If you are an employee of an agency of U.S. Government you've almost certainly dealt with FAR,, or Federal Acquisition Regulation. This dense legal document provides the rules and regulations that Government and prime contractors are required to adhere to when working together.
In this article, we'll detail a particular section that addresses a crucial step in any negotiation between Government and the prime contractor: the record of that negotiations.
Since the burden of the responsible use of Government funds is the responsibility of the contractor that is the primary contractor so it is crucial to be accurate and thorough in the recording of negotiations.
Uncertainties could be uncovered during a Contractor Purchasing Systems Review, otherwise known as a CPSR. The process of reviewing ensures the principal contractor is using tax payer money efficiently.
In this article you'll learn how to write a comprehensive documentation of negotiation in accordance with FAR 15.406-3 This is particularly relevant for contracting officers who are responsible for creating and submitting required information to the contract file.
What does each price-negotiating memorandum have?
In total, the document described in the article can be referred to as the Price Negotiation Memorandum, or PNM for short. In FAR 15.406-3, the PNM is composed of 11 primary elements:
Section 1
The first section is straightforward, as it just defines the reason for the negotiation. The goals of negotiation can differ for example, negotiation of the new contract on only a single source basis or negotiation of an equity adjustment and so on. They are first determined during the prenegotiation objective phase which is described by FAR 15.406-1.
Section 2
This should include the acquisition itself it could be comprised of goods, services, construction or even real property which the government plans to purchase, with all necessary numbering. "Identifying numbers" includes things like the RFP (Request to Proposal) numbers, website which are referring directly to the particular proposal document for what the contractor proposes.
Section 3
The section should include the name, position and organization of every person who represents both the prime contractor and Government in negotiations.
Section 4
In this part, we will discuss the status of any contractor-related systems relevant for the discussion. This could include purchasing, estimating, accounting and/or compensation. The section should specifically describe how they relate to the negotiation and how they were thought of.
What section of the FAR concerns contract pricing?
The following two sections are a bit related, so we'll first cover the document which they relate to. When a prime contractor files bids, they must generally include an estimate of how much the job will cost i.e. a pricing proposal. If we go back to the instance of construction, the most fundamental elements of cost would be an estimate of materials and labor to complete a particular task. In this case, the FAR contains a specific document that is specifically designed for this function, known by the name of Certificate of Price or Cost Current Data.
In FAR 15.406-2 you can find an example of the certificate that includes the name of the business along with lines for your own name along with your title, signature and date of signature. This certificate acknowledges that, to the best of your understanding, the cost outline that you've submitted is true. In addition, this certificate is only valid when prime contracts exceed $2 million that were granted on or on or after July 1, 2018. Let's examine the specific guidelines for this document:
Section 5
This section refers to instances where the certification of actual pricing or cost data wasn't required to determine reasonable contract pricing, even though the contract award was over the threshold of $2 million. FAR 15.403-1 defines the scenarios in which this certificate is not required. Some of them are:
If the contracting official determines that the price agreed on is determined by law or regulation
When a commercial item or commercial service is purchased
When changing the terms of a contract or subcontract to commercial products or services
The the FAR 15.403-1 for the full list, but in the simplest terms, If your contract doesn't require a certificate of current cost or pricing information, Section 5 is required to specify the particular exception which lets you skip the certificate and the basis your contract fits that exception.