Documenting Negotiations In Accordance With FAR 15.406-3

If you're contractors working with authorities from U.S. Government you've almost surely dealt with FAR, or Federal Acquisition Regulation. This lengthy legal document governs the rules, rules, and regulations that both Government agencies and prime contractors have to follow when working together.

In this article we'll go over a particular section that covers a critical step in any negotiation between Government and prime contractor: the record of that negotiations.

As the responsibility for prudent spending of Government funds is the responsibility of the principal contractor that's why it's vital to be exact and thorough when documenting negotiations.

The discrepancies could be discovered by a Contractor Purchasing System Review, otherwise known as a CPSR. This process of review ensures that the principal contractor is spending taxpayer money efficiently.

Using this article, you will be able to prepare a complete documentation of negotiations that is in compliance with FAR 15.406-3, which is especially important for contracting officers who are charged with taking and submitting all required paperwork to the contract file.

What is the price negotiation memo contain?
In total, the document discussed in this essay is referred to as a price Negotiation Memorandum, or PNM for short. According to FAR 15.406-3 The PNM is made of eleven primary elements:

Section 1
The first paragraph is pretty easy, as it describes the goal of the negotiation. The goals of negotiation can differ, such as the negotiation of an entirely new contract on only a single source basis or negotiation of an equitable adjustment or adjustment. These are determined during the objective phase of negotiation, which is defined in the FAR 15.406-1.

Section 2
This section must outline the acquisition in its entirety and could include products, services, construction, or even real estate that the Government aims to procure including all appropriate identified numbers. "Identifying numbers" includes things like the RFP (Request to Proposal) numbers that are linked directly to website the particular proposal document for what the contractor will propose.

Section 3
This section must include the name, position and the organization of every person who represents both the prime contractor and Government in the negotiation.

Section 4
In this sectionyou will need to describe the present state of any contractor systems that are relevant with the negotiation. This might include accounting, purchasing, estimation or compensation. The section should be specific about how these systems are related to the negotiation and the extent to which they were assessed.

What portion of FAR refers to contract pricing?
The two following sections are sort of related to each other, and so we'll start by looking at the document that they refer to. When a principal contractor sends bids, they usually include an estimate of 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 labour and materials on a specific task. In this instance it is the FAR contains 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 you will find an example of the certification that has the name of the business and lines for your name the title, signature as well as the date on which you signed. 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 in excess of $2 million given on or the 1st of July, 2018. Let's examine the specific guidelines that apply to this document:

Section 5
This section addresses instances in which the certificate of actual pricing or cost data is not required to establish reasonable contract prices even though the contract signed exceeded the threshold of $2 million. FAR 15.403-1 provides examples of situations in which the certificate is not required, but some examples are:

If the contracting official determines that the price agreed on is based on prices set by law or regulation

When a commercial product or commercial service is being purchased

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

You can consult FAR 15.403-1 for the complete list of requirements, but in the simplest terms, If your contract does not need a proof of current cost or pricing data, Section 5 must be able to provide the specific reason that lets you avoid the certificate as well as the basis your contract fits that exception.