CFCM Pricing and Negotiation 5 â Questions and Answers
Question 1: Under FAR 31.205-6, which of the following compensation elements is generally UNALLOWABLE?
- Base salary at market-competitive rates
- Golden parachute payments contingent on a change in control of the company (Correct answer)
- Annual performance bonuses tied to contract deliverables
- Fringe benefits consistent with the contractor's established policy
Correct answer: Golden parachute payments contingent on a change in control of the company
FAR 31.205-6(l) specifically makes golden parachute and similar change-in-control compensation unallowable as government contract costs.
Question 2: The government negotiating team uses 'BATNA' in preparation. What does BATNA stand for and why is it important?
- Best Alternative To a Negotiated Agreementâit defines the negotiator's walk-away point and strengthens their position (Correct answer)
- Basic Acquisition Terms and Negotiation Authorityâit sets spending limits
- Balanced Approach To Negotiation Analysisâit establishes fair pricing
- Budget Authority Target for Negotiated Acquisitionsâit sets the maximum price
Correct answer: Best Alternative To a Negotiated Agreementâit defines the negotiator's walk-away point and strengthens their position
BATNA (Best Alternative To a Negotiated Agreement) defines what happens if negotiations fail, and knowing it prevents accepting a worse deal than the alternative.
Question 3: A contractor's final indirect cost rates are audited post-award and found to be lower than the rates used in billing. What happens under FAR 42.705?
- The contractor forfeits the difference as a penalty
- The government issues a final indirect cost rate agreement and the contractor refunds the overbilling plus interest (Correct answer)
- The contract price is renegotiated upward to compensate
- No adjustment is made since rates were agreed upon at award
Correct answer: The government issues a final indirect cost rate agreement and the contractor refunds the overbilling plus interest
FAR 42.705 requires settlement of final indirect cost rates, and if billing rates exceeded actual rates, the contractor must refund the excess with interest.
Question 4: Which of the following best describes 'most favored customer' (MFC) pricing in federal contracting?
- Pricing offered only to the Department of Defense
- A requirement that the contractor offer the government prices no less favorable than those offered to the contractor's best commercial customer (Correct answer)
- Pricing that is automatically escalated each year
- Discounted pricing available only through GSA schedules
Correct answer: A requirement that the contractor offer the government prices no less favorable than those offered to the contractor's best commercial customer
MFC pricing requires the contractor to extend to the government pricing at least as good as what its most favored commercial customer receives for similar quantities.
Question 5: Under FAR 15.403-3, when certified cost or pricing data are not required, what information may the contracting officer still require?
- Nothingâif TINA doesn't apply, no cost data can be requested
- Data other than certified cost or pricing data, such as information on prices at which the same or similar items have been sold (Correct answer)
- A full cost accounting system audit
- An independent government appraisal of the item
Correct answer: Data other than certified cost or pricing data, such as information on prices at which the same or similar items have been sold
Even when certified cost or pricing data are not required, FAR 15.403-3 allows the CO to require data other than certifiedâsuch as sales data, catalog prices, or market informationâto support price reasonableness.
Question 6: What is the primary difference between a fixed-price economic price adjustment (EPA) contract and a firm-fixed-price (FFP) contract?
- EPA contracts require certified cost or pricing data; FFP contracts do not
- EPA contracts allow the contract price to be revised upward or downward based on specified contingencies such as labor or material cost changes (Correct answer)
- EPA contracts are used only for construction; FFP is used for services
- EPA contracts eliminate all risk from the contractor
Correct answer: EPA contracts allow the contract price to be revised upward or downward based on specified contingencies such as labor or material cost changes
Economic price adjustment clauses allow preset price revisions tied to identified economic indicators (e.g., Bureau of Labor Statistics indices), protecting both parties from significant cost fluctuations.
Question 7: A contracting officer is negotiating contract modifications after award and discovers the contractor is using the 'salami' tacticâsubmitting many small changes instead of one large modification. What is the best response?
- Approve each modification separately to maintain contractor goodwill
- Consolidate the modifications and require a consolidated cost or pricing analysis for the total change (Correct answer)
- Terminate the contract for convenience
- Request DCAA to audit each individual modification
Correct answer: Consolidate the modifications and require a consolidated cost or pricing analysis for the total change
The salami tactic is used to keep individual changes below certified cost or pricing data thresholds; the CO should aggregate related changes and require appropriate cost data for the total impact.
CFCM Pricing and Negotiation 5
Under FAR 31.205-6, which of the following compensation elements is generally UNALLOWABLE?