If you're an individual contractor working for government officials from the U.S. Government you've almost likely dealt with FAR in other words, the Federal Acquisition Regulation. This hefty legal document defines the rules of regulations and guidelines that Government officials and prime contractors must adhere to when working together.
In this article we'll dissect a particular subsection that addresses a crucial step in any negotiation between Government and prime contractor: the documentation of said negotiation.
Since the responsibility of the responsible use of Government funds is on the contractor who is in charge that's why it's vital that they are thorough and precise in the documentation of negotiations.
Uncertainties could be uncovered in a Contract Purchasing System Review, or a CPSR. The process of reviewing ensures the principal contractor is using tax payer money efficiently.
Utilizing this article, you will be able to provide a complete and complete account of negotiation which is in compliance with FAR 15.406-3 and is particularly crucial for contracting officers, who are accountable for creating and submitting required information to the contract file.
What should each price negotiation memorandum contain?
In total, the documents discussed in this essay is referred to as a Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM is composed of 11 principal elements:
Section 1
This section is relatively simple, since it simply defines the reason for the negotiation. The goals of negotiation can differ depending on the situation, like the negotiation of an entirely new contract with the basis of sole source or negotiation of an equitable adjustment or equitable adjustment, etc. The purpose of negotiation is determined at the objective phase of negotiation, which can be found in the FAR 15.406-1.
Section 2
This section should outline the acquisition itself it could be comprised of products, services, construction, or even real estate which the government plans to acquire. This should include all pertinent specific numbers. "Identifying numbers" includes things such as RFP (Request for Proposal) numbers that relate directly to the particular proposal document that the contractor proposes.
Section 3
The section should include the name, title and affiliation of each person who represents either the contractor who is the prime contractor or the Government in negotiations.
Section 4
In this section, cover the current state of any contractor systems that are relevant to the negotiation. This could include accounting, purchasing, estimation and/or compensation. The section should specifically describe how these systems related to the negotiation and in what extent they were evaluated.
What portion of FAR concerns contract pricing?
The following two sections are somewhat related to each other, and so we'll start by looking at the document that they refer to. When a prime contractor submits bids, they must typically include an estimate of the amount of work to cost i.e. a pricing proposal. If we refer back to the example of construction, the primary cost elements will be an estimate on materials and labor on a specific task. In this regard, the here FAR provides a specific document to be used for this purpose, referred to by the name of Certificate of Current Cost or Pricing Data.
In FAR 15.406-2 you can find a template of the document that contains the name of the business along with lines for your own name as well as your signature, title, and date of signing. This certificate certifies that, to the best of your knowledge, the cost estimate which you've prepared is accurate. In addition, this certificate is only required for prime contracts with a value of more than the amount of $2 million and issued on or following July 1, 2018. We will look over the specific guidelines for this document:
Section 5
This section addresses instances where the certificate of current cost or pricing data is not required to establish reasonable contract price, even though contract that was awarded exceeded the threshold of $2 million. FAR 15.403-1 defines the scenarios where this certificate is not required, but some of them include:
If the contracting officer decides that the agreed-upon prices are basing on the prices set by law or regulation
If a commercial product or commercial service has been purchased
When changing any contract or subcontract to commercial services or products
It is possible to refer to the FAR 15.403-1 for the full list, but in a nutshell in the event that your contract does not require certification of the current price or cost data, Section 5 will need to define the specific exception that permits you to bypass the certificate and which basis your contract can be considered to meet that exemption.