Documenting Negotiations In Accordance With FAR 15.406-3

If you are an individual contractor working for Government officials of the U.S. Government you've almost probably dealt with FAR which is also known as Federal Acquisition Regulation. This dense legal document defines the rules as well as regulations that both the government and prime contractors must abide by when working with each other.

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

As the responsibility for responsible spending of Government funds rests with the contractor who is in charge therefore it's crucial to be thorough and accurate in the record of negotiations.

Any irregularities could be discovered by a Contractor Purchasing System Review, commonly referred to as a CPSR. The review process is designed to ensure that the contractor that is the primary contractor is spending taxpayer money in a responsible manner.

Utilizing this article, you'll learn how to prepare a complete documentation of negotiations that is in compliance with FAR 15.406-3, which is particularly relevant for contracting officers, who are responsible for collecting and submitting the necessary documents to the official contract file.

What must each price negotiation memorandum have?
As a whole, the document described in the article can be known as a Price Negotiation Memorandum, or PNM for short. In FAR 15.406-3, the PNM is composed of eleven principal elements:

Section 1
This section is relatively simple, since it simply 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, negotiation of an equitable adjustment or equitable adjustment, etc. These are determined during the prenegotiation objective stage, which is defined in the FAR 15.406-1.

Section 2
This section must outline the acquisition in its entirety it could be comprised of things, services or construction or even real property that the Government is planning to acquire. It should include all appropriate identified numbers. "Identifying numbers" includes things like"RFP (Request for Proposal) numbers which refer in the target proposal document that the contractor is proposing.

Section 3
The section should include the name, title as well as the organizational structure of each person representing an individual contractor, as well as the Government during the negotiation.

Section 4
In this section, describe the current status of any contractor systems which are relevant for the discussion. This might include accounting, purchasing, estimation or compensation. The section should detail the way they relate to the negotiation and how they were assessed.

What section of FAR addresses contract pricing?
The next two sections are somewhat related as well, so we'll go over the document the two sections are a part of. When a contractor is asked to submit bids, they must generally contain 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 are an estimate of material and labor costs for a particular task. In this case the FAR has a specific document for this purpose known as the Certificate of Price or Cost Current Data.

In FAR 15.406-2 there is an example of the certificate which includes names of the firm and lines for your personal name, title, signature, and the date you signed. This certification acknowledges that according to your knowledge, the information in the cost outline you're submitting is true. This certificate is only required to be submitted for prime contracts of greater than $2 million that were granted on or after July 1, 2018. Let's look at the specific guidelines that govern this document:

Section 5
This section focuses on instances where the certificate of current cost or pricing data was not needed to establish acceptable contract prices , even if the contract that was awarded exceeded the $2 million threshold. FAR 15.403-1 outlines the instances in which this certificate does more info not have to be provided, however, a handful of them include:

When the contracting officer is able to determine that the prices agreed to are from prices determined by law or regulation

If a product or commercial service is acquired

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

It is possible to refer to the FAR 15.403-1 for the full list of requirements, but in a nutshell when your contract doesn't require a certificate of current cost or pricing information, Section 5 is required to define the specific exception which allows you to not need the certificate and on what basis your contract can be considered to meet that exemption.