Monday, October 8, 2012

New Adequacy Checklist for Forward Pricing Rate Proposals

When there is a substantial amount of pricing activity at a particular contractor location, the contractor and the Government sometimes tries to negotiate direct and indirect rates to be used for future proposals. The contractor first submits a forward pricing rate proposal (FPRP). If the contractor and the Government can reach agreement, the parties sign a forward pricing rate agreement (FPRA). When the parties cannot reach agreement, the Government will often issue a unilateral determination called a forward pricing rate recommendation (FPRR). When there is a FPRA, contract negotiations are simplified and expedited because there is no need to "negotiate" direct and indirect rates.

Both the contractor and the Government need to be in agreement that an FPRA is desirable. A contractor might want one but the Government might deem the level of pricing activity insufficient to warrant the effort involved in the process of negotiating an agreement. And vice versa.

The primary responsibility for reviewing and negotiating FPRA's is that of the Defense Contract Management Agency (DCMA). The Defense Contract Audit Agency (DCAA) participates when requested. Most of the time, DCAA's assistance is requested.

DCAA recently issued a checklist for FPRPs. This checklist should not be confused with the Agency's checklist for pricing proposals discussed here and available here. The former covers direct and indirect rates only. The latter covers the entire proposal.

Contractors who plan on submitting forward pricing rate proposals should become familiar with the checklist to improve their submissions and reduce the chance that such submission will be declared inadequate and returned to the contractor for correction. Having a proposal returned will significantly delay the process forward pricing rates.

The key to the checklist is the understanding that in submitting forward pricing rate proposals, contractors are still bound by the format/content requirements  of FAR 15.403-5. The requirements for adequately supported direct and indirect cost rates are not lessened when a contractor separately submits an FPRP for the rates.

See related post: More on DCAA's Adequacy Checklist

For those expecting the continuation of the discussion on compensation, we will return to that series in a few days.

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