If you're an contractor that works with government officials from the U.S. Government you've almost certainly dealt with FAR, or the Federal Acquisition Regulation. This lengthy legal document covers the rules of regulations and guidelines that Government officials and prime contractors have to follow when working together.
In this article we'll break down a specific subsection that focuses on an essential step in any negotiation between Government and prime contractor: the record of that negotiation.
As the responsibility for prudent spending of Government funds is the responsibility of the principal contractor that's why it's vital to be exact and thorough when documenting negotiations.
The discrepancies could be discovered through a contractor Purchasing System Review, otherwise known as a CPSR. This process of review ensures that the principal contractor is spending taxpayer money effectively.
By following this guideline, you'll be able to make a complete record of negotiation that's in line with FAR 15.406-3 and is particularly important for contracting officers who are charged with gathering and submitting the required information to the contract file.
What will each price negotiation memorandum be?
As a whole, the document that is discussed herein is known as the Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM comprises eleven essential elements.
Section 1
The first paragraph is pretty 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 the basis of sole source or the negotiation of an equitable adjustment, etc. They are determined in the objective phase prior to negotiation which is detailed by FAR 15.406-1.
Section 2
This section should outline the acquisition in its entirety comprising materials, services, construction or even real estate which the government plans to acquire. It should include all appropriate identifiable numbers. "Identifying numbers" includes things like"RFP (Request for Proposal) numbers that relate on the precise proposal document for what the contractor has to offer.
Section 3
The section should include the name, title and affiliation of each person who represents an individual contractor, as well as the Government in negotiations.
Section 4
In this section, cover the state of affairs of all contractor systems that relate to negotiations. This could include accounting, purchasing, estimation and/or compensation. The section should specifically describe how they relate to the negotiation and how they were evaluated.
What section of FAR addresses contract pricing?
The next two sections are somewhat related as well, so we'll go over the document the two sections are a part of. When a contractor is asked to submit an offer, it should generally include an estimate of how much the project will cost i.e. a pricing proposal. If we look back to the case of construction, the fundamental cost elements include an estimate of materials and labor for a specific project. For this, the FAR has a special document intended for this use, which is known by the name of Certificate of Current Cost or Pricing Data.
In FAR 15.406-2 in 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 knowledge, the cost outline that you've provided is correct. Also, this certificate is only valid for prime contracts exceeding $2 million , which were issued on or on or after July 1, 2018. Let's review the specific guidelines that govern this document:
Section 5
This section is FAR 15 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 when this certification does not have to be provided, however, a handful of them are:
If the contracting officer decides that prices agreed upon are an elaboration of prices set by regulation or law
When a commercial service or commercial service is purchased
When changing a contract or subcontract for commercial products or services
You can refer FAR 15.403-1 for the complete list, but in the simplest form, for those who's contract does not require a certificate of the current price or cost data, Section 5 needs to explain the specific exemption that permits you to bypass the certificate , and what basis your contract falls within that exception.