FAR FAR Contract Negotiations & Price Reasonableness 2 — Questions and Answers
Question 1: What is the primary objective of the contracting officer's pre-negotiation activities under FAR 15.406-1?
- To maximize government profit share on cost contracts
- To establish a pre-negotiation objective including a documented price objective (Correct answer)
- To minimize contractor overhead rates before negotiations
- To establish contractor accounting procedure requirements
Correct answer: To establish a pre-negotiation objective including a documented price objective
FAR 15.406-1 requires the contracting officer to establish a pre-negotiation objective, including a price objective, based on analysis of the contractor's proposal.
Question 2: Which of the following is NOT a recognized exception to certified cost or pricing data requirements under FAR 15.403-1(b)?
- Adequate price competition
- Prices set by law or regulation
- Acquisition of a commercial item
- Contract value below the simplified acquisition threshold (Correct answer)
Correct answer: Contract value below the simplified acquisition threshold
FAR 15.403-1(b) exceptions include adequate price competition, prices set by law, commercial items, and waiver by the agency head—not merely falling below the simplified acquisition threshold.
Question 3: What must the contracting officer document in the price negotiation memorandum (PNM) per FAR 15.406-3?
- Only the final agreed-upon contract price
- The basis for the profit or fee objective and the negotiated profit or fee, among other required elements (Correct answer)
- The contractor's complete financial statements
- Prior contract performance ratings for all team members
Correct answer: The basis for the profit or fee objective and the negotiated profit or fee, among other required elements
FAR 15.406-3 requires the PNM to document the basis for the profit or fee objective and negotiated result, along with other specified elements supporting the negotiated price.
Question 4: Under FAR 15.404-4, which structured approach is prescribed for analyzing and negotiating profit or fee on cost-type contracts?
- Return on investment analysis
- Weighted guidelines method or an alternative structured approach (Correct answer)
- Cost plus percentage of cost analysis
- Profit sharing ratio determination
Correct answer: Weighted guidelines method or an alternative structured approach
FAR 15.404-4 prescribes the weighted guidelines method or an alternative structured approach for profit and fee analysis on negotiated contracts.
Question 5: When a contracting officer questions a contractor's proposed costs as unreasonable, what action is required under FAR 15.404-1?
- Reject the proposal outright and request a new submission
- Document the basis for questioning the costs and negotiate adjustments to reach a fair and reasonable price (Correct answer)
- Immediately award to the next lowest-priced offeror
- Issue a cure notice and allow 10 days for correction
Correct answer: Document the basis for questioning the costs and negotiate adjustments to reach a fair and reasonable price
When proposed costs are questioned, the contracting officer must document the rationale and negotiate with the contractor to arrive at a fair and reasonable price.
Question 6: What is 'should cost' analysis under FAR 15.407-4?
- A historical analysis of what prior similar contracts actually cost
- A government team assessment of what a contractor's program should cost based on efficient operations (Correct answer)
- A DCAA audit of contractor overhead and G&A rates
- A review of competitive market pricing benchmarks
Correct answer: A government team assessment of what a contractor's program should cost based on efficient operations
FAR 15.407-4 defines 'should cost' as a multidisciplined government team analysis determining what a program should cost, aimed at promoting efficient contractor operations.
FAR FAR Contract Negotiations & Price Reasonableness 2
What is the primary objective of the contracting officer's pre-negotiation activities under FAR 15.406-1?