If you are contractors working with the U.S. Government you've almost certain dealt with FAR or the Federal Acquisition Regulation. This hefty legal document covers the rules and regulations that 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 covers an important step in any negotiations between Government and the prime contractor: the documentation of said negotiation.

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 funds efficiently.

Utilizing this article, you'll be able to provide a complete and complete account of negotiation that is compliant with FAR 15.406-3, which is especially important for contracting officers who are responsible for gathering and submitting the required documents to the official contract file.

What are the essential elements that each price negotiations memorandum comprise?
As a whole, the documents that are discussed within this piece 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 declares the main purpose of the negotiation. The purpose of negotiations can be different and include negotiation of a new contract on an sole source basis or negotiation of an equity adjustment or equitable adjustment, etc. The purpose of negotiation is determined at the prenegotiation objective phase which can be found within FAR 15.406-1.

Section 2
The description should be of the purchase itself that may comprise materials, services, construction or even real estate which the government plans to acquire. Include all specific numbers. "Identifying numbers" includes things like the RFP (Request to Proposal) numbers that are linked to the specific proposal document to describe what the contractor proposes.

Section 3
The document must contain the name, position and organizational affiliation of each person here representing either the contractor who is the prime contractor or the government in the negotiation.

Section 4
In this section, discuss the status of any contractor systems that are relevant with the negotiation. This might include purchasing, estimating, accounting or compensation. The section should clearly describe how these systems are related to the negotiation and the extent to which they were assessed.

What section of the FAR deals with contract pricing?
The following two sections are sort of related in that we'll cover the document that they refer to. When a prime contractor submits a bid, it must generally include an estimate of how much the job will cost i.e. a pricing proposal. If we go back to the construction industry, the primary cost elements would be an estimate of materials and labor for a specific project. In this instance, the FAR provides 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 you can find a template of the certification that has names of the firm as well as lines for your name as well as your signature, title, and date of signature. This certification acknowledges that in your best knowledge, the cost outline you're submitting is accurate. Furthermore, this certificate is only required to be submitted for prime contracts 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

If a commercial product or commercial service has been purchased

Modifying any contract or subcontract for commercial products or services

The the FAR 15.403-1 for the complete list, but in the simplest form, for those who's contract does not require a certificate of the current price or cost data, Section 5 needs to explain the specific exemption which lets you skip the certificate and the basis your contract meets that requirement.