If you're contractors working with or for the U.S. Government you've almost probably dealt with FAR which is also known as Federal Acquisition Regulation. This dense legal document contains the rules and regulations that the Government and prime contractors are required to adhere to when working with each other.

In this article we'll look at a specific sub-section that addresses a crucial step in any negotiations 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 that they are thorough and precise in the documentation of negotiations.

There is a chance that discrepancies will be found in a Contractor Purchasing System Review, also known as a CPSR. The process of reviewing ensures the prime contractor is spending taxpayer money in a responsible manner.

With this article, you'll have the ability to write a comprehensive documentation of negotiation in accordance with FAR 15.406-3 that is essential for contracting officers, who are charged with taking and submitting all 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. As outlined in FAR 15.406-3, the PNM is comprised of eleven major elements:

Section 1
The initial section is easy to comprehend, as it states the purpose of the negotiation. The objectives of negotiation could be diverse, such as the negotiation of an entirely new contract with only a single source basis and negotiation of an equitable adjustment or adjustment. 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 comprising materials, services, construction or even real estate which the government plans to acquire. This should include all pertinent identifiable numbers. "Identifying numbers" includes things like"RFP" (Request for Proposal) numbers that relate towards the exact proposal document for what the contractor will propose.

Section 3
This section must include the name, title and organization of every person who represents an individual contractor, as well as the Government in the negotiations.

Section 4
In this part, we will discuss the state of affairs of all contractor systems that relate to negotiations. This might include accounting, purchasing, estimation and/or compensation. The section should specifically describe how these systems relate to the negotiation and how they were evaluated.

What section of FAR covers contract pricing?
The next two sections are a bit related which is why we'll first look at the document that they pertain to. When a contractor is asked to submit an offer, it should generally include an estimate of what the job will cost i.e. a pricing proposal. If we go back to more info the case of construction, the primary cost elements will be an estimate of the labor and materials required for a particular job. In this particular instance the FAR has a distinct document intended for this use, which is known as the Certificate of Current Cost or Pricing Data.

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, from your understanding, the cost outline which you've prepared is true. In addition, this certificate is only valid for prime contracts in excess of $2 million given on or the 1st of July, 2018. Let's examine the specific guidelines that apply to this document:

Section 5
This section addresses instances in which the certificate of actual cost or pricing information is not required to establish reasonable contract price, even though contract signed exceeded the $2 million threshold. FAR 15.403-1 describes the situations where this certificate isn't required but a few of them include:

When the contracting officer is able to determine that the prices agreed to are from prices determined 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

You can refer to FAR 15.403-1 for the complete list, but , in essence, if your contract doesn't require a certified copy of current pricing or cost information, Section 5 has to specify the particular exception which lets you skip the certificate and the basis your contract will be able to benefit from that exception.