Establish fair and reasonable forward pricing rates
The acronym ACO as used in this
instruction could refer to either Corporate Administrative
Contracting Officer (CACO), Divisional Administrative
Contracting Officer (DACO) or Administrative Contracting
Officer unless specified otherwise.
For the special Programs
Directorate, the approval authority for actions herein
remains with the appropriate CMO Contracts director.
DACOs and CACOs assigned to the Special Programs Directorate
will not be realigned to the cost and Pricing Center.
1.1. The ACO shall determine whether a forward pricing rate agreement
(FPRA) or forward pricing rate recommendation (FPRR) will be established. FAR 42.1701(a)
1.1.1. A FPRA is a written
agreement negotiated between a contractor and the Government to make certain
rates available during a specified period for use in pricing contracts or
1.1.2. A FPRR is a set of
rates and factors unilaterally established by the ACO for use by the
Government in negotiations or other contract actions when forward pricing
rate agreement negotiations have not been completed or when the contractor
will not agree to a forward pricing rate agreement.
1.2. (ND) The ACO shall establish a FPRA or FPRR for all contractors with
more than $200 million annual sales unless the ACO makes a written
determination that the contractor will not have a significant volume of
Government contract proposals in future periods. The CMO Contracts
Director shall approve any ACO written determination not to establish a
FPRA/FPRR for a contractor with more than $200 million annual Government
sales. 1.3. The FPRA or FPRRs should represent
reasonable projections of specific costs that are not easily estimated,
identified with or generated by a specific contract end item or task.
The FPRA or FPRR could include rates for such things as labor, indirect
costs, general and administrative expenses, and cost of money factors.
If the contractor uses forward pricing factors (FPFs) to estimate costs, the
ACO should establish FPFs as part of the FPRA or FPRR. FPFs are
usually expressed as a percentage or ratio that is applied to another cost
or estimate to allocate or estimate prices. Labor fringes, escalation
factors, scrap, and special tooling are examples of FPFs. 1.4. (ND) Once a decision is
made that a FPRA or FPRR is appropriate the ACO will enter the contractor
information into the FPRA eTool application and indicate "yes" in the
application that the contractor meets the criteria above.
2.1. Integrated Process Team (IPT) Approach.
The ACO should determine if the IPT approach is appropriate. Under
the IPT approach, the Government evaluates the basis of estimates as they
are developed prior to submission of a comprehensive proposal.
When the IPT approach is used, the ACO shall obtain the
contractor's comprehensive proposal that includes cost and pricing data that
are accurate, complete and current as of the date of submission at the
conclusion of the proposal review. FAR 42.1701(b) The
IPT approach is appropriate when:
2.1.1. The contractor's estimating
system is adequate.
2.1.2. Historically, there have been
no significant differences between prior estimated rates and the actual
2.1.3. The contractor agrees to use
2.2. Complete Proposal Approach. If the ACO determines
the IPT approach is not appropriate, the ACO will use the complete
proposal approach. Under the complete proposal approach, the ACO shall obtain
the contractor's proposal and require that it include cost and pricing data
that are accurate, complete and current as of the date of submission. FAR 42.1701(b) The
Government then evaluates the basis of estimates and determines whether the
supporting cost or pricing data are accurate, complete and current after the
contractor submits the proposal.
2.3. Under either approach, the ACO shall not require
the contractor to execute a Certificate of Current Cost or Pricing Data as
part of the FPRA/FPRR process. FAR 42.1701(b) Contractors certify to the rates as part
of results of negotiation of individual contracts and modifications. FAR 15.406-2
3. Determine Review Team Membership. The ACO should determine the
types of specialists (e.g., price/cost analysts, industrial specialists,
engineers) needed to evaluate the contractor's proposal.
