If you are a contractor who works for or for the U.S. Government you've almost surely dealt with FAR in other words, the Federal Acquisition Regulation. This hefty legal document regulates the rules and regulations that the Government and prime contractors must adhere to when working with each other.
In this article, we'll detail a particular section that focuses on an essential step in any negotiation between Government and the prime contractor: the documentation of that negotiation.
The responsibility for responsible spending of Government funds is on the principal contractor, it's critical to be thorough and accurate in the recording of negotiations.
Any discrepancies may be discovered in a Contract Purchasing System Review, which is also known as a CPSR. This process of review ensures that the contractor that is the primary contractor is spending taxpayer money in a responsible manner.
In this article you'll have the ability to make a full documentation of negotiation which is in compliance with FAR 15.406-3 This is especially important for contracting officers, who are accountable for creating and submitting required papers to the contract file.
What should each price negotiation memo contain?
The document discussed in this article is referred to as a Price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 The PNM comprises eleven fundamental elements:
Section 1
The initial section is simple and simply describes the goal of the negotiation. The goals of negotiation can differ, such as the negotiation of one new contract with a sole source basis or negotiation of an equity adjustment and so on. These are determined first during the prenegotiation goal phase that can be found in Federal Regulation 15.406-1.
Section 2
This section should outline the purchase itself it could be comprised of materials, services, construction or even real estate that the Government plans to acquire, including all relevant identification numbers. "Identifying numbers" includes things such as"RFP" (Request for Proposal) numbers, which are referring specifically to the proposal document for what the contractor is proposing.
Section 3
The document must contain the name, title, and organization of each person representing the prime contractor and the Government in the negotiations.
Section 4
In this sectionyou will need to describe the current state of contractor systems which are relevant with the negotiation. This might include accounting, purchasing, estimation or compensation. The section should describe in detail how these systems related to the negotiation and in what extent they were evaluated.
What portion of the FAR deals with contract pricing?
The two following sections are sort of related which is why we'll first look at the document that they pertain to. When a contractor is asked to submit an offer, it should generally contain an estimate of what the job is expected to cost i.e. a pricing proposal. When we think back to the example of construction one of the key elements in a cost proposal could be an estimate for supplies and labor needed for a particular job. For this it is the FAR has a distinct document intended for this use, which is known by the name of Certificate of Current Cost or Pricing Data.
In FAR 15.406-2 You can find an example of the certificate which includes the name of the firm as well as lines for your name or title, signature and date of signature. This certificate acknowledges that, at the very best of your knowing, the outline of costs you have submitted is accurate. Additionally, this certification is only required for prime contracts with a value of more than $2 million that were granted on or the 1st website of July, 2018. Let's 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 necessary to determine acceptable contract costs even though the contract signed exceeded the $2 million threshold. FAR 15.403-1 outlines the instances in which this certificate isn't needed, however a few examples are:
If the contracting office determines that the prices agreed upon are based on prices set by regulation or law
When a commercial item or commercial service is being acquired
In the event of modifying a contract or subcontract for commercial products or services
The FAR 15.403-1 for the complete list, however, should your contract doesn't require a certified copy of current cost or pricing data, Section 5 will need to identify the specific exception that permits you to bypass the certificate , and what basis your contract meets that requirement.