If you are an contractor that works with Government officials of the U.S. Government you've almost probably dealt with FAR also known as the Federal Acquisition Regulation. This dense legal document contains the rules and regulations that Government as well as prime contractors must adhere to when working together.
In this article we'll go over a particular section that covers a critical step in any negotiation between Government and the prime contractor: the record of that negotiation.
As the responsibility for prudent spending of Government funds rests with the principal contractor therefore it's crucial to be thorough and accurate in the record of negotiations.
Any irregularities could be discovered by a Contractor Purchasing System Review, commonly referred to as a CPSR. The review process is designed to ensure that the contractor that is the primary contractor is spending taxpayer funds in a way that is efficient.
In this article you'll learn how to prepare a complete documentation of negotiation that is compliant with FAR 15.406-3, which is particularly relevant for contracting officers, who are responsible for collecting and submitting the necessary documentation to an official contract file.
What are the essential elements that each price negotiations memorandum be?
As a whole, the documents discussed within this piece is known as a price Negotiation Memorandum, or PNM for short. In FAR 15.406-3, the PNM is composed of 11 major elements:
Section 1
This first section is fairly simple and simply defines the reason for the negotiation. Negotiation's purpose can be varied in the case of negotiation of an agreement for a new contract with the basis of sole source or the negotiation of an equitable adjustment as well as other such. These are determined first during the objective phase prior to negotiation which is detailed as part of FAR 15.406-1.
Section 2
This section should describe the acquisition itself, which could consist of items, services, construction, or even real estate that the Government aims to procure including all appropriate identifying numbers. "Identifying numbers" includes things such as RFP (Request to Proposal) numbers, which are referring specifically to the proposal document to describe what the contractor proposes.
Section 3
The document must contain the name, position, and organization of each person representing the contractor as the primary contractor and also the Government during the negotiation.
Section 4
In this section, describe the current status of any contractor systems which are relevant with the negotiation. This might include accounting, buying, estimating 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 contain an estimate of what the job will cost i.e. a pricing proposal. If we go back to the instance of construction, the primary cost elements will be an estimate of the labor and materials required for a here particular job. In this context the FAR has a specific document for this purpose known as the Certificate of Price or Cost Current Data.
In FAR 15.406-2 you will find an example of the certificate , which contains the name of the firm along with lines for your own name and signature. and date of signature. This certificate acknowledges that, as far as you can knowledge, the cost outline that you've submitted is correct. In addition, this document 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 referring to situations where the certification of actual cost or pricing information wasn't required to determine reasonable contract price, even though contract award was over the $2 million threshold. FAR 15.403-1 describes the situations where this certificate isn't required but a few of them include:
If the contracting official determines that the prices agreed to are an elaboration of prices set by regulation or law
When a commercial service or commercial service is being acquired
In the event of modifying any contract or subcontract for commercial services or products
You can refer FAR 15.403-1 for the complete list, but , in essence, if your contract doesn't require a certified copy of current pricing or cost information, Section 5 has to specify the particular exception which lets you skip the certificate and which basis your contract meets that requirement.