Documenting Negotiations In Accordance With FAR 15.406-3

If you're contractors working with an agency of U.S. Government you've almost certain dealt with FAR that is the Federal Acquisition Regulation. This lengthy legal document regulates the rules of regulations and guidelines that Government officials and prime contractors must abide by when working with each other.

In this article, we'll break down a specific subsection that covers a critical step in any negotiation between Government and prime contractor: the record of said negotiations.

Since the responsibility for responsible spending of Government funds rests with the principal contractor that's why it's vital to be exact and thorough when capturing negotiations.

Any discrepancies might be caught in a Contractor Purchase System Review, or a CPSR. The process for reviewing the contractor ensures the principal contractor is spending taxpayer money effectively.

If you follow this article, then you'll learn how to make a full documentation of negotiation in accordance with FAR 15.406-3 which is especially important for contracting officers who are charged with collating and submitting the required paperwork to the contract file.

What is the price negotiation memo contain?
The documents that are discussed in the article can be referred to as a price Negotiation Memorandum, or PNM for short. In FAR 15.406-3 the PNM is comprised of eleven principal elements:

Section 1
The first section is simple and simply clarifies the intent of the negotiation. The purpose of negotiations can be different depending on the situation, like the negotiation of one new contract on sole source basis or the negotiation of an equitable adjustment and so on. These are determined first during the objective phase prior to negotiation which is explained in FAR 15.406-1.

Section 2
This section must outline the acquisition itself it could be comprised of items, services, construction, or even real estate which the government plans to acquire. It should include all appropriate numbering. "Identifying numbers" includes things such as"RFP" (Request to Proposal) numbers that refer on the precise proposal document for what the contractor is proposing.

Section 3
The section should include the name, position and organizational affiliation of each person representing an individual contractor, as well as the Government in the negotiation.

Section 4
In this section, cover the current state of contractor systems which are relevant with the negotiation. This could be accounting, purchasing, estimation, and/or compensation; the section should be specific about how these systems were related to negotiation and the extent to which they were taken into consideration.

What part of the FAR addresses contract pricing?
The next two sections are somewhat related as well, so we'll go over the document which they relate to. When a contractor is asked to submit bids, they must typically include an estimate of what the job is expected to cost i.e. a pricing proposal. When we think back to the construction example, the basic cost elements are an estimate of the materials and labor required for a particular job. In this particular instance, the FAR includes a particular document specifically for this purpose referred to as the Certificate of Price or Cost Current Data.

In FAR 15.406-2 you will find a template for the certificate. It includes the name of the business and lines for your personal name, title, signature, as well as the date on which you signed. This certificate certifies that, as far as you can knowledge, the information in the cost outline which you've prepared is accurate. Additionally, this certification is only valid for prime contracts with a value of more than $2 million , which were given on or after July 1, 2018. We will look over the specific guidelines for this document:

Section 5
This section is referring to situations when the certificate of the current cost or pricing data is not required to establish reasonable contract price, even though contract signed exceeded the threshold of $2 million. FAR 15.403-1 outlines the instances where the certificate of current cost or pricing data does not have to be provided, however, a handful of them include:

If the contracting official determines that the agreed-upon prices are in accordance with prices established by regulation or law

When a commercial product or commercial service is bought

Modifying any contract or subcontract to commercial products or services

It is possible to refer to the FAR 15.403-1 for the full list, but in the simplest terms, If your contract does not require a certificate of the current price or cost data, Section 5 will need to more info explain the specific exemption that lets you avoid the certificate and which basis your contract is in compliance with that exception.