If you're an contractor that works with Government officials of the U.S. Government you've almost probably dealt with FAR also known as the Federal Acquisition Regulation. This dense legal document contains the rules and regulations that the Government as well as prime contractors must adhere to when working together.

In this article we'll examine a specific section that addresses a crucial step in any negotiation between Government and the prime contractor: the record of said negotiation.

The responsibility for accountable spending of Government funds is the contractor in charge, it's critical to be exact and thorough when documenting negotiations.

There is a chance that discrepancies will be found through a contractor Purchasing System Review, otherwise known as a CPSR. This review process makes sure that the principal contractor spends taxpayer money effectively.

By following this guideline, you'll be able to make a complete record of negotiation that's in line with FAR 15.406-3 and is particularly important for contracting officers who are charged with creating and submitting required paperwork to the contract file.

What is the price negotiation memorandum contain?
In total, the document discussed in this essay 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 specifies the objective of the negotiation. The goals of negotiation can differ depending on the situation, like the negotiation of an entirely new contract on the sole source model, negotiation of an equitable adjustment and so on. This is first decided during the prenegotiation objective phase which is described within FAR 15.406-1.

Section 2
The description should be of the actual acquisition and could include the construction, goods, or services, or even real estate that the government aims to purchase, with all necessary identification numbers. "Identifying numbers" includes things such as the RFP (Request to Proposal) numbers that point specifically to the proposal document to describe what the contractor proposes.

Section 3
The document must contain the name, position as well as the organizational structure of each person representing the principal contractor and the Government during the negotiation.

Section 4
In this section, describe the current state of any contractor-related systems relevant in the negotiations. This could be accounting, purchasing, estimating, and/or compensation; the section should describe in detail how these systems impacted the negotiation and in what extent they were taken into consideration.

What portion of the FAR is concerned with contract pricing?
The following two sections are sort of related to each other, and so we'll start by looking at the document that they refer to. When a principal contractor sends bids, they typically include an estimate of the amount of work to cost i.e. a pricing proposal. If we look back to the example of construction, the fundamental cost elements would be an estimate more info of materials and labor for a specific project. In this regard, the FAR has a special document intended for this use, which is known as the Certificate of Current Cost or Pricing Data.

In FAR 15.406-2 in FAR 15.406-2, you can find a template for the certificate. It includes your firm's name and the lines for your name or title, signature and date of signing. This certificate affirms that, to the best of your information, the price outline you're submitting is true. Additionally, this certification is only required for prime contracts in excess of the amount of $2 million and granted following July 1, 2018. Let's examine the specific guidelines for this document:

Section 5
The section deals with 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 that this certificate isn't necessary, but a few of them are:

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

If a commercial product or commercial service is bought

Modifying or modifying a contract or subcontract that deals with commercial products or services

You may 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 information, Section 5 is required to identify the specific exception which permits you to avoid the certificate and on what basis your contract can be considered to meet that exemption.