Documenting Negotiations In Accordance With FAR 15.406-3

If you're contractors working with or for the U.S. Government you've almost certain dealt with FAR in other words, the Federal Acquisition Regulation. This lengthy legal document covers the rules of regulations and guidelines that Government officials 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.

Since the responsibility of responsible spending of Government funds rests with the principal contractor that's why it's vital to be thorough and accurate in the record of negotiations.

The discrepancies could be discovered by a Contractor Purchasing System Review, commonly referred to as a CPSR. This process of review ensures 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 are the essential elements that each price negotiations memorandum include?
The document that is discussed herein is known as the Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 the PNM comprises eleven essential elements.

Section 1
The first paragraph is pretty 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 with an sole source basis or negotiation of an equity adjustment, etc. They are determined in the objective phase prior to negotiation which can be found in FAR 15.406-1.

Section 2
The section must describe the acquisition itself that could comprise of products, services, construction, or even real estate that the Government aims to acquire, including all relevant identifying numbers. "Identifying numbers" includes things such as RFP (Request to Proposal) numbers, which are referring specifically to the proposal document to describe what the contractor is proposing.

Section 3
The document must contain the name, position as well as the organizational structure of each person representing the principal contractor and the Government during the negotiation.

Section 4
In this section, describe the current state of any contractor-related systems relevant for the discussion. This could be purchasing, estimating, accounting, and/or compensation; the section should describe in detail how these systems related to the negotiation and in what extent they were thought of.

What portion of the FAR deals with contract pricing?
The following two sections are sort of related which is why we'll first look at the document in relation to. When a prime contractor makes bids, they typically contain an estimate on how much the job will cost i.e. a pricing proposal. If we refer back to the example of construction, the basic cost elements will be an estimate on the materials and labor required for a specific project. In this regard it is the FAR has a specific document with this particular purpose, known as the Certificate of Price or Cost Current Data.

In FAR 15.406-2 there is an example of the certificate which includes names of the firm as well as lines for your name as well as your signature, title, as well as the date on which you signed. This certificate certifies that, at the very best of your knowledge, the cost estimate that you've provided is correct. Also, this certificate is only valid for prime contracts that exceed $2 million which were given on or the 1st of July, 2018. We will look over the specific guidelines that apply to this document:

Section 5
This section covers instances where the certificate of current pricing or cost information was not required to determine acceptable contract costs even though the contract granted exceeded the $2 million threshold. FAR 15.403-1 provides examples of situations when this certification isn't required but a few of them include:

If the contracting official determines that prices agreed upon are in accordance with prices established by regulation or law

If a product or commercial service is acquired

When modifying or modifying a contract or subcontract that deals with commercial products or services

You can refer FAR 15.403-1 for the complete list, but in a nutshell when your contract does not require a certification of the current price or cost data, more info Section 5 needs be able to provide the specific reason that permits you to bypass the certificate , and what basis your contract is in compliance with that exception.