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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: May 26, 2000

FROM: Barry McVay, CPCM

SUBJECT: National Aeronautics and Space Administration (NASA); Procurement Information Circular (PIC) 00-04, Government Negotiation Objective

SOURCE: PIC 00-04, May 30, 2000

AGENCIES: NASA

ACTION: Notice

SYNOPSIS: PIC 00-04 provides guidance to contracting officers on when it is appropriate to have more than one position in the development of the government's negotiation objective.

EDITOR'S NOTE: The portions of the NASA Federal Acquisition Regulation (FAR) Supplement (NFS) addressed by PIC 00-04 are NFS 1815.406-1, Prenegotiation Objectives, and NFS 1815.406-170, Content of the Prenegotiation Position Memorandum.

EFFECTIVE DATE: PIC 00-04 is effective May 30, 2000, and will remain in effect until canceled or superseded.

FOR FURTHER INFORMATION CONTACT: Joe Le Cren, Code HK, 202-358-0444, e-mail: jlecren@hq.nasa.gov.

SUPPLEMENTAL INFORMATION: Prior to the rewrite of NFS Part 1815, Contracting by Negotiation, on February 27, 1998, the coverage concerning prenegotiation position memoranda (PPM) specifically stated that the PPM would include the government's negotiation objective and the government's maximum position. The NFS Part 1815 rewrite eliminated the reference to the government's maximum position so contracting officers would 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.

However, the deletion of the NFS reference was interpreted by some NASA installations as an absolute prohibition to the development of a maximum position. This is not the case. Although a single government objective should be the norm, it is recognized that there may be legitimate 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 (for example, an offeror's proposal includes costs for a subcontract that has not been negotiated prior to the contracting officer's preparation of the PPM; reasonable differences in judgment between the offeror and the government objective (for example, 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); and incomplete information provided by the field pricing support (for example, the 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 cases like these, PIC 00-04 states that 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." However, the PIC goes on to warn that "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...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."

The PIC goes on to specify that negotiated amounts that exceed the "Objective" must be supported by a "clear, detailed rationale" in the Price Negotiation Memorandum (PNM). "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."

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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