Price negotiation
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.