If you are an individual contractor working for or for the U.S. Government you've almost surely dealt with FAR or the Federal Acquisition Regulation. This dense legal document regulates the rules as well as regulations that both the government and prime contractors have to follow when working with each other.
In this article, we'll break down a specific subsection that covers a critical step in any negotiations between Government and prime contractor: the record of that negotiation.
Since the burden of prudent spending of Government funds falls on the principal contractor, it's critical to be meticulous and exact when capturing negotiations.
The discrepancies could be discovered in a Contractor Purchasing System Review, or a CPSR. The review process is designed to ensure that the principal contractor is spending tax payer money efficiently.
Utilizing this article, you'll learn how to prepare a complete documentation of negotiation which is in compliance with FAR 15.406-3 that is particularly crucial for contracting officers, who are accountable for taking and submitting all required papers to the contract file.
What will each price negotiation memorandum comprise?
In total, the documents discussed within this piece is known as a price Negotiation Memorandum, or PNM for short. As outlined in FAR 15.406-3 The PNM comprises eleven principal elements:
Section 1
The initial section is easy to comprehend, as it describes the goal of the negotiation. The purpose of negotiations can be different, such as the negotiation of an agreement for a new contract with sole source basis or negotiation of an equitable adjustment and more. They are first determined during the prenegotiation objective phase which is defined by FAR 15.406-1.
Section 2
The section must describe the acquisition in its entirety that may comprise items, services, construction, or even real estate that the government aims to acquire. This should include all pertinent identifiable numbers. "Identifying numbers" includes things like RFP (Request to Proposal) numbers, which are referring specifically to the proposal document for what the contractor is proposing.
Section 3
The section should include the name, position, and organization of each person representing the principal contractor and the Government during the negotiation.
Section 4
In this sectionyou will need to describe the current status of any contractor systems that are relevant with the negotiation. This might include accounting, buying, estimating or compensation. The section should be specific about how these systems are related to the negotiation and the extent to which they were assessed.
What section of FAR addresses contract pricing?
The next two sections are somewhat related which is why we'll first look at the document that they pertain to. When a contractor is asked to submit bids, they must 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 are an estimate of the labor and materials required for a 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 there is an example of the certificate which includes the name of your company as well as lines for your name along with your title, signature and the date you signed. This certification acknowledges that according to your knowledge, the information in the cost outline that you are submitting is accurate. Furthermore, this certificate is only required for prime contracts with a value of more than 2 million dollars that were given following July 1, 2018. Let's take a look at the specific guidelines for this document:
Section 5
This section refers to instances where the certificate of current pricing or cost information was not required to determine acceptable contract costs even though the contract award was over the $2 million threshold. FAR 15.403-1 defines the scenarios in which the certificate isn't necessary, but a few of them are:
If the contracting official determines that the prices agreed upon are basing on the prices set by regulation or law
If a product or commercial service has been purchased
When changing the terms of a contract or subcontract to commercial services or products
You can refer to FAR 15.403-1 for the complete list, but in click here the simplest terms, in the event that your contract does not require certification of current pricing or cost data, Section 5 will need be able to provide the specific reason which allows you to not need the certificate , and what basis your contract fits that exception.