3.1. To make a determination, the ACO should
3.1.1.Materiality of bases and pools; 3.1.2. Status of the
contractor's estimating system and other accounting systems and related
control systems including any identified deficiencies in the contractor's
budgeting system; 3.1.3. Historical
differences between the contractor's forecasted and actual rates; 3.1.4. Changes in the
contractor's organization, operations, manufacturing processes and
practices, business volume, and allocation bases; and,
3.1.5. The mix of Government and
commercial business and types of Government contracts, e.g., fixed-price,
cost-reimbursement, time-and-materials, labor hour.
3.2. The ACO shall invite DCAA and
contracting offices having a significant interest to participate in the
review. FAR 42.1701(b)
4.1. Continuous Update Approach.If part of an
existing FPRA becomes invalid, the ACO should negotiate a continuous update
to the existing FPRA instead of invalidating the entire FPRA. FAR 42.1701(e)
Under this approach, the ACO shall require the contractor to submit a
proposal for the parts of the FPRA that are invalid.
4.2. Complete FPRA/FPRR Approach. If there is no
existing FPRA or the preponderance of the existing FPRA is invalid, the ACO
shall require the contractor to submit a proposal for the entire FPRA.
5. Conduct Proposal Review. The review team
will determine whether:
5.1. The contractor's bases
of estimates are reasonable;
5.2. The supporting cost or
pricing data are accurate, complete and current;
contractor's estimating practices comply with the contractor's disclosed or
established cost accounting practices;
business volume, allocation bases, and indirect costs are reasonable and in
consonance with contractor and customer business projections;
5.5. Rate data are
valid and correct; and,
computations are mathematically correct.
6.1. The ACO shall develop the pre-negotiation
objectives (PNO). FAR 15.406-1 The PNO represents the ACO's initial negotiation
position. The scope and depth of the analysis supporting the PNO should be
directly related to the dollar value, importance, and complexity of the
contractor's overall rates and individual elements of cost.
6.2. (ND) The ACO shall fully consider the findings and recommendation of DCAA
and the technical specialist. However, the ACO should not postpone the establishment of a FPRA or
establish FPRRs in lieu of a FPRA pending receipt of a DCAA audit report.
FPRAs and FPRRs are living, evolving projections of costs. When the
DCAA audit report is not received within a reasonable time, the ACO should
continue to pursue negotiation of a FPRA. 6.3. (ND) The ACO shall
document in the PNO:
An affirmative statement that the ACO agreed or disagreed with each audit or
other specialist's (price/cost analyst, legal) findings and recommendations.
rationale to resolve each audit or other specialist's recommendation. The
rationale must demonstrate that the ACO has considered all appropriate FAR,
DFARS, and DCMA Instructions related to the issues raised or questioned by
DCAA (e.g., cost principles, Cost Accounting Standards).
6.4. The ACO shall invite DCAA and contracting offices
having significant dollar interest to participate in the preliminary
discussions in the development of a negotiation position. FAR 42.1701(b)
6.5. (ND) The CMO ACO shall obtain
approval of the PNO from the CMO Contracts Director and any requiredContract Management Boards of Review (BoR) approvals
before entering into negotiations. LATEST CHANGE CACOs and DACOs shall
obtain approval of the PNO from the Director of Corporate/Divisional
Administrative Contracting Officer Group. All FPRAs require
approval by the Operations Directorate BoR before entering into
7.1. The ACO should negotiate rates as soon as possible.
7.2. The ACO shall invite DCAA and
contracting offices having significant dollar interest to participate in the
negotiations. FAR 42.1701(b)
7.3. If agreement is reached, the ACO should establish
a FPRA. The FPRA will:
7.3.1. Specify the agreed upon rates.
7.3.2. Specify bases
to which the rates apply. 7.3.3. Provide specific terms and
conditions covering expiration, application, and data requirements for
systematic monitoring to ensure the validity of the rates. FAR 42.1701(c)and (e) 7.3.4. Require the contractor to periodically:
126.96.36.199. Compare the actual rates with the FPRA and immediately inform
the ACO of any:
188.8.131.52.1. Significant variances from actual rates to the FPRA.
184.108.40.206.2. Other conditions that may invalidate the rates.
220.127.116.11. Provide the ACO comparisons of updated projected sales
forecasts and other base assumptions to the data used to establish the
forward pricing rates in the out years.
