Billie Smith

GSFC Procurement

Operations Division

December 8, 2004

Prenegotiation Position and

Price NegotiationMemorandums

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Contents

• Prenegotiation Objectives

• Contents of the PPM

• PPM Form GSFC 210-90

• Documenting the Negotiations

• Contents of the PNM

• PNM Form GSFC 210-92

• PNM “Stand-Alone” Document

• PNM Form GSFC 210-94

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Prenegotiation ObjectivesFAR 15.406-1

• Prenegotiation objectives establish the Government’s initial negotiation position and assist in the Contracting Officer’s (CO) determination of fair and reasonable price.

• CO shall establish prenegotiation objectives before the negotiation of any pricing action.

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Prenegotiation ObjectivesFAR 15.406-1

• Objectives should be based on the results of the CO’s analysis of the offeror’s proposal, taking into consideration:– field pricing assistance– audit reports– technical analysis – fact-finding results – independent Government cost estimates – price histories

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Prenegotiation ObjectivesFAR 15.406-1

• Scope and depth of the analysis supporting the objectives should be directly related to the dollar value, importance, and complexity of the pricing action.

• When cost analysis is required, the CO shall document the pertinent issues to be negotiated, the cost objectives, and a profit or fee objective.

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Prenegotiation ObjectivesNFS 1815.406-1

• Before conducting negotiations, COs shall prepare a Prenegotiation Position Memorandum (PPM) setting forth the technical, business, contractual, pricing, and other aspects to be negotiated.

• A PPM is not required for contracts awarded under the competitive negotiated procedures of FAR 15.3 or NFS 1815.3.

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Contents of the PPMNFS 1815.406-170

• PPM shall fully explain the Contractor and Government Positions

• PPM should be structured to track to the Price Negotiation Memorandum (PNM)

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Contents of the PPMNFS 1815.406-170

PPM shall address the information described in FAR 15.406-1, 15.406-3 (as appropriate), and the following subjects, as applicable, in the order presented:

– Introduction– Type of Contract Contemplated– Special Features and Requirements– Cost Analysis– Negotiated Approval Sought

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PPM Form GSFC 210-90

• 1999 & 2001 HQ Procurement Management Surveys noted weaknesses in the PPM documentation and recommended the development of a PPM form.

• PPM Form GSFC 210-90 was first developed in June 2002 and issued along with GSFC Procurement Circular 02-01.

• Per HQ Procurement Management Survey Team recommendations, this form is a dated and ISO controlled document to ensure that it is the most current one available and reflects the requirements of the FAR and NFS.

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PPM Form GSFC 210-90

• GSFC 210-90, shall be used for all negotiations (basic contracts and modifications) valued up to $50M.

• For actions valued over $50M, the PPM should be prepared in a narrative form and address all of the elements in GSFC 210-90.

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PPM Form GSFC 210-90

• PPM Form GSFC 210-90 being revised based on comments and recommendations received.

• New GSFC 210-90 dated 12/04.

• All old versions should not be used

(ISO controlled document).

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Documenting the NegotiationsFAR 15.406-3

• CO shall document in the contract file the principal elements of the negotiated agreement in a Price Negotiation Memorandum (PNM).

• When field pricing assistance is obtained, the CO shall provide a copy of the negotiation documentation to the office(s) providing assistance.

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Documenting the NegotiationsNFS 15.406-3

• The price negotiation memorandum (PNM) serves as a detailed summary of: the technical, business, contractual, pricing (including price reasonableness), and other elements of the contract negotiated; and the methodology and rationale used in arriving at the final negotiated agreement.

• A PNM is not required for a contract awarded under competitive negotiated procedures. However, the information required by FAR 15.406-3 shall be reflected in the evaluation and selection documentation to the extent applicable.

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Documenting the NegotiationsNFS 15.406-3

When a PPM has been prepared under 1815.406-1, the subsequent PNM need only provide any information required by FAR 15.406-3 that was not provided in the PPM, as well as any changes in the status of factors affecting cost elements (e.g., use of different rates, hours, or subcontractors; wage rate determinations; or the current status of the contractor's systems).

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Contents of the PNMFAR 15.406-3

The PNM shall include the following:

• Purpose of the negotiations.• Description of the acquisition.• Names, position, and organization of each person

representing the Contractor and the Government in the negotiation.

• Current status of any Contractor systems.• Cost or Pricing Data (if required, exception, and

extent relied on and used in negotiations).

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Contents of the PNMFAR 15.406-3

The PNM shall include the following (cont’d):

• Summary of Contractor’s proposal, any field pricing assistance recommendations, including the reasons for any pertinent variances from them, the Government’s prenegotiation objective, and the negotiated position.

• Most significant facts or considerations controlling the establishment of the prenegotiation objectives and the negotiated agreement, including an explanation of any significant differences between the two positions.

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Contents of the PNMFAR 15.406-3

The PNM shall include the following (cont’d):

• Discussion and quantification of the impact of direction given by Congress, other agencies, and higher-level officials on this action, if applicable.

• Basis for the profit or fee prenegotiation objective and the profit or fee negotiated.

• Documentation of fair and reasonable pricing.

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Contents of the PNMRecommended

• Discuss any changes to terms and conditions of the contract/mod– Clause Updates– Warranty Terms– Schedule/Delivery Terms

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PNM Form GSFC 210-92

• PNM Form GSFC 210-92 was revised in June 2002 and issued along with GSFC Procurement Circular 02-01.

