Documenting Negotiations In Accordance With FAR 15.406-3

If you are an individual contractor working for authorities from U.S. Government you've almost surely dealt with FAR in other words, the Federal Acquisition Regulation. This dense legal document regulates the rules as well as regulations that both the government as well as prime contractors must adhere to when working with each other.

In this article we'll look at a specific sub-section which focuses on a key element in any negotiation between Government and the prime contractor: the record of said negotiations.

The responsibility for responsibly spending Government funds rests with the contractor that is the primary contractor and the contractor's responsibility, it's essential to be exact and thorough in the recording of negotiations.

Any irregularities could be discovered in a Contractor Purchasing System Review, commonly referred to as a CPSR. The process of reviewing ensures the contractor in charge is spending tax payer money efficiently.

Using this article, you'll be in a position to make a complete record of negotiation that is compliant with FAR 15.406-3 that is crucial for contracting officers who are charged with taking and submitting all required document to be included in the contract file.

What must each price negotiation memorandum be?
The documents discussed in this essay is known as the price Negotiation Memorandum, or PNM for short. In FAR 15.406-3 the PNM is comprised of eleven main elements:

Section 1
The first section is simple as it defines the reason for the negotiation. The purpose of negotiations can be different depending on the situation, like the negotiation of a new contract on the basis of sole source, negotiation of an equitable adjustment or equitable adjustment, etc. They are determined in the prenegotiation objective stage, which is described as part of FAR 15.406-1.

Section 2
This should include the actual acquisition, which could consist of things, services or construction or even real estate that the Government aims to acquire. It should include all appropriate numbering. "Identifying numbers" includes things such as"RFP (Request for Proposal) numbers that point to the specific proposal document for what the contractor proposes.

Section 3
The section should include check here the name, position and organization of every person representing both the prime contractor and government in the negotiation.

Section 4
In this sectionyou will need to describe the current state of contractor systems which are relevant during the process of negotiation. This could be accounting, purchasing, estimating and/or compensation. The section should specify how these systems were related to negotiation and in what extent they were evaluated.

What section of FAR refers to contract pricing?
The next two sections are a bit related which is why we'll first look at the document that they pertain to. When a contractor is asked to submit bids, they must generally include an estimate of what the job will cost i.e. a pricing proposal. If we go back to the instance of construction, the primary cost elements will be an estimate of the labor and materials required for a particular job. For this it is the FAR provides a specific document with this particular purpose, known by the name of Certificate of Price or Cost Current Data.

In FAR 15.406-2 there is an example of the document that contains the name of the business and lines for your name or title, signature and date of signing. This certificate acknowledges that to the best of your information, the price outline you're submitting is true. Furthermore, this certificate is only required when prime contracts exceed 2 million dollars that were awarded on or following July 1, 2018. Let's take a look at the specific guidelines for this document:

Section 5
This section refers to 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 threshold of $2 million. FAR 15.403-1 defines the scenarios where the certificate of current cost or pricing data isn't needed, however a few of them are:

When the contracting officer determines that the agreed-upon prices are based on prices set by law or regulation

When a commercial service or commercial service is purchased

In the event of modifying any contract or subcontract that deals with commercial services or products

You can consult FAR 15.403-1 for the complete list, but in the simplest form, should your contract doesn't require a certificate of current cost or pricing information, Section 5 has to specify the particular exception that permits you to bypass the certificate and on what basis your contract can be considered to meet that exemption.