Be Prepared When You Go In To Negotiations With The Government

No one has a good count on the number of Government contractors. By one estimate, over 50,000 companies contract with the Department of Defense and there are many Governmental agencies besides DoD. Whatever the number, there are a lot of Government contractors but relatively few of them have had to go through the process of actually negotiating a contract price under FAR Part 15 procedures, Contracting by Negotiations.

Negotiating a fair and reasonable price is a complex process involving consideration of many factors including

• actual costs and completion estimates
• the amount of profit or fee in relation to the total cost, the complexity of the work, quality, efficiency, and ingenuity of the contractor's performance and the technical and financial risk assumed, and
• the competitiveness of the end price.

Costs constitute an important factor in the contract price negotiation and the discussion between the contractor and the contracting officer include the objective of arriving at a definitive agreement, to the maximum extent possible, on the amount of costs to be considered in the price.

Definitive agreement on each element of cost however may not always be possible because of honest differences of opinion or other considerations between the negotiating parties. As a result, negotiation involves a give and take proposition and the contracting officer usually cannot negotiate a price which includes cost considerations exactly in accordance with his/her "pre-negotiation objective" (PNO). Contracting officers develop their PNOs based on all available data and information including the contractor's certified cost proposal, the results of technical evaluations, and either audits or cost analyses performed by DCMA  (Defense Contract Management Agency) or DCAA (Defense Contract Audit Agency).

In some instances, a total end price may be negotiated without specific monetary resolution of all of the individual cost elements or other pricing factors involved. When this happens, the Government's "view" of negotiations can differ markedly from the contractor's "view".

Sometimes, the profit rate the Government is willing to pay is a hindrance to a speedy end to negotiating sessions. Cost or pricing data is typically based on factual matters. For example, a contractor solicits two quotes for a proposed material item and selects the lower of the two. But profit considerations largely rely on judgment. How does one measure "complexity of work", "ingenuity of contractor's performance", or "technical risk".