7.3.5. Specify other
specific reports the contractor will be required to provide the ACO to
permit adequate rate monitoring (e.g., direct labor
rates, direct labor dollars, indirect expenses, and sales forecasts). 7.3.6. Specify the frequency of the contractor's required reporting and analysis. 7.3.7. Provide for
cancellation at the option of either party. FAR 42.1701(c)
7.5. If a rate agreement is not reached,
the ACO shall unilaterally establish an FPRR. FAR 42.1701(d) The FPRR should include the recommended rates and the
specific bases to which the rates apply.
7.6. (ND) The ACO will enter the
details of the FPRA/FPRR in the Forward Pricing Rates eTool application
and update the data as appropriate.
8.1.1. The purpose of
name, position, and organization of each person representing the contractor
and the Government in the negotiations.
current status of any contractor systems (e.g., purchasing, estimating,
accounting) to the extent they affected and were considered in the
summary of the contractor's proposal, any field pricing assistance
recommendations, including the reasons for any pertinent
variances from them, the Government's negotiation objective, and the
8.1.5. The most
significant facts or considerations controlling the establishment of the
pre-negotiation objectives and the negotiated agreement including an
explanation of any significant differences between the two positions.
Address whether the ACO sustained the positions by cost element as
identified in the pre-negotiation memorandum. For any pre-negotiation
positions not sustained, the negotiated positions will be supported by sound
rationale based on additional information that became available during negotiation.
8.1.7. State which cost and
pricing data provided by the contractor was relied upon in reaching
8.2. (ND) LATEST CHANGE For FPRAs, the ACO, CACOs and DACOs shall
obtain approval of the negotiation memorandum from the HQ BoR, performed by
the Cost and Pricing Center, Corporate/Divisional
Administrative Contracting Officer Group before executing the FPRA. For FPRRs,
CMO ACOs shall obtain
approval of the negotiation memorandum from the CMO Contracts Director. LATEST CHANGE CACOs and DACOs shall obtain approval from the
Director of Corporate/Divisional Administrative Contracting Officer Group. Both Directors may delegate this action to a level no lower than
the contract team or group supervisor/leader.
9. Distribute Rate Agreement and Negotiation Memorandum
9.1. The ACO should promptly distribute a copy of the
signed rate agreement to the contractor.
9.2. The ACO shall promptly distribute signed copies
of the rate agreement and negotiation memorandum or rate recommendation to
DCAA and all contracting offices that are known to be affected by the rates. FAR 42.1701(b)
10.1. (ND) The ACO or
designated cost monitor shall continually monitor the rates and periodically
compare and analyze:
10.1.1.The contractor's actual rates versus the forward pricing rates. 10.1.2.Updated projected
sales forecasts and other base assumptions versus the data used to
establish the forward pricing rates in the out years. 10.1.3. Any other specific reports the contractor will be required
to provide the ACO to permit adequate rate monitoring (e.g., direct labor rates, direct labor dollars, indirect expenses, and sales
10.2. (ND) If the ACO receives an audit report on
the FPRA or FPRR, the ACO shall immediately assess the validity of FPRA or
FPRR when the audit report is received. If the ACO determines that the FPRA
or FPRR is still valid, the ACO shall prepare a supplemental negotiation
affirmative statement that the ACO agrees or disagrees with each audit
finding and recommendation. 10.2.2. Sound rationale for resolving each audit finding and recommendation. The
rationale must demonstrate that the ACO has considered all appropriate FAR,
DFARS, and DCMA Instructions related to the issue raised or questioned by DCAA.
10.3. If the ACO determines that part
or all of the FPRA is invalid, the ACO shall request the contractor to submit and negotiate a new proposal to
reflect the changed conditions. FAR 42.1701(d). 10.4. If an FPRA has not been established or has been
invalidated, the ACO shall issue a FPRR to buying activities with sufficient
documentation to assist negotiators. FAR 42.1701(d)