Documenting Negotiations In Accordance With FAR 15.406-3

If you are an contractor that works with Government officials of the U.S. Government you've almost probably dealt with FAR which is also known as Federal Acquisition Regulation. The lengthy legal document provides the rules and regulations that the Government and prime contractors are required to adhere to when working with each other.

In this article we'll look at a specific sub-section which covers an important step in any negotiations between Government and the prime contractor: the documentation of said negotiations.

Because the burden of responsibly spending Government funds falls on the contractor of the first resort so it is crucial to be accurate and thorough in the recording of negotiations.

Uncertainties could be uncovered in a Contractor Purchase System Review, or a CPSR. The process for reviewing the contractor ensures the principal contractor is using taxpayer money in a responsible manner.

If you follow this article, then you'll be in a position to make a full documentation of negotiation which is in compliance with FAR 15.406-3 which is particularly crucial 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 section is straightforward, as it just clarifies the intent of the negotiation. The reasons for negotiation may differ depending on the situation, like the negotiation of the new contract on sole source basis or negotiation of an equitable adjustment and so on. This is first decided during the objective phase of negotiation, which is described by FAR 15.406-1.

Section 2
This section should outline the acquisition in its entirety comprising materials, services, construction or even real estate which the government plans to acquire. This should include all pertinent identifiable numbers. "Identifying numbers" includes things like"RFP" (Request for Proposal) numbers that relate on the precise proposal document for what the contractor has to offer.

Section 3
The section should include the name, title and affiliation of each person representing either the contractor who is the prime contractor or the Government in negotiations.

Section 4
In this section, you should discuss the current state of contractor-related systems that are pertinent to the negotiation. This could include accounting, purchasing, estimating, and/or compensation; the section should specify how these systems impacted the negotiation and in what extent they were taken into consideration.

What portion of the FAR is concerned with 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. If a prime contractor puts out a bid, it must usually contain an estimate of how much the task will cost i.e. a pricing proposal. When we consider the construction industry, one of the key elements in a cost proposal will be an estimate on labour and materials on a specific task. In this regard, the FAR has a special 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 the name of your company as well as lines for your name along with your title, signature and the date you signed. This certification acknowledges that according to your knowledge, the information in the cost outline you have submitted is accurate. This certificate is only required to be submitted for prime contracts read more of greater than $2 million that were granted on or on or after July 1, 2018. Let's review the specific guidelines that govern this document:

Section 5
This section is referring to situations where the certification of actual cost or pricing information wasn't required to determine reasonable contract price, even though contract signed exceeded the $2 million threshold. FAR 15.403-1 provides examples of situations in which the certificate is not required, but some examples are:

The contracting officer will determine that the agreed-upon prices are in accordance with prices established by regulation or law

When a commercial item or commercial service has been purchased

Modifying any contract or subcontract for commercial products or services

You can refer the FAR 15.403-1 for the complete list, but , in essence, if your contract doesn't require a certified copy of current pricing or cost information, Section 5 has to specify the particular exception that allows you to skip the certificate and which basis your contract meets that requirement.

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