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 as well as prime contractors must adhere to when working with each other.

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 that negotiations.

Since the burden of proper spending of Government funds is on the contractor who is in charge therefore it's crucial to be thorough and accurate when documenting negotiations.

The discrepancies could be discovered 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 This is especially important for contracting officers who are charged with collating and submitting the required papers to the contract file.

What are the essential elements that each price negotiations memorandum include?
The documents that are discussed within this piece is known as the Price Negotiation Memorandum, or PNM for short. As outlined in FAR 15.406-3 The PNM is made of eleven primary elements:

Section 1
The first part is quite easy, as it describes the goal of the negotiation. Negotiation's purpose can be varied in the case of negotiation of an agreement for 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 items, services, construction, or even real estate that the Government aims to acquire, including all relevant identifying numbers. "Identifying numbers" includes things such as the RFP (Request to Proposal) numbers, which are referring specifically to the 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 current status of any contractor systems that are relevant with the negotiation. This might include accounting, buying, estimating or compensation. The section should detail the way they relate to the negotiation and how they were assessed.

What section of FAR addresses contract pricing?
The next two sections are somewhat related as well, so we'll go over the document the two sections are a part of. When a prime contractor submits a bid, it must generally include an estimate of how much the project will cost i.e. a pricing proposal. When we think back to the case of construction, the most fundamental elements of cost include an estimate of the materials and labor required for a specific job. 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 there is a template of the certificate which includes the name of your company as well as lines for your name, title, signature, and the date you signed. This certification acknowledges that according to your knowing, the outline of costs you have submitted is more info accurate. This certificate is only required when prime contracts exceed 2 million dollars that were awarded on or after July 1, 2018. Let's take a look at the specific guidelines for this document:

Section 5
This section focuses on instances where the certificate of actual cost or pricing information was not required to determine acceptable contract costs even though the contract granted exceeded the $2 million threshold. FAR 15.403-1 defines the scenarios where the certificate of current cost or pricing data isn't needed, however a few of them are:

If the contracting officer decides that the prices agreed on are basing on the prices set by regulation or law

When a commercial service or commercial service is being acquired

When changing 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 be able to provide the specific reason which allows you to not need certification and on what basis your contract can be considered to meet that exemption.