If you're a contractor who works for or for the U.S. Government you've almost certain dealt with FAR which is also known as Federal Acquisition Regulation. This lengthy legal document regulates the rules and regulations that government agencies and prime contractors must follow when working together.
In this article, we'll detail a particular section that focuses on an essential step in any negotiation between Government and the prime contractor: the documentation of said negotiation.
Since the responsibility for proper spending of Government funds is on the prime contractor therefore it's crucial to be precise and thorough 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 does each price-negotiating memorandum include?
The documents that are discussed within this piece is known as the price Negotiation Memorandum, or PNM for short. As outlined in FAR 15.406-3 The PNM is made of eleven primary elements:
Section 1
The first part is quite easy, as it describes the goal of the negotiation. Purposes of negotiation can vary in the case of negotiation of one new contract with a sole source basis as well as negotiation of an equitable adjustment, etc. This is first decided during the objective phase prior to negotiation which is described by FAR 15.406-1.
Section 2
This should include the acquisition itself that could comprise of products, services, construction, or even real estate that the government aims to purchase, with all necessary identification numbers. "Identifying numbers" includes things such as the RFP (Request to Proposal) numbers that point directly to the particular proposal document to describe what the contractor will propose.
Section 3
This section must include the name, position and the 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 click here specifically describe how these systems relate to the negotiation and in what extent they were assessed.
What section of FAR addresses contract pricing?
The two following sections are kind of connected, so we'll first cover the document that they pertain to. When a prime contractor makes an offer, it should typically include an estimate of the amount of work to cost i.e. a pricing proposal. If we go back to the case of construction, the main cost elements will be an estimate on the labor and materials required on a specific task. In this particular instance the FAR provides a specific document with this particular purpose, known by the name of Certificate of Current Cost or Pricing Data.
In FAR 15.406-2 you can find a template of the certificate that includes your firm's name and lines for your name the title, signature as well as the date on which you signed. The certificate confirms that, as far as you can knowing, the outline of costs which you've prepared is true. In addition, this certificate is only required for prime contracts in excess of the amount of $2 million and granted following July 1, 2018. Take a look at the specific guidelines for this document:
Section 5
The section deals with instances when the certificate of the current pricing or cost information was not necessary to determine reasonable contract pricing, even though the contract was awarded in excess of the threshold of $2 million. FAR 15.403-1 gives examples of instances where the certificate of current cost or pricing data isn't necessary, but 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 purchased
When changing a contract or subcontract for commercial services or products
You can consult FAR 15.403-1 for the full list of requirements, but in a nutshell If your contract doesn't require a certificate of current cost or pricing data, Section 5 will need to define the specific exception which allows you to not need certification and on what basis your contract can be considered to meet that exemption.