Overview
FAR Subpart 42.17 outlines the policies and procedures for establishing Forward Pricing Rate Agreements (FPRAs). These agreements are formal arrangements between the government and a contractor that set predetermined rates (such as labor, overhead, and G&A) to be used in pricing future contracts and modifications, thereby increasing administrative efficiency and consistency across multiple procurements.
Key Rules
- Establishment Criteria: FPRAs are generally reserved for contractors with a significant volume of government contract proposals where the benefits of the agreement outweigh the administrative effort of maintaining it.
- Data Requirements: Contractors must provide cost or pricing data that are accurate, complete, and current as of the date of submission (consistent with Truth in Negotiations Act requirements).
- Agreement Contents: Every FPRA must include specific terms regarding its expiration date, how the rates are applied, and requirements for systematic monitoring to ensure the rates remain valid.
- Cancellation Policy: Either the government or the contractor may cancel an FPRA at their option.
- Invalidation and FPRRs: If an FPRA becomes invalid due to changed conditions and a new agreement is not yet reached, the ACO will issue a Forward Pricing Rate Recommendation (FPRR) to guide buying activities.
- Continuous Updates: The ACO has the authority to negotiate continuous updates to the FPRA to reflect real-time changes in the contractor’s cost structure.
Responsibilities
- Administrative Contracting Officer (ACO):
- Determines whether to establish an FPRA.
- Obtains and analyzes the contractor’s rate proposal.
- Invites auditors and affected contracting offices to participate in negotiations.
- Prepares the Price Negotiation Memorandum (PNM).
- Monitors the validity of the rates and issues FPRRs when an FPRA is unavailable.
- Contractor:
- Submits the initial rate proposal and supporting cost or pricing data.
- Notifies the ACO and auditor of any significant changes in the data used to support the rates.
- Negotiates in good faith to maintain or update the agreement.
- Contract Auditor:
- Participates in developing the Government’s negotiation objective.
- Assists in the negotiation process and receives copies of the final PNM and FPRA.
- Buying Activities (Procuring COs):
- Utilize the established FPRA rates in specific contract negotiations.
- May request that the ACO initiate an FPRA negotiation for a specific contractor.
Practical Implications
- Streamlined Negotiations: For large-scale defense and aerospace contractors, FPRAs eliminate the need to renegotiate indirect rates for every individual task order or contract, significantly shortening the "proposal-to-award" cycle.
- Compliance Risk: Because FPRAs rely on "accurate, complete, and current" data, contractors face significant risk if they fail to disclose changes in their business base (e.g., losing a major commercial contract) that would cause their overhead rates to spike.
- Strategic Pricing: Contractors use FPRAs to provide price stability and predictability for the government, but they must be wary of "locking in" rates that may become inadequate if inflation or internal costs rise faster than projected.
- Administrative Burden: While efficient for the long term, the initial establishment of an FPRA is labor-intensive, requiring deep-dive audits and multi-party negotiations involving DCMA and DCAA.