If you are a contractor who works for the U.S. Government you've almost certainly dealt with FAR, or the Federal Acquisition Regulation. This hefty legal document covers the rules as well as regulations that both the government and prime contractors must adhere to when working together.
In this article, we'll break down a specific subsection that covers a critical step in any negotiation between Government and prime contractor: the documentation of said negotiations.
As the responsibility for the responsible use of Government funds is the contractor of the first resort so it is crucial to be precise and thorough when capturing negotiations.
Any irregularities could be discovered by a Contractor Purchasing System Review, commonly referred to as a CPSR. This process of review ensures that the principal contractor is spending taxpayer money efficiently.
In this article you will be able to prepare a complete documentation of negotiations that is in compliance with FAR 15.406-3, which is particularly relevant for contracting officers, who are responsible for collecting and submitting the necessary documents to the official contract file.
What must each price negotiation memorandum have?
As a whole, the document that is discussed in the article can be known as a Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM comprises eleven essential elements.
Section 1
The first section is straightforward, as it just declares the main purpose of the negotiation. The purpose of negotiations can be different from the negotiation of one new contract with a sole source basis, negotiation of an equitable adjustment and so on. This is first decided during the objective phase of negotiation, which is described by FAR 15.406-1.
Section 2
This section should outline the actual acquisition and could include the construction, goods, or services or even real estate that the Government plans to purchase, with all necessary numbering. "Identifying numbers" includes things such as the RFP (Request to Proposal) numbers that are linked directly to the particular proposal document to describe what the contractor proposes.
Section 3
This section must include the name, position and the organization of every person who represents the contractor as the primary contractor and also the Government in the negotiation.
Section 4
In this sectionyou will need to describe the present state of any contractor systems that are relevant with the negotiation. This might include accounting, purchasing, estimation or compensation. The section should detail the way these systems are related to the negotiation and how they were assessed.
What portion of FAR refers to contract pricing?
The two following sections are kind of connected in that we'll cover the document with regard to. When a principal contractor sends bids, they usually 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 basic cost elements would be an estimate of labour and materials on a specific task. In this regard it is the FAR has a special document that is specifically designed for this function, known by the name of Certificate of Current Cost or Pricing Data.
In FAR 15.406-2 you can locate a template of the certification that has the name of the business and lines for your names the title, signature as well as the date on which you signed. This certificate certifies that, at the very best of your knowledge, the cost estimate that you've provided is correct. Also, this certificate is only required to be submitted for prime contracts of greater than $2 million , which were granted on or on or after July 1, 2018. Let's review the specific guidelines that govern this document:
Section 5
This section is referring to situations where the certification of current cost or pricing data was not needed to establish acceptable contract prices , even if the contract that was awarded exceeded the $2 million threshold. FAR 15.403-1 outlines the instances in which this certificate does not have to be provided, however, a handful of them include:
When the contracting officer is able to determine that the prices agreed to are from prices determined by law or regulation
If a product or commercial service is acquired
If you are changing the terms of a contract or subcontract to commercial services or products
You can website refer to FAR 15.403-1 for the complete list, but in the simplest terms, in the event that your contract does not require certification of current pricing or cost data, Section 5 must be able to provide the specific reason that allows you to skip the certificate and which basis your contract fits that exception.