If you are an contractor that works with an agency of U.S. Government you've almost certain dealt with FAR in other words, the Federal Acquisition Regulation. This lengthy legal document defines the rules of regulations and guidelines that Government officials as well as prime contractors must adhere to when working with each other.
In this article, we'll examine a specific section that addresses a crucial step in any negotiations between Government and the prime contractor: the documentation of said negotiation.
As the responsibility for responsible spending of Government funds falls on the prime contractor therefore it's crucial to be meticulous and exact in the recording of negotiations.
Uncertainties could be uncovered in a Contractor Purchasing System Review, also known as a CPSR. This review process ensures that the principal contractor spends taxpayer funds in a way that is efficient.
Using this article, you'll have the ability to prepare a complete documentation of negotiation that's compliant with FAR 15.406-3 This is especially important for contracting officers, who are responsible for creating and submitting required paperwork to the contract file.
What will each price negotiation memorandum contain?
The documents discussed throughout this post is known as a price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3, the PNM is composed of eleven primary elements:
Section 1
This first section is fairly simple and simply states the purpose of the negotiation. Purposes of negotiation can vary depending on the situation, like the negotiation of the creation of a new contract on a sole source basis, negotiation of an equitable adjustment and more. These are determined first during the prenegotiation objectives phase, which is outlined in the FAR 15.406-1.
Section 2
The description should be of the acquisition itself that could comprise of the construction, goods, or services or even real estate which the government is seeking to procure including all appropriate specific numbers. "Identifying numbers" includes things like the RFP (Request to Proposal) numbers that refer in the target proposal document that the contractor has to offer.
Section 3
The document must contain the name, title and affiliation of each person representing the principal contractor and the Government in the negotiations.
Section 4
In this section, you should discuss the state of affairs of all contractor systems that are relevant to negotiations. This could be accounting, buying, estimating or compensation. The section should specifically describe how these systems impacted the negotiation and the extent to which they were taken into consideration.
What section of FAR is concerned with contract pricing?
The following two parts are in some way related to each other, and so we'll start by looking at the document that they refer to. When a principal contractor sends bids, they generally include an estimate of how much the project will cost i.e. a pricing proposal. If we refer back to the example of construction, the basic cost elements would be an estimate of labour and materials on a specific task. In this regard the FAR has a specific document for this purpose known by the name of Certificate of Price or Cost Current Data.
In FAR 15.406-2 you can find an example of the certification that has the name of the business along with lines for your own name along with your title, signature as well as the date on which you signed. This certification acknowledges that from your knowledge, the information in the cost outline you're submitting is accurate. Additionally, this certification is only required for prime contracts with a value of more than $2 million which were here given after July 1, 2018. Take a look at the specific guidelines that govern this document:
Section 5
This section focuses on instances in which the certificate of current pricing or cost information wasn't required to determine acceptable contract price, even though contract signed exceeded the threshold of $2 million. FAR 15.403-1 defines the scenarios that this certificate is not required. Some of them include:
When the contracting officer is able to determine that the prices agreed upon are from prices determined by law or regulation
If a commercial product or commercial service is being acquired
If you are changing or modifying a contract or subcontract that deals with commercial products or services
The the FAR 15.403-1 for the full list of requirements, but in the simplest terms, in the event that your contract does not need a proof of current cost or pricing information, Section 5 is required to explain the specific exemption that allows you to skip certification and on what basis your contract falls within that exception.