Note: this response/answer is based on a great phone conversation with the question submitter.

SCENARIO:  The procurement is non-competitive and the justification valid. The procurement is being done IAW policies and procedures unique to the acquisition of commercial items at FAR part 12; using simplified acquisition procedures, and was posted to FBO.

Which  leads to this question: Why would a vendor in a sole source scenario propose a price that would make them lose money?  It does not seem to make sense and it could be a negotiating tactic on their part. The buying activity had the same thoughts.

Although both FAR 32.201 and FAR 12.210 provides flexibility to provide advance payments in the event it is "Customary market practice for some commercial items to include buyer contract financing"; this procurement falls below the simplified acquisition threshold.  Therefore, see FAR 32.202-1(b)(2), this is no longer an option. The only recourse would be to seek a waiver (see FAR subpart 1.4). HOWEVER, we both agreed this would lack leadership support to pursue this approach due to DFARS 201.402(1)(v).

For potential future information and benefit, the buying activity is going to do additional market research and also ask the offeror to provide proof/validation of previous advance payments on government (DoD) contracts.  This is to  determine if in fact advance payments are "customary" in this industry marketplace.

In the meantime, for this procurement action, the buying activity is going to ask the contractor to prove what/why they need financing and find out what the impact to the offered price would be if they need to secure commercial financing.