15.405 Price negotiation
Source: FAR 15.405 on acquisition.gov
Contracting officers must negotiate and document a fair and reasonable total price, balancing contract type, cost, and profit, and escalate unresolved unreasonable demands.
Overview
FAR 15.405 outlines the principles and procedures for price negotiation in government contracting. Its primary goal is to ensure that the contracting officer and the offeror reach agreement on a price that is fair and reasonable, considering all relevant factors. The regulation emphasizes that agreement on every cost element is not required, and the contracting officer is ultimately responsible for the final price. Recommendations from audits or specialists should be considered, and any significant deviations from these recommendations must be justified in the negotiation documentation. The contracting officer must focus on the total price, balancing contract type, cost, and profit or fee to incentivize efficient contractor performance. Profit or fee should not be agreed upon in isolation but must be negotiated alongside cost and contract type. If a reasonable price cannot be reached, the matter must be escalated and documented.
Key Rules
- Fair and Reasonable Price
- The contracting officer must negotiate a price that is fair and reasonable, without requiring agreement on every cost element.
- Documentation of Deviations
- If significant audit or specialist recommendations are not followed, the rationale must be documented.
- Total Price Focus
- The contracting officer should focus on the overall price and balance contract type, cost, and profit/fee.
- Concurrent Agreement
- Profit or fee must be negotiated together with cost and contract type, not in isolation.
- Escalation of Unreasonable Demands
- If the contractor’s price or profit demands are unreasonable and all options are exhausted, the issue must be referred to a higher authority and documented.
Responsibilities
- Contracting Officers: Develop negotiation positions, consider specialist input, document rationale for deviations, focus on total price, negotiate all elements together, and escalate unresolved issues.
- Contractors: Present reasonable pricing and profit/fee proposals and participate in good faith negotiations.
- Agencies: Oversee negotiation processes and ensure proper documentation and escalation procedures are followed.
Practical Implications
- This section ensures price negotiations are thorough, balanced, and well-documented, protecting both government and contractor interests.
- It prevents fixation on individual cost elements and encourages holistic consideration of contract terms.
- Common pitfalls include inadequate documentation of negotiation rationale and failure to escalate unresolved pricing disputes.
(a) The purpose of performing cost or price analysis is to develop a negotiation position that permits the contracting officer and the offeror an opportunity to reach agreement on a fair and reasonable price. A fair and reasonable price does not require that agreement be reached on every element of cost, nor is it mandatory that the agreed price be within the contracting officer’s initial negotiation position. Taking into consideration the advisory recommendations, reports of contributing specialists, and the current status of the contractor’s purchasing system, the contracting officer is responsible for exercising the requisite judgment needed to reach a negotiated settlement with the offeror and is solely responsible for the final price agreement. However, when significant audit or other specialist recommendations are not adopted, the contracting officer should provide rationale that supports the negotiation result in the price negotiation documentation.
(b) The contracting officer’s primary concern is the overall price the Government will actually pay. The contracting officer’s objective is to negotiate a contract of a type and with a price providing the contractor the greatest incentive for efficient and economical performance. The negotiation of a contract type and a price are related and should be considered together with the issues of risk and uncertainty to the contractor and the Government. Therefore, the contracting officer should not become preoccupied with any single element and should balance the contract type, cost, and profit or fee negotiated to achieve a total result-a price that is fair and reasonable to both the Government and the contractor.
(c) The Government’s cost objective and proposed pricing arrangement directly affect the profit or fee objective. Because profit or fee is only one of several interrelated variables, the contracting officer shall not agree on profit or fee without concurrent agreement on cost and type of contract.
(d) If, however, the contractor insists on a price or demands a profit or fee that the contracting officer considers unreasonable, and the contracting officer has taken all authorized actions (including determining the feasibility of developing an alternative source) without success, the contracting officer shall refer the contract action to a level above the contracting officer. Disposition of the action should be documented.