FAR 42.1701—Procedures.
Plain-English Summary
FAR 42.1701 explains the procedures for negotiating and maintaining forward pricing rate agreements (FPRAs) and, when an FPRA is not available, issuing forward pricing rate recommendations (FPRRs). It covers who may request an FPRA, how the administrative contracting officer (ACO) decides whether to establish one, and when the cognizant contract administration agency makes the final determination. The section also addresses the contractor’s forward pricing rate proposal, the requirement for accurate, complete, and current cost or pricing data, and the need to involve the cognizant contract auditor and affected contracting offices in developing the Government objective and negotiating the agreement. It further requires a price negotiation memorandum (PNM) and distribution of the FPRA and PNM to relevant parties, and it sets out the content of the FPRA itself, including expiration, application, data requirements, monitoring, cancellation rights, and notice of significant changes. Finally, it explains what happens when an FPRA becomes invalid, including the use of an FPRR or other support for rates, and allows continuous updates to the FPRA. In practice, this section is about creating a reliable, documented basis for future pricing so both the Government and contractor can negotiate proposals more efficiently and with less risk of using outdated or unsupported rates.
Key Rules
FPRA may be requested
Either the contracting officer, the contractor, or the ACO may request negotiation of an FPRA. The ACO should weigh whether the expected benefit justifies the effort of establishing and monitoring the agreement.
Use FPRAs selectively
FPRAs are normally appropriate only for contractors with a significant volume of Government contract proposals. The cognizant contract administration agency decides whether an FPRA will be established.
Submit supported rate proposal
The ACO must obtain the contractor’s forward pricing rate proposal and require cost or pricing data that are accurate, complete, and current as of the submission date, subject to the cited exception in FAR 15.407-3(c).
Include key stakeholders
The ACO must invite the cognizant contract auditor and contracting offices with a significant interest to help develop the Government objective and participate in negotiations. This helps ensure the rates are credible and usable across affected procurements.
Document the negotiation
After negotiations, the ACO must prepare a price negotiation memorandum and send copies of the PNM and FPRA to the cognizant auditor and all known affected contracting offices.
Define FPRA terms clearly
The FPRA must state its expiration, how it applies, what data must be provided, and how the rates will be systematically monitored to confirm they remain valid. It must also allow cancellation by either party and require notice of significant changes in the supporting data.
Address invalid or missing rates
If an FPRA becomes invalid, the contractor should submit a new proposal reflecting changed conditions. If no FPRA exists or it has been invalidated, the ACO issues an FPRR with supporting documentation; if neither exists, the ACO must provide support for the rates used.
Allow continuous updates
The ACO may negotiate continuous updates to the FPRA. Any updated FPRA must still include clear terms for notification, application, and data requirements, along with systematic monitoring to keep the rates valid.
Responsibilities
Contracting Officer
May request FPRA negotiations and should identify when an agreement would improve pricing efficiency and consistency. The contracting officer also relies on the FPRA, FPRR, or other support when evaluating proposed rates in acquisitions.
Contractor
May request an FPRA and must submit a forward pricing rate proposal supported by accurate, complete, and current cost or pricing data. The contractor must also notify the ACO and cognizant auditor of significant changes in the data supporting the FPRA and submit a new proposal if the FPRA becomes invalid.
Administrative Contracting Officer (ACO)
Decides whether an FPRA will be established, obtains the contractor’s proposal, invites the auditor and affected contracting offices to participate, negotiates the agreement, prepares the PNM, distributes the FPRA and PNM, monitors validity, and may negotiate continuous updates. If no FPRA exists or it is invalid, the ACO issues an FPRR or otherwise supports the rates used.
Cognizant Contract Administration Agency
Makes the determination whether an FPRA will be established and oversees the administration of the agreement within its cognizance.
Cognizant Contract Auditor
Participates in developing the Government objective and in negotiations when invited, receives the PNM and FPRA, and is notified of significant changes in the data supporting the agreement.
Affected Contracting Offices
Participate in developing the Government objective and negotiations when they have a significant interest, and receive copies of the PNM and FPRA if they are known to be affected by the agreement.
Practical Implications
FPRAs are a workload-saving tool, but only when the contractor has enough recurring proposals to justify the administrative effort. For one-off or low-volume contractors, the Government may be better served by other pricing support methods.
The quality of the underlying data is critical. If the contractor’s cost or pricing data are stale, incomplete, or inaccurate, the FPRA can quickly become unreliable and create downstream pricing problems.
Communication matters after the agreement is signed. Significant changes in labor rates, overhead, material assumptions, or other support data must be reported, or the FPRA may be challenged as invalid.
When no FPRA exists, buyers should not assume rates are self-evident. The ACO must provide an FPRR or other documentation supporting the rates used, which helps negotiators but also creates a record that can be scrutinized later.
A common pitfall is treating an FPRA as permanent. The agreement must be monitored, can be canceled by either party, and may need continuous updates or replacement when conditions change.
Official Regulatory Text
(a) Negotiation of forward pricing rate agreements (FPRA’s) may be requested by the contracting officer or the contractor or initiated by the administrative contracting officer (ACO). In determining whether or not to establish such an agreement, the ACO should consider whether the benefits to be derived from the agreement are commensurate with the effort of establishing and monitoring it. Normally, FPRA’s should be negotiated only with contractors having a significant volume of Government contract proposals. The cognizant contract administration agency shall determine whether an FPRA will be established. (b) The ACO shall obtain the contractor’s forward pricing rate proposal and require that it include cost or pricing data that are accurate, complete, and current as of the date of submission (but see 15.407-3 (c)). The ACO shall invite the cognizant contract auditor and contracting offices having a significant interest to participate in developing a Government objective and in the negotiations. Upon completing negotiations, the ACO shall prepare a price negotiation memorandum (PNM) (see 15.406-3 ) and forward copies of the PNM and FPRA to the cognizant auditor and to all contracting offices that are known to be affected by the FPRA. (c) The FPRA shall provide specific terms and conditions covering expiration, application, and data requirements for systematic monitoring to ensure the validity of the rates. The agreement shall provide for cancellation at the option of either party and shall require the contractor to submit to the ACO and to the cognizant contract auditor any significant change in cost or pricing data used to support the FPRA. (d) When an FPRA is invalid, the contractor should submit and negotiate a new proposal to reflect the changed conditions. If an FPRA has not been established or has been invalidated, the ACO will issue a forward pricing rate recommendation (FPRR) to buying activities with documentation to assist negotiators. In the absence of an FPRA or FPRR, the ACO shall include support for rates utilized. (e) The ACO may negotiate continuous updates to the FPRA. The FPRA will provide specific terms and conditions covering notification, application, and data requirements for systematic monitoring to ensure the validity of the rates.