If you are a contractor who works for or for the U.S. Government you've almost probably dealt with FAR, or Federal Acquisition Regulation. This hefty legal document provides the rules and regulations that Government and prime contractors must follow when working together.
In this article we'll dissect a particular subsection that focuses on an essential step in any negotiation between Government and the prime contractor: the documentation of the negotiations.
Because the burden of responsible spending of Government funds is the responsibility of the contractor of the first resort therefore it's crucial that they are thorough and precise in the recording of negotiations.
There is a chance that discrepancies will be found in a Contract Purchasing System Review, which is also known as a CPSR. This review process makes sure that the contractor in charge is spending taxpayer funds in a way that is efficient.
If you follow this article, then you'll have the ability to make a full documentation of negotiation that is compliant with FAR 15.406-3 This is particularly relevant for contracting officers who are charged with creating and submitting required document to be included in the contract file.
What must each price negotiation memorandum include?
In total, the document described in the article can be referred to as the Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3, the PNM is composed of eleven principal elements:
Section 1
The first paragraph is pretty straightforward, as it just describes the goal of the negotiation. The goals of negotiation can differ and include negotiation of an entirely new contract on an sole source basis as well as negotiation of an equitable adjustment and more. This is first decided during the prenegotiation objectives phase, which is defined in FAR 15.406-1.
Section 2
This section must outline the acquisition itself comprising the construction, goods, or services or even real estate that the government aims to purchase, with all necessary identified numbers. "Identifying numbers" includes things such as"RFP (Request to Proposal) numbers that are linked in the target proposal document that the contractor will propose.
Section 3
The document must contain the name, position, and organization of each person who represents the principal contractor and the government in the negotiation.
Section 4
In this part, we will discuss click here the current state of any contractor systems that relate to the negotiation. This might include purchasing, estimating, accounting and/or compensation. The section should specify how these systems impacted the negotiation and how they were evaluated.
What portion of the FAR refers to contract pricing?
The next two sections are somewhat related, so we'll first cover the document which they relate to. When a prime contractor submits bids, they must usually contain an estimate of how much the job will cost i.e. a pricing proposal. When we consider the example of construction the primary cost elements would be an estimate of the materials and labor required for a specific job. In this instance the FAR has a special document intended for this use, which is known as the Certificate of Price or Cost Current Data.
In FAR 15.406-2 you will find an example of the certificate that includes your firm's name and lines for your name as well as your signature, title, as well as the date on which you signed. This certificate acknowledges that according to your knowledge, the information in the cost outline which you've prepared is accurate. This certificate is only valid for prime contracts with a value of more than 2 million dollars that were awarded on or following July 1, 2018. Let's review the specific guidelines that apply to this document:
Section 5
This section is referring to situations when the certificate of the current cost or pricing data wasn't required to determine acceptable contract costs even though the contract that was awarded exceeded the threshold of $2 million. FAR 15.403-1 outlines the instances that this certificate isn't necessary, but a few of them include:
If the contracting official determines that the prices agreed to are from prices determined by regulation or law
When a commercial item or commercial service is purchased
When modifying or modifying a contract or subcontract for commercial products or services
You can refer the FAR 15.403-1 for the full list, but in the simplest form, should your contract does not require a certification of current pricing or cost data, Section 5 will need to identify the specific exception which lets you skip the certificate and the basis your contract fits that exception.