Documenting Negotiations In Accordance With FAR 15.406-3

If you're an employee of the U.S. Government you've almost surely dealt with FAR also known as the Federal Acquisition Regulation. This dense legal document contains the rules of regulations and guidelines that Government officials and prime contractors must follow when working with each other.

In this article we'll go over a particular section that focuses on an essential step in any negotiations between Government and the prime contractor: the record of that negotiations.

Because the burden of the responsible use of Government funds is the contractor in charge It is essential that they are thorough and precise in the documentation of negotiations.

There is a chance that discrepancies will be found in a Contractor Purchasing System Review, also known as a CPSR. This review process makes sure that the principal contractor spends tax payer money efficiently.

By following this guideline, you'll be able make a complete record of negotiation which is in compliance with FAR 15.406-3 that is especially important for contracting officers, who are responsible for creating and submitting required documentation to an official contract file.

What does each price-negotiating memorandum have?
In total, the document that is discussed in this article is referred to as the Price Negotiation Memorandum, or PNM for short. As outlined in FAR 15.406-3, the PNM is made of eleven fundamental elements:

Section 1
The first paragraph is pretty straightforward, as it just declares the main purpose of the negotiation. The objectives of negotiation could be diverse depending on the situation, like the negotiation of one new contract on sole source basis, negotiation of an equitable adjustment or adjustment. These are determined during the prenegotiation objective phase which is outlined as part of FAR 15.406-1.

Section 2
The section must describe the acquisition itself that could comprise of goods, services, construction or even real property that the Government aims to acquire. This should include all pertinent identified numbers. "Identifying numbers" includes things like"RFP" (Request to Proposal) numbers, which are referring on the precise proposal document that FAR 15 the contractor is proposing.

Section 3
This section must include the name, position and organization of every person representing the principal contractor and the Government in the negotiation.

Section 4
In this section, you should discuss the state of affairs of all contractor systems that are relevant to the negotiation. This might include accounting, purchasing, estimating, and/or compensation; the section should clearly describe how these systems related to the negotiation and the extent to which they were thought of.

What portion of FAR refers to contract pricing?
The two following sections are kind of connected to each other, and so we'll start by looking at the document that they refer to. When a prime contractor files bids, they should generally contain an estimate of what the job will cost i.e. a pricing proposal. When we think back to the construction example, the fundamental cost elements would be an estimate of labour and materials to complete a particular task. In this case the FAR has a distinct document for this purpose known as the Certificate of Price or Cost Current Data.

In FAR 15.406-2 you can find a template for the certificate. It includes your firm's name and the lines for your name or 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 submitted is correct. Also, this certificate is only valid for prime contracts that exceed $2 million granted the 1st of July, 2018. Let's examine the specific guidelines that apply to this document:

Section 5
This section addresses instances in which the certificate of actual pricing or cost data did not have to be used to determine reasonable contract prices even though the contract awarded exceeded the threshold of $2 million. FAR 15.403-1 lists the circumstances that this certificate is not required. Some examples are:

If the contracting office determines that the agreed-upon prices are in accordance with prices established by regulation or law

If a commercial product or commercial service has been purchased

Modifying or modifying a contract or subcontract for commercial products or services

You may refer to the FAR 15.403-1 for the full list of requirements, however, should your contract does not require a certification of the current price or cost data, Section 5 should to identify the specific exception that permits you to bypass the certificate , and what basis your contract falls within that exception.