If you are an employee of an agency of U.S. Government you've almost certain dealt with FAR, or Federal Acquisition Regulation. This lengthy legal document governs the rules, rules, of regulations and guidelines that Government officials and prime contractors have to follow when working together.
In this article we'll go over a particular section that covers a critical step in any negotiation between Government and prime contractor: the record of that negotiation.
As the responsibility for prudent spending of Government funds is the responsibility of the principal contractor that's why it's vital to be exact and thorough when documenting negotiations.
The discrepancies could be discovered through a contractor Purchasing System Review, otherwise known as a CPSR. This review process makes sure that the principal contractor spends taxpayer money effectively.
If you follow this article, then 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 gathering and submitting the required documents to the official contract file.
What will each price negotiation memorandum be?
As a whole, the document that is discussed herein is known as a Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM is composed of eleven essential elements.
Section 1
The first section is 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 as well as other such. These are determined first during the prenegotiation objective stage, which is described by FAR 15.406-1.
Section 2
This section must outline the acquisition in its entirety comprising materials, services, construction or even real estate which the government plans to acquire. It should include all appropriate identifiable numbers. "Identifying numbers" includes things like"RFP" (Request for Proposal) numbers that relate on the precise proposal document for what the contractor has to offer.
Section 3
This section must include the name, title and affiliation of each person who represents an individual contractor, as well as the Government in negotiations.
Section 4
In this section, discuss the present state of any contractor systems which are relevant for the discussion. This might include accounting, purchasing, estimation 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 parts are in some way related, so we'll first cover the document which they relate to. When a prime contractor files bids, they should usually contain an estimate of how much the task will cost i.e. a pricing proposal. In the example of construction the main cost elements could be an estimate for material and labor costs for a particular task. In this case it is the FAR provides a specific document to be used for this purpose, referred to by the name of Certificate of Price or Cost Current Data.
In FAR 15.406-2 You can find an example of the document that contains the more info name of the company along with lines for your own name and signature. and date of signature. The certificate confirms that, as far as you can knowledge, the cost outline that you've submitted is correct. In addition, this document is only valid to be submitted for prime contracts of greater than $2 million , which were granted 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 current cost or pricing data was not needed to establish acceptable contract prices , even if the contract that was awarded exceeded the $2 million threshold. FAR 15.403-1 outlines the instances in which this certificate does not have to be provided, however, a handful of them include:
If the contracting officer decides that prices agreed upon are an elaboration of prices set by law or regulation
In the event that a commercial product commercial service is purchased
When changing a contract or subcontract to commercial services or products
You can refer to 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 the basis your contract will be able to benefit from that exception.