May 30, 2000
GOVERNMENT NEGOTIATION OBJECTIVE
PURPOSE: To provide guidance as to when it is appropriate to have more than one position in the development of the Government's negotiation objective.
BACKGROUND: Prior to the rewrite of Part 15 of the NASA Supplement (NFS) to the Federal Acquisition Regulation, the coverage concerning PPMs specifically stated that it would include the Government's negotiation objective and the Government's maximum position. The rewrite eliminated the reference to the Government's maximum position. This was done to have individuals focus on the careful evaluation of proposals to develop a solid, supportable Government objective. The belief was that the maximum position was often a lightly supported number, which too frequently matched an offeror's proposed amount. The deletion of the NFS reference was interpreted by some NASA installations as an absolute prohibition to the development of a maximum position. Although a single Government objective should be the norm, it is recognized that there may be legitimate cases when more than a single position may be appropriate.
GUIDANCE: FAR 15.406-1 and NFS 1815.406-1 set forth the requirement for establishing prenegotiation objectives, while 1815.406-170 establishes the content for the PPM. The prenegotiation objectives assist the contracting officer in the negotiation of a fair and reasonable price. Generally, when a cost evaluation is performed, the PPM should reflect a single Government objective with respect to each cost element and the profit/fee proposed. However, there may be cases when two positions for a cost element and the profit/fee may be appropriate. Such cases would normally fall into one of the following categories: uncertainties, ambiguities, or omissions in an offeror's proposal which could be resolved during negotiations, but it is undesirable to delay negotiations by requesting clarification prior to the development of the prenegotiation plan; reasonable differences in judgment between the offeror and the Government objective; and incomplete information provided by the field pricing support.
An example of each of these categories is as follows:
Uncertainties, ambiguities, or omissions - Offeror's proposal includes costs for a subcontract that has not been negotiated by the prime contractor prior to the contracting officer's preparation of the prenegotiation position memorandum.
Reasonable differences in judgment - In the negotiation of a contract baseline, differences between the Government and a contractor as to how much is overrun/underrun; deleted work; added work; escalation; or how much cost should be fee bearing.
Incomplete field pricing support information - Offeror may be using data from a forward pricing rate proposal on which an audit has not been completed prior to completion of the cost proposal audit.
In those cases when there is more than a single Government position, the two positions should be titled the "Objective" and the "Maximum." The "Objective" is defined as the best estimate of what the effort should cost, and the position where one ideally would like to settle. The "Maximum" is defined as the high end of what it will cost the Government due to the uncertainties/ambiguities/omissions, the differences in judgment, or the incomplete field pricing support information.
The use of "Objective" and "Maximum" positions is not to be the result of inadequate exchanges, fact-finding, or discussions by the Government, or inadequate coordination with other Government agencies. Nor is the "Maximum" position to be a lightly supported amount that parallels the offeror's proposal. Where there is an "Objective" and a "Maximum," the basis for each amount, as well as why it is reasonable, must be explained in detail in the PPM for each element (cost or profit/fee) involved.
If an amount is negotiated in excess of the "Objective," the Price Negotiation Memorandum must provide clear, detailed rationale supporting why the negotiated amount is more reasonable than the "Objective" amount. Such an explanation is required for each element for which there is an "Objective" and a "Maximum." The extent of the explanation should be based on the significance of the dollar amount involved. In addition, since the PPM represents the Government's realistic assessment of the fair and reasonable price for the supplies or services to be acquired, approval to amend the PPM is required if the negotiations will result in a higher dollar amount than the "Maximum" position approved in the PPM, and a clear trail must be presented to support that the higher price was fair and reasonable.
EFFECTIVE DATE: This PIC is effective as dated and shall remain in effect until canceled or superseded.
HEADQUARTERS CONTACT: Joe Le Cren, Code HK, (202) 358-0444, e-mail: email@example.com.
R. Scott Thompson
Director, Contract Management Division