If you are a contractor who works for the U.S. Government you've almost certain dealt with FAR, or Federal Acquisition Regulation. This lengthy legal document regulates the rules and regulations that both Government agencies and prime contractors are required to adhere to when working with each other.

In this article we'll look at a specific sub-section that addresses a crucial step in any negotiation between Government and the prime contractor: the record of said negotiation.

The responsibility for accountable spending of Government funds rests with the contractor of the first resort, it's critical to be precise and thorough in the documentation of negotiations.

Any irregularities could be discovered during a Contractor Purchasing Systems Review, commonly referred to as a CPSR. The process of reviewing ensures the principal contractor is using taxpayer funds in a way that is efficient.

Using this article, you'll have the ability to make a full documentation of negotiation that's in line with FAR 15.406-3 which is crucial for contracting officers who are accountable for collecting and submitting the necessary papers to the contract file.

What should each price negotiation memorandum have?
As a whole, the document described in the article can be known as a Price Negotiation Memorandum, or PNM for short. In FAR 15.406-3, the PNM is composed of eleven principal elements:

Section 1
This section is relatively simple, since it simply clarifies the intent of the negotiation. The reasons for negotiation may differ and include negotiation of a new contract on an sole source basis or negotiation of an equity adjustment, etc. They are determined in the prenegotiation goal phase that can be found in FAR 15.406-1.

Section 2
The section must describe the purchase itself it could be comprised of materials, services, construction, or even real estate that the Government aims to procure including all appropriate identifiable numbers. "Identifying numbers" includes things such as RFP (Request for Proposal) numbers that point to the specific proposal document for what the contractor proposes.

Section 3
The section should include the name, title and the organization of every person who represents both the prime contractor and Government during the negotiation.

Section 4
In this sectionyou will need to describe the current state of contractor systems that relate for the discussion. This could be purchasing, estimating, accounting, and/or compensation; the section should clearly describe how these systems relate to the negotiation and how they were thought of.

What portion of the FAR concerns contract pricing?
The following two parts are in some way related, so we'll first cover the document which they relate to. If a prime contractor puts out bids, they must generally contain an estimate of what the job will cost i.e. a pricing proposal. If we go back to the instance of construction, the primary cost elements will be an estimate of the labor and materials required for a particular job. In this particular instance the FAR has a special document intended for this use, which is known as the Certificate of Current Cost or Pricing Data.

In FAR 15.406-2 in FAR 15.406-2, you can find an example of the certificate that includes the name of the firm along with lines for your own name and signature. and date of signature. This certificate acknowledges that, as far as you can knowing, the outline of costs you have submitted is accurate. This certificate is only required to be submitted for prime contracts of greater than $2 million that read more were awarded on or after July 1, 2018. Let's take a look at the specific guidelines for this document:

Section 5
This section refers to instances where the certificate of current pricing or cost information was not necessary to determine acceptable contract pricing, even though the contract was awarded in excess of the threshold of $2 million. FAR 15.403-1 gives examples of instances that this certificate is not required. Some examples are:

The contracting officer will determine that the agreed-upon prices are based on prices set by law or regulation

In the event that a commercial product commercial service is acquired

If you are changing the terms of a contract or subcontract to commercial services or products

You can refer to FAR 15.403-1 for the complete list, but in the simplest terms, If your contract does not need a proof of current cost or pricing data, Section 5 must be able to provide the specific reason that lets you avoid the certificate and which basis your contract fits that exception.