Documenting Negotiations In Accordance With FAR 15.406-3

If you're an contractor that works with government officials from the U.S. Government you've almost likely dealt with FAR also known as the Federal Acquisition Regulation. This hefty legal document covers the rules as well as regulations that both the government and prime contractors must adhere to when working together.

In this article, we'll break down a specific subsection that focuses on an essential step in any negotiation between Government and prime contractor: the record of that negotiations.

As the responsibility for responsible spending of Government funds rests with the contractor who is in charge that's why it's vital to be thorough and accurate in the record of negotiations.

Any irregularities could be discovered by a Contractor Purchasing System Review, commonly referred to as a CPSR. The process of reviewing ensures the prime contractor is spending tax payer money efficiently.

With this article, you'll be able write a comprehensive documentation of negotiation that's compliant with FAR 15.406-3 that is crucial 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 described herein is known as a Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM comprises 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 the negotiation of an equitable adjustment, etc. These are determined during the prenegotiation objective phase which is described within FAR 15.406-1.

Section 2
This section should outline the actual acquisition and could include the construction, goods, or services or even real estate that the Government plans to acquire. This should include all pertinent numbering. "Identifying numbers" includes things such as"RFP" (Request to Proposal) numbers that are linked towards the exact proposal document for what the contractor will propose.

Section 3
This section must include the name, title and 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 specifically describe how they relate to the negotiation and how they were evaluated.

What section of FAR addresses contract pricing?
The next two sections are somewhat related as well, so we'll go over the document the two sections are a part of. When a prime contractor submits an offer, it should typically include an estimate of how much the project will cost i.e. a pricing proposal. If we look back to the construction example, the fundamental cost elements include an estimate of the materials and labor required for a specific project. For this, the FAR has a distinct document intended for this use, which is known as the 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 the lines for your name or title, signature and date of signing. This certificate affirms that, from your understanding, the cost outline which you've prepared is true. In addition, this certificate is only valid for prime contracts that exceed $2 million which were given on or on or after July 1, 2018. We will look over the specific guidelines that apply to this document:

Section 5
This section covers instances where the certification of actual cost or pricing information was not needed to establish acceptable contract prices , even if the contract award was over 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 more info is purchased

When changing a contract or subcontract to commercial services or products

You can refer FAR 15.403-1 for the complete list, but in the simplest form, for those who's contract does not require a certificate of the current price or cost data, Section 5 needs to explain the specific exemption that permits you to bypass the certificate , and what basis your contract falls within that exception.

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