• Per HQ Procurement Management Survey Team recommendations, this form is a dated and ISO controlled document to ensure that it is the most current one available and reflects the requirements of the FAR and NFS.

• PNM 210-92 is to be used only when a PPM was prepared.

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PNM Form GSFC 210-92

• PNM Form GSFC 210-92 being revised based on comments and recommendations received.

• New GSFC 210-92 dated 12/04.

• All old versions should not be used

(ISO controlled document).

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PNM “Stand-Alone” DocumentNFS 15.406-3(a)(iii)

When the PNM is a "stand-alone" document (no previous PPM), it shall contain the information required by the FAR and NFS for both PPMs and PNMs.

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PNM “Stand-Alone” DocumentNFS 15.406-3(a)(iii)

1999 & 2001 HQ Procurement Management Surveys stated that the Contracting Officers shall establish prenegotiation objectives before engaging the contractor in active negotiation.

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PNM “Stand-Alone” DocumentNFS 15.406-3(a)(iii)

2001 HQ Procurement Management Survey Team Observation - When PPM and PNM are separately prepared, the integrity of the award documentation is superior. However, when the PPM is waived, the required "sound rationale" is weak at best and needs to be further elaborated on in your local guidance (GSFC Proc. Circular 02-01).

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PNM Form GSFC 210-94 (Stand-Alone Document)

• PNM Form GSFC 210-94 was first developed in June 2002 and issued along with GSFC Procurement Circular 02-01.

• Per HQ Procurement Management Survey Team recommendations, this form is a dated and ISO controlled document to ensure that it is the most current one available and reflects the requirements of the FAR and NFS.

• GSFC 210-94, PNM (Stand-Alone Document), shall be used only when the use of “stand-alone” PNM document has been previously authorized in writing.

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PNM Form GSFC 210-94 (Stand-Alone Document)

• A contract specialist must obtain permission to prepare a “stand-alone” PNM prior to entering into any discussions.

• The contract file must contain a separate memorandum documenting sound rationale for not preparing a separate PPM and requesting permission to prepare a “stand-alone” PNM.

• Special emphasis should be placed on the documentation of the cost analysis, by element of cost and profit/fee, in the attached detailed narrative reference notes.

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PNM Form GSFC 210-94 (Stand-Alone Document)

• There must be an individual “stand-alone” PNM authorization memorandum for each procurement action—“class” authorization memorandums are not permitted.

• The approval authority for the use of a “stand-alone” PNM shall be the same as that specified for a PPM of that dollar value.

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PNM Form GSFC 210-94 (Stand-Alone Document)

Because of misuse of the Stand-Alone PNM, GSFC Procurement Circular 02-01 is being revised to include the following:

• PNM 210-94 should be used only on an exception basis, in very limited situations, when the cost analysis performed reveals no or only very minor differences between the Contractor proposed and Government objective cost and fee/profit positions and other negotiation issues (contract terms or conditions).

• The request for “stand-alone” memorandum shall contain a summary of the cost and fee/profit differences as well as any other negotiation issues.

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PNM Form GSFC 210-94 (Stand-Alone Document)

Some examples of when a “Stand-Alone” PNM is appropriate:

• When detailed cost analysis supports taking no exceptions to a proposal (cost, profit/fee, and all other negotiations issues).

• Cost overrun when most of the costs are actuals.• Only minor clarifications of a proposal required.

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PNM Form GSFC 210-94 (Stand-Alone Document)

Use of the PNM Form GSFC 210-94 Stand-Alone Document is:

• NOT THE NORM

• EXCEPTION BASIS ONLY

• USED IN LIMITED SITUATIONS

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PNM Form GSFC 210-94

• PNM Form GSFC 210-94 being revised based on comments and recommendations received.

• New GSFC 210-94 dated 12/04.

• All old versions should not be used

(ISO controlled document).

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Time-Saving Tips for PPM/PNMs

• Send requests for field pricing information early—this is often the pacing schedule item• Request only the field pricing support needed—we can usually suffice with rate

verification and system status check.• Place burden of supporting price reasonableness on the contractor• Send fact-finding/negotiation questions to the contractor ahead of time—allows them to

prepare—will save time at negotiations • Get written responses to factfinding questions from the contractor--produces a written

response for your file showing you’re doing a reasonable evaluation• Prepare standard Excel spreadsheet for pricing actions (can be used for conducting

negotiations as well)—several formats are available on O drive (O:/210.S/210.7/Misc).• Be sure your cost analysis includes the price reasonableness determination required by

FAR 15.406-3(a)(11) of you (the Contract Specialist/Contracting Officer) • Take ownership of your PPM/PNM—don’t just rely on what the technical evaluator and

others are telling you (c.f. GSFC Procurement Circular 02-01)• Use of Excel spreadsheets with formulas helps avoid careless math errors.

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Negotiation Time-Saving Tips

• Provide a counter-offer as soon as you’re able—it will help to focus the negotiations on what the differences are

• Provide your counter-offer(s) in writing. This establishes a record and helps you when writing the PNM

• Get the contractor to initial his/her agreement of the final number(s) on your spreadsheet. This establishes a written record.

• Use the date/time functions of Excel on your spreadsheet—helps distinguish between multiple versions

• Begin with the end in mind—start writing the PNM and contract/mod changes during the negotiations

• Conduct fact-to-face negotiations only when the complexity of the negotiations warrant it—use the phone and/or e-mail whenever possible.