A "Long Term Agreement" (LTA) is an agreement entered into between a prime contractor and a subcontractor to establish pricing for future purchases of specified items. FAR 15.404-3(c) allows prime contractors to reach price agreements with subcontractors prior to an agreement with the Government on the prime contract so LTAs are acceptable pricing methods.
LTAs can benefit both the contractor and the Government by providing better subcontract pricing due to a more stabilized business volume and reduced acquisition cycle times. There are two aspects of LTAs that the Government will be concerned about. The first is whether the the prime contractor adequately evaluated the cost or pricing data as of the date of agreement on the LTA price. Secondly, the Government will require contractors to demonstrate that the negotiated LTA prices continue to be fair and reasonable at the time the prime contract is negotiated.
Generally, there is no specific time period for which LTA pricing should be considered adequate. The market and other conditions must be reviewed on a case by case basis. In some cases, the LTA pricing may be adequate for several years while in other cases, a single month may find that the LTA pricing is no longer fair and reasonable. For example, if a subcontractor made significant changes to its manufacturing process that materially impacted costs, and those changes were not reflected in the negotiated LTA pricing, the negotiated LTA price would no longer be considered fair and reasonable.
LTAs can help facilitate and streamline the estimating and purchasing processes. Contractors need to perform some level of testing however, to assure the Government that the negotiated prices continue to be fair and reasonable.