If you are an employee of an agency of U.S. Government you've almost surely dealt with FAR, or Federal Acquisition Regulation. This lengthy legal document governs the rules, rules, and regulations that government agencies as well as prime contractors must adhere to when working together.
In this article we'll examine a specific section that covers a critical step in any negotiation between Government and the prime contractor: the record of the negotiation.
Since the responsibility for accountable spending of Government funds rests with the contractor of the first resort that's why it's vital to be thorough and accurate when capturing negotiations.
Any discrepancies may be discovered in a Contractor Purchasing System Review, otherwise known as a CPSR. The review process is designed to ensure that the contractor in charge is spending taxpayer funds efficiently.
By following this guideline, you will be able to prepare a complete documentation of negotiation which is in compliance with FAR 15.406-3 this is crucial for contracting officers who are charged with making sure that they submit the required information to the contract file.
What is the price negotiation memo contain?
In total, the documentation discussed in the article can be known as a Price Negotiation Memorandum, or PNM for short. In FAR 15.406-3 the PNM is composed of eleven essential elements.
Section 1
The first section is straightforward, as it just declares the main purpose of the negotiation. The reasons for negotiation may differ and include negotiation of a new contract on an sole source basis or negotiation of an equity adjustment, etc. The purpose of negotiation is determined at the prenegotiation goal phase that can be found in Federal Regulation 15.406-1.
Section 2
This section must outline the purchase itself that may comprise goods, services, construction or even real property which the government is seeking to acquire. Include all identifiable numbers. "Identifying numbers" includes things such as the RFP (Request to Proposal) numbers that refer in the target proposal document for what the contractor will propose.
Section 3
This section must include the name, position as well as the organizational structure of each person representing either the contractor who is the prime contractor or the Government during the negotiation.
Section 4
In this section, describe the current status of any contractor-related systems relevant in the negotiations. This could include accounting, purchasing, estimation and/or compensation. The section should detail the way these systems are related to the negotiation and the extent to which they were taken into consideration.
What section of the FAR covers contract pricing?
The next two sections are somewhat related in that we'll cover the document that they refer to. When a prime contractor files a bid, it must typically include an estimate of the amount of work to cost i.e. a pricing proposal. If we look back to the construction example, the fundamental cost elements would be an estimate of materials and labor for a specific project. In this regard, the FAR has a special document that is specifically designed for this function, known as the Certificate of Current Cost or Pricing Data.
In FAR 15.406-2 in FAR 15 FAR 15.406-2, you can find a template for the certificate. It includes the name of the business and lines for your name the title, signature as well as the date on which you signed. This certificate certifies that, from your understanding, the cost outline which you've prepared is correct. Also, this certificate is only valid to be submitted for prime contracts of greater than $2 million , which were given following July 1, 2018. Let's examine the specific guidelines that apply to this document:
Section 5
This section covers instances where the certification of current cost or pricing data was not required to determine acceptable contract costs even though the contract was awarded in excess of the threshold of $2 million. FAR 15.403-1 lists the circumstances in which the certificate is not required, but some of them include:
When the contracting officer is able to determine that prices agreed upon are basing on the prices set by regulation or law
When a commercial item or commercial service has been purchased
Modifying or modifying a contract or subcontract that deals with commercial products or services
It is possible to refer to FAR 15.403-1 for the complete list, but , in essence, if your contract doesn't require a certified copy of the current price or cost data, Section 5 should to identify the specific exception that allows you to skip the certificate and which basis your contract will be able to benefit from that exception.