FAR 15.406-1—Prenegotiation objectives.
Plain-English Summary
FAR 15.406-1 explains how the Government prepares for price or cost negotiations by setting prenegotiation objectives. This section covers the purpose of those objectives, the information that should support them, when they must be established, how much analysis is appropriate, and what must be documented when cost analysis is required. In practice, it tells the contracting officer to build an initial Government negotiation position based on a reasoned review of the offeror’s proposal and all relevant pricing data, including field pricing assistance, audit reports, technical analysis, fact-finding results, independent Government cost estimates, and price histories. The rule is important because prenegotiation objectives are the foundation for determining whether a proposed price is fair and reasonable and for guiding the Government’s negotiation strategy. It also reinforces that the depth of analysis should match the dollar value, importance, and complexity of the action, so the Government does not over- or under-analyze a pricing action. When cost analysis applies, the section requires the contracting officer to identify the issues to be negotiated and document cost and profit or fee objectives, creating a clear record of the Government’s position before negotiations begin.
Key Rules
Set initial negotiation position
Prenegotiation objectives are the Government’s starting point for negotiations. They are not the final answer, but they establish the Government’s initial position on price, cost, profit, or fee.
Support fair and reasonable price
The objectives must help the contracting officer determine whether the proposed price is fair and reasonable. They should be grounded in analysis rather than negotiation preference or unsupported judgment.
Use all pertinent information
The contracting officer should base the objectives on the proposal analysis and consider all relevant data, including field pricing assistance, audit reports, technical analysis, fact-finding results, independent Government cost estimates, and price histories.
Establish before negotiations
The contracting officer must establish prenegotiation objectives before negotiating any pricing action. This is a mandatory pre-negotiation step, not something that can be created after discussions begin.
Match analysis to complexity
The scope and depth of the supporting analysis should be proportional to the dollar value, importance, and complexity of the pricing action. Higher-risk or higher-dollar actions require more robust analysis.
Document cost analysis issues
When cost analysis is required, the contracting officer must document the issues to be negotiated, the cost objectives, and a profit or fee objective. This creates a record of the Government’s rationale and negotiation targets.
Responsibilities
Contracting Officer
Analyze the offeror’s proposal and all pertinent supporting information, establish prenegotiation objectives before negotiations start, tailor the depth of analysis to the value and complexity of the action, and document the issues, cost objectives, and profit or fee objective when cost analysis is required.
Field Pricing Assistance Personnel
Provide pricing support and field-level information that may inform the contracting officer’s analysis and help shape the Government’s negotiation position.
Auditors
Provide audit reports or other audit-based findings that the contracting officer may use in evaluating proposed costs, pricing data, and reasonableness.
Technical Personnel
Provide technical analysis and fact-finding results that help assess the realism, scope, and technical basis of the offeror’s proposal.
Price Analysts / Acquisition Team Members
Support development of independent Government cost estimates, price history reviews, and other analytical inputs that inform the prenegotiation objectives.
Offeror
Submit a proposal that can be evaluated against the Government’s analysis; while not assigned a duty in this section, the offeror’s proposal is the primary subject of the contracting officer’s review.
Practical Implications
Prenegotiation objectives should be prepared early enough to guide the negotiation strategy, not drafted as a formality after discussions are underway.
A weak or unsupported objective can lead to poor negotiation outcomes, difficulty defending the final price, or inadequate documentation for the contract file.
The required analysis should be scaled to the action; over-analyzing a small, routine action wastes time, while under-analyzing a major action creates risk.
Contracting officers should make sure the file shows how the objective was derived from proposal analysis and supporting data, especially when audit or technical inputs drive the result.
When cost analysis is required, failing to document the issues, cost objective, and profit or fee objective is a common compliance gap and can undermine the negotiation record.
Official Regulatory Text
(a) The prenegotiation objectives establish the Government’s initial negotiation position. They assist in the contracting officer’s determination of fair and reasonable price. They should be based on the results of the contracting officer’s analysis of the offeror’s proposal, taking into consideration all pertinent information including field pricing assistance, audit reports and technical analysis, fact-finding results, independent Government cost estimates and price histories. (b) The contracting officer shall establish prenegotiation objectives before the negotiation of any pricing action. The scope and depth of the analysis supporting the objectives should be directly related to the dollar value, importance, and complexity of the pricing action. When cost analysis is required, the contracting officer shall document the pertinent issues to be negotiated, the cost objectives, and a profit or fee objective.