If you're contractors working with the U.S. Government you've almost surely dealt with FAR which is also known as Federal Acquisition Regulation. This dense legal document contains the rules and regulations that government agencies and prime contractors are required to adhere to when working together.
In this article, we'll examine a specific section that covers a critical step in any negotiation between Government and the prime contractor: the documentation of said negotiations.
As the responsibility for proper spending of Government funds is the principal contractor so it is crucial to be thorough and accurate in the record of negotiations.
Any discrepancies may be discovered in a Contractor Purchasing System Review, or a CPSR. The process of reviewing ensures the principal contractor is spending taxpayer funds in a way that is efficient.
Using this article, you'll be able make a full documentation of negotiation that's in line with FAR 15.406-3 which is particularly crucial for contracting officers who are charged with creating and submitting required documents to the official contract file.
What are the essential elements that each price negotiations memo contain?
The documentation discussed herein is referred to as the Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3, the PNM is composed of eleven main elements:
Section 1
This section is relatively easy to comprehend, as it defines the reason for the negotiation. Purposes of negotiation can vary from the negotiation of the new contract on an sole source basis or the negotiation of an equitable adjustment as well as other such. These are determined first during the prenegotiation objective stage, which is described within FAR 15.406-1.
Section 2
This section should outline the acquisition itself and could include items, services, construction or even real property that the Government is planning to acquire. It should include all appropriate specific numbers. "Identifying numbers" includes things such as"RFP" (Request for Proposal) numbers which refer in the target proposal document that the contractor has to offer.
Section 3
The document must contain the name, title and organization of every person representing the prime contractor and the Government in the negotiation.
Section 4
In this section, you should discuss the status of any contractor systems that relate to negotiations. This could include purchasing, estimating, accounting, and/or compensation; the section should describe in detail how these systems are related to the negotiation and in what extent they were assessed.
What section of the FAR covers contract pricing?
The next two parts are in some way related, so we'll first cover the document that they pertain to. When a contractor is asked to submit bids, they must generally include an estimate of what the job is expected to read more cost i.e. a pricing proposal. In the construction industry, the most fundamental elements of cost will be an estimate on material and labor costs for a particular task. In this case, the FAR contains a specific document that is specifically designed for this function, known as the Certificate of Current Cost or Pricing Data.
In FAR 15.406-2 you can locate an example of the certificate , which contains your firm's name and lines for your name as well as your signature, title, and the date you signed. The certificate confirms that, in your best knowing, the outline of costs that you've provided is true. Furthermore, this certificate is only valid for prime contracts with a value of more than $2 million which were given after July 1, 2018. Let's take a look at the specific guidelines that govern this document:
Section 5
The section deals with instances in which the certificate of actual pricing or cost data was not required to determine acceptable contract prices even though the contract granted exceeded the $2 million threshold. FAR 15.403-1 lists the circumstances in which this certificate is not required, but some of them are:
When the contracting officer determines that prices agreed upon are from prices determined by law or regulation
When a commercial service or commercial service is being purchased
When changing a contract or subcontract for commercial products or services
You can refer the FAR 15.403-1 for the complete list, but in the simplest terms, If your contract doesn't require a certificate of the current price or cost data, Section 5 should to specify the particular exception which lets you skip the certificate and the basis your contract meets that requirement.