcontractor has reasonable grounds to believe such violation may have occurred.

(h) Provides that, for the purpose of determining whether there has been a violation of the Kickbacks statute on 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 such agency if the agency does not have an inspector general, must have access to and may inspect the facilities and audit the books and records of any prime contractor or subcontractor under a prime contract awarded by the agency.

(i) Requires each contracting agency to include in each prime contract, other than for commercial products or commercial services, exceeding $200,000, a requirement that the prime contractor must—

(1) Have in place and follow reasonable procedures designed to prevent and detect violations of the Kickbacks statute 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 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 Kickbacks statute.

(j) Notwithstanding paragraph (i) of this section, a prime contractor must cooperate fully with any Federal Government agency investigating a violation of 41 U.S.C. 8702 (see 41 U.S.C. 8703(b)).

3.502-3
Contract clause.
Insert the clause at 52.203-7, Anti-Kickback Procedures, in solicitations and contracts, other than those for commercial products or commercial services, if the acquisition value exceeds $200,000 (see part 12).

3.503
Unreasonable restrictions on subcontractor sales.

3.503-1
Policy.
10 U.S.C. 4655 and 41 U.S.C. 4704 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.
Insert the clause at 52.203-6, Restrictions on Subcontractor Sales to the Government, in solicitations and contracts including those for commercial products or commercial services if the acquisition value exceeds the simplified acquisition threshold. Use the clause with its Alternate I for acquisitions for other than commercial products or commercial services.

Subpart 3.6—Contracts With Government Employees or Organizations Owned or Controlled by Them

3.601
Policy.
(a) Except as specified in 3.602, a contracting officer must not knowingly award a contract to a Government employee or to a business concern or other organization owned or substantially owned or controlled by one or more Government employees. This policy is intended to avoid any conflict of interest that might arise between the employees' interests and their Government duties, and to avoid the appearance of favoritism or preferential treatment by the Government toward its employees.

(b) For purposes of this subpart, special Government employees (as defined in 18 U.S.C. 202) performing services as experts, advisors, or consultants, or as members of advisory committees, are not considered Government employees unless—

(1) The contract arises directly out of the individual's activity as a special Government employee;

(2) In the individual's capacity as a special Government employee, the individual is in a position to influence the award of the contract; or

(3) Another conflict of interest is determined to exist.

3.602
Exceptions.

The agency head, or a designee not below the level of the head of the contracting activity, may authorize an exception to the policy in 3.601 only if there is a compelling reason to do so,

such as when the Government's needs cannot reasonably be otherwise met.

3.603
Responsibilities of the contracting officer.
(a) Before awarding a contract, the contracting officer must obtain an authorization under 3.602 if—

(1) The contracting officer knows, or has reason to believe, that a prospective contractor is one to which award is otherwise prohibited under 3.601; and

(2) There is a most compelling reason to make an award to that prospective contractor.

(b) The contracting officer must comply with the requirements and guidance of the conflicts of interest subpart in part 9 before awarding a contract to an organization owned or substantially owned or controlled by Government employees.

Subpart 3.7—Voiding and Rescinding Contracts

3.700
Scope of subpart.
This subpart prescribes Governmentwide policies and procedures for exercising discretionary authority to declare void and rescind contracts.

3.701
Purpose.
This subpart provides—

(a) An administrative remedy with respect to contracts in relation to which there has been—

(1) A final conviction for bribery, conflict of interest, disclosure or receipt of contractor bid or proposal information or source selection information in exchange for a thing of value or to give anyone a competitive advantage in the award of a Federal agency procurement contract, or similar misconduct; or

(2) An agency head determination that contractor bid or proposal information or source selection information has been disclosed or received in exchange for a thing of value, or for the purpose of obtaining or giving anyone a competitive advantage in the award of a Federal agency procurement contract; and

(b) A method to deter similar misconduct in the future by those who are involved in the award, performance, and administration of Government contracts.

3.702
Definition.

Final conviction
means a conviction, whether entered on a verdict or plea, including a plea of nolo contendere, for which sentence has been imposed.

