If you are an individual contractor working for Government officials of the U.S. Government you've almost likely dealt with FAR also known as the Federal Acquisition Regulation. This hefty legal document covers the rules of regulations and guidelines that Government officials and prime contractors have to follow when working together.

In this article we'll go over a particular section that covers a critical step in any negotiation between Government and prime contractor: the documentation of the negotiation.

The responsibility for prudent spending of Government funds is the responsibility of 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 money in a responsible manner.

If you follow this article, then you'll be in a position to provide a complete and complete account of negotiation which is in compliance with FAR 15.406-3 which is particularly crucial for contracting officers, who are accountable for making sure that they submit the required documents to the official contract file.

What must each price negotiation memorandum comprise?
As a whole, the documentation discussed throughout this post is referred to as a price Negotiation Memorandum, or PNM for short. In FAR 15.406-3, the PNM is comprised of eleven fundamental elements:

Section 1
The initial section is simple as it states the purpose of the negotiation. The objectives of negotiation could be diverse depending on the situation, like the negotiation of the creation of a new contract with a sole source basis as well as negotiation of an equitable adjustment as well as other such. They are first determined during the objective phase prior to negotiation which is detailed as part of FAR 15.406-1.

Section 2
This section should describe the acquisition itself, which could consist of products, services, construction, or even real estate that the government aims to acquire. Include all specific numbers. "Identifying numbers" includes things like RFP (Request for Proposal) numbers that refer to the specific proposal document to describe what the contractor proposes.

Section 3
The document must contain the name, position, and organization of each person representing the contractor as the primary contractor and also the Government in the negotiation.

Section 4
In this sectionyou will need to describe the present state of any contractor systems that are relevant with the negotiation. This could be accounting, accounting, purchase and/or compensation. The section should be specific about how these systems impacted the negotiation and in what extent they were considered.

What part of the FAR addresses contract pricing?
The next two sections are kind of connected to each other, and so we'll start by looking at the document that they refer to. When a prime contractor files bids, they should generally contain an estimate of what the job will cost i.e. a pricing proposal. When we think back to the case of construction, the fundamental cost elements would be an estimate of labour and materials on a specific task. In this particular instance the FAR has a distinct document with this particular purpose, known as the Certificate of Price or Cost Current Data.

In FAR 15.406-2 you can find a template of the document that contains the name of the firm as well as lines for your name or title, signature and date of signature. This certification acknowledges that according to your knowledge, the information in the cost outline you're submitting is true. In addition, this certificate is only valid for prime contracts that exceed $2 million which were issued on or on or after July 1, 2018. Let's examine the specific guidelines that apply to this document:

Section 5
This section addresses instances when the certificate of the actual pricing or cost data did not have to be used to determine reasonable contract pricing, even though the contract was awarded in excess of the threshold of $2 million. FAR 15.403-1 gives examples of instances where the certificate of current cost or pricing data isn't necessary, but a few of them are:

When the contracting officer determines that the prices agreed on are an elaboration of prices set by law or regulation

In the event that a commercial product commercial service is acquired

If you are changing the terms of a contract or subcontract to commercial services or products

It is possible to refer to the FAR 15.403-1 for the full list of requirements, however, should your contract does not require a certification of the current price or cost data, Section 5 should to explain the specific exemption which lets you skip the more info certificate and the basis your contract meets that requirement.