Overview
FAR 15.405 outlines the objectives and responsibilities of the Contracting Officer (CO) during price negotiations, emphasizing the goal of reaching a holistic agreement on a fair and reasonable price rather than focusing on individual cost elements. It establishes the CO's authority to exercise judgment in balancing contract type, risk, and profit to achieve a mutually beneficial outcome.
Key Rules
- Holistic Pricing: The CO is not required to reach agreement on every single element of cost; the focus is on whether the final total price is fair and reasonable.
- Sole Responsibility: The CO is solely responsible for the final price agreement, though they must consider advisory reports from specialists and auditors.
- Documentation of Deviations: If the CO does not adopt significant recommendations from auditors or specialists, they must provide written rationale in the price negotiation documentation.
- Interdependency of Elements: Agreement on profit or fee cannot be made in isolation; it must be negotiated concurrently with the total cost and the contract type.
- Incentivizing Performance: The negotiation objective is to select a contract type and price that provides the contractor the greatest incentive for efficient and economical performance.
- Escalation Protocol: If a contractor insists on an unreasonable price or profit despite all authorized negotiation efforts, the CO must refer the matter to a higher level of authority and document the disposition.
Practical Implications
- "Bottom Line" Negotiations: Contractors and COs have the flexibility to make trade-offs between different cost categories and profit margins as long as the final total price is justifiable.
- Risk Management: Because contract type and price are linked, a contractor may be able to negotiate a higher profit/fee in exchange for accepting a higher-risk contract type (e.g., Firm-Fixed-Price).
- Importance of the PNM: The Price Negotiation Memorandum (PNM) becomes the critical record for justifying why a CO may have deviated from DCAA or DCMA recommendations to reach a settlement.