Documenting Negotiations In Accordance With FAR 15.406-3

If you are an individual contractor working for government officials from the U.S. Government you've almost probably dealt with FAR also known as the Federal Acquisition Regulation. This lengthy legal document defines the rules and regulations that the Government and prime contractors must adhere to when working with each other.

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

Since the responsibility for proper spending of Government funds falls on the contractor that is the primary contractor that's why it's vital to be meticulous and exact when documenting negotiations.

Any discrepancies might be caught during a Contractor Purchasing Systems Review, commonly referred to as a CPSR. The process of reviewing ensures the principal contractor is using taxpayer money effectively.

Utilizing this article, you will be able to make a complete record of negotiation in accordance with FAR 15.406-3 this is particularly important for contracting officers, who are accountable for collecting and submitting the necessary information to the contract file.

What will each price negotiation memorandum be?
As a whole, the document described herein is referred to as the price Negotiation Memorandum, or PNM for short. In FAR 15.406-3, the PNM is comprised of eleven major elements:

Section 1
This first section is fairly simple, since it simply declares the main purpose of the negotiation. The goals of negotiation can differ from the negotiation of one new contract on the sole source model as well as negotiation of an equitable adjustment as well as other such. They are determined in the prenegotiation objective phase which is detailed in the FAR 15.406-1.

Section 2
The description should be of the acquisition itself and could include items, services, construction or even real estate that the Government aims to acquire. It should include all appropriate identified numbers. "Identifying numbers" includes things such as the RFP (Request for Proposal) numbers that refer towards the exact proposal document that the contractor is proposing.

Section 3
The section should include the name, position and organization of every person representing both the prime contractor and Government in negotiations.

Section 4
In this section, describe the current status of any contractor-related systems relevant in the negotiations. This could be accounting, purchasing, estimation and/or compensation. The section should specifically describe how these systems are related to the negotiation and how they were thought of.

What part of the FAR covers contract pricing?
The two following sections are kind here of connected as well, so we'll go over the document with regard to. When a principal contractor sends an offer, it should generally include an estimate of the amount of work to cost i.e. a pricing proposal. If we refer back to the instance of construction, the primary cost elements are an estimate of the materials and labor required on a specific task. For this it is the FAR has a specific document that is specifically designed for this function, known as the Certificate of Current Cost or Pricing Data.

In FAR 15.406-2 there is an example for the certificate. It includes names of the firm and lines for your name along with your title, signature and date of signature. This certificate affirms that, in your best understanding, the cost outline you have submitted is accurate. Also, this certificate is only valid for prime contracts in excess of 2 million dollars that were granted on or on or after July 1, 2018. Let's review the specific guidelines that apply to 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 costs even though the contract was awarded in excess of the threshold of $2 million. FAR 15.403-1 lists the circumstances that this certificate is not required. Some examples are:

The contracting officer will determine that the price agreed on is from prices determined by regulation or law

When a commercial service or commercial service is being purchased

When modifying a contract or subcontract to commercial products or services

You can refer FAR 15.403-1 for the full list, but in the simplest form, If your contract doesn't require a certified copy of current cost or pricing information, Section 5 has to explain the specific exemption that lets you avoid the certificate and the basis your contract can be considered to meet that exemption.