If you're a contractor working with authorities from U.S. Government you've almost surely dealt with FAR, or Federal Acquisition Regulation. This lengthy legal document regulates 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 which focuses on a key element in any negotiation between Government and prime contractor: the documentation of that negotiations.
Since the responsibility of responsible spending of Government funds rests with the contractor who is in charge 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 money efficiently.
Using this article, you will be able to create a complete document of negotiations that is in compliance with FAR 15.406-3 This is especially important for contracting officers who are charged with collating and submitting the required papers to the contract file.
What are the essential elements that each price negotiations memorandum include?
The documents that are discussed within this piece is known as the Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM comprises eleven primary 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 and include negotiation of a new contract on an sole source basis or negotiation of an equity adjustment, etc. The purpose of negotiation is determined at the prenegotiation goal phase that is outlined within FAR 15.406-1.
Section 2
The description should be of the actual acquisition and could include the construction, goods, or services, or even real estate that the Government plans to purchase, with all necessary identification numbers. "Identifying numbers" includes things such as the RFP (Request to Proposal) numbers that are linked towards the exact proposal document for what the contractor will propose.
Section 3
This section must include the name, title and organization of every person who represents both the prime contractor and Government in the negotiations.
Section 4
In this part, we will discuss the state of affairs of all contractor systems that relate to negotiations. This might include accounting, purchasing, estimation and/or compensation. The section should specifically describe how these systems relate to the negotiation and how they were examined.
What part of the FAR covers contract pricing?
The next two sections are a bit related which is why we'll first look at the document that they pertain to. If a prime contractor puts out bids, they must generally contain an estimate of how much the task will cost i.e. a pricing proposal. In the instance of construction, the main cost elements are an estimate of material and labor costs for FAR 15 a particular task. 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 names of the firm as well as lines for your name, 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 after July 1, 2018. Let's take a look at the specific guidelines for this document:
Section 5
This section refers to instances when the certificate of the current pricing or cost information was not required to determine acceptable contract costs even though the contract granted exceeded the threshold of $2 million. FAR 15.403-1 defines the scenarios when this certification isn't needed, however a few of them are:
When the contracting officer determines that the prices agreed on are basing on the prices set by regulation or law
When a commercial service or commercial service is being acquired
When changing a contract or subcontract for commercial products or services
You can refer the 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 will be able to benefit from that exception.