3.703
Authority.

(a) 18 U.S.C. 218 (
the Act
), gives the President, or the heads of executive agencies acting under regulations prescribed by the President, the power to declare void and rescind contracts and other transactions listed in the Act. This applies when there has been a final conviction for bribery, conflict of interest, or any other violation of Chapter 11 of Title 18 of the United States Code (18 U.S.C. 201-224). Executive Order 12448, November 4, 1983, delegates the President's authority under the Act to the heads of the executive agencies and military departments.

(b) 41 U.S.C. 2105(c) requires Federal agencies, upon receiving information that a contractor or person has violated 41 U.S.C. 2102, to consider rescinding a contract when—

(1) The contractor or someone acting for the contractor has been convicted of an offense punishable under 41 U.S.C. 2105(a); or

(2) The agency head, or designee, has determined, based on a preponderance of the evidence, that the contractor or someone acting for the contractor has engaged in conduct constituting such an offense.

3.704
Policy.
(a) In cases with a final conviction for any violation of 18 U.S.C. 201-224 involving or relating to agency—awarded contracts, the agency head or designee must consider the available facts. If appropriate, they must declare contracts void and rescind them, and recover the amounts spent and property transferred by the agency according to the policies and procedures in this subpart.

(b) A final conviction under 18 U.S.C. 201-224 relating to a contract may also indicate the party is not presently responsible. The agency should consider starting debarment proceedings according to part 9, if debarment has not already begun or is not in effect when the final conviction occurs.

(c) If there is a final conviction for an offense punishable under 41 U.S.C. 2105, or if the agency head or designee has determined, based on a preponderance of the evidence, that the contractor or someone acting for the contractor has engaged in such conduct, then the head of the contracting activity must consider, in addition to any other penalty prescribed by law or regulation—

(1) Declaring contracts void and rescinding them, as appropriate, and recovering the amounts spent under the contracts by using the procedures at 3.705 (see 3.104-7); and

(2) Recommending the initiation of suspension or debarment proceedings according to part 9.

3.705
Procedures.

(a)
Reporting.
The facts concerning any final conviction for any violation of 18 U.S.C. 201-224 involving or relating to agency contracts must be reported promptly to the agency head or designee for consideration. The agency head or designee must promptly notify the Civil Division, Department of Justice, that an action is being considered under this subpart.

(b)
Decision.
Following an assessment of the facts, the agency head or designee may declare void and rescind contracts with respect to which a final conviction has been entered, and recover the amounts expended and the property transferred by the agency under the terms of the contracts involved.

(c)
Decision-making process.
Agency procedures governing the voiding and rescinding decision-making process must be as informal as is practicable, consistent with the principles of fundamental fairness. At a minimum, agencies must provide the following:

(1) A notice of the proposed action to declare void and rescind the contract must be made in writing and sent by certified mail, return receipt requested by certified mail, return receipt requested, or by any other method that provides evidence of receipt.

(2) A 30-calendar day period after receipt of the notice, for the contractor to submit pertinent information before any final decision is made.

(3) Upon request made within the period for submission of pertinent information, an opportunity must be afforded for a hearing at which witnesses may be presented, and any witness the agency presents may be confronted. However, no inquiry may be made regarding the validity of a conviction.

(4) If the agency head or designee decides to declare void and rescind the contracts involved, that official must issue a written decision which—

(i) States that determination;

(ii) Reflects consideration of the fair value of any tangible benefits received and retained by the agency; and

(iii) States the amount due, and the property to be returned, to the agency.

(d) Notice of proposed action. The notice of the proposed action, at a minimum must—

(1) Advise that consideration is being given to declaring void and rescinding contracts awarded by the agency, and recovering the amounts expended and property transferred therefor, under the provisions of 18 U.S.C. 218;

(2) Specifically identify the contracts affected by the action;

(3) Specifically identify the offense or final conviction on which the a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2026-12562. Public record. Not legal advice.