Documenting Negotiations In Accordance With FAR 15.406-3

If you are contractors working with authorities from U.S. Government you've almost definitely dealt with the FAR, that is the Federal Acquisition Regulation. This hefty legal document covers the rules of regulations and guidelines that Government officials and prime contractors have to follow when working together.

In this article we'll go over a particular section that focuses on an essential step in any negotiation between Government and prime contractor: the record of that negotiation.

The responsibility for prudent spending of Government funds is the responsibility of the principal contractor, it's critical to be exact and thorough when documenting 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 principal contractor is spending taxpayer money efficiently.

In this article you'll learn how to make a full documentation of negotiation that's compliant with FAR 15.406-3 and is especially important for contracting officers who are responsible for gathering and submitting the required papers to the contract file.

What are the essential elements that each price negotiations memorandum be?
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 from the negotiation of one new contract with the basis of sole source or the negotiation of an equitable 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 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 that 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, discuss the status of any contractor systems that may be relevant during the process of negotiation. This might include accounting, buying, estimating or compensation. The section should describe in detail how these systems impacted the negotiation and in what extent they were examined.

What section of FAR addresses contract pricing?
The following two sections are somewhat related, so we'll first cover the document in relation to. If a prime contractor puts out bids, they must usually contain an estimate of what the job will cost i.e. a pricing proposal. If we go back to the construction example, the most fundamental elements of cost include an click here estimate of materials and labor to complete a particular task. In this context, the FAR provides a specific document that is specifically designed for this function, known by the name of Certificate of Price or Cost Current Data.

In FAR 15.406-2 there is an example of the certificate , which contains names of the firm and lines for your name and signature. and date of signing. The certificate confirms that, from your knowledge, the cost outline that you've submitted is accurate. Also, this certificate is only required for prime contracts that exceed 2 million dollars that were given on or following July 1, 2018. Let's review the specific guidelines that apply to this document:

Section 5
This section is referring to situations in which the certificate of current pricing or cost information is not required to establish reasonable contract prices , even if the contract signed exceeded the threshold of $2 million. FAR 15.403-1 outlines the instances where this certificate is not required. Some of them are:

When the contracting officer determines that the price agreed on is determined by regulation or law

In the event that a commercial product commercial service is acquired

If you want to modify a contract or subcontract to commercial services or products

You can refer to FAR 15.403-1 for the full list of requirements, but in a nutshell If your contract does not require a certification of the current price or cost data, Section 5 should to explain the specific exemption that allows you to skip the certificate as well as the basis your contract can be considered to meet that exemption.