A PNM is not a formality. It is the record of how you determined the Government paid a fair price. You are not trying to win a negotiation - you are trying to document that both parties arrived at a price that is fair and reasonable. That distinction changes everything about how you approach the table.
How to document the principal elements of a negotiated agreement, set pre-negotiation objectives, and determine that a price is fair and reasonable. Governed by FAR 15.406.
A Price Negotiation Memorandum is the contracting officer's written record of how the negotiated price was reached and why it is fair and reasonable. FAR 15.406-3 requires the PNM for all negotiated contracts and modifications to document the principal elements of the agreement - what each party proposed, what techniques were used, what concessions were made, and what the CO ultimately determined about the price.
PNMs are required for negotiated procurements - primarily Part 15 acquisitions and price-only modifications to existing contracts. Sealed bidding under FAR Part 14 does not require a PNM because there is no negotiation. For simplified acquisitions under the simplified acquisition threshold, documentation requirements are less prescriptive, but the CO still needs to document the basis for the fair and reasonable price determination in the contract file.
Key TINA exceptions to know: Adequate price competition is the most common exception - when you receive two or more responsive offers and award to the lowest-priced or best-value offeror after competition, you typically do not need certified cost or pricing data. Catalog prices and established commercial prices are another exception. Below the $2M threshold, you use data other than certified cost or pricing data - things like market research, prior prices, catalog comparisons, or an IGE.
FAR 15.406-1 requires the contracting officer to establish pre-negotiation objectives before any negotiation begins. These are not just a number - they are a documented position that tells you where you want to land and why. The pre-negotiation objective memo (sometimes called the pre-neg or PNO) establishes the Government's position on price, profit or fee, and any other significant terms before the CO sits down with the contractor.
Why does this matter? Because without a pre-negotiation objective, you have no anchor. You walk into the room not knowing your walk-away point, not knowing what concessions you can make, and not knowing whether the deal you leave with is actually good. The contractor who comes in with a detailed technical proposal and a confident price has done their homework. If you have not done yours, you are negotiating blind.
The pre-neg objective is also where you document what analysis you did. Did you use the IGE? Comparison to prior purchases? Market research? Field pricing assistance from DCAA or DCMA? A technical evaluation of labor hours? All of that feeds into the pre-neg and ultimately into the PNM. If you skip the pre-neg, you also lose the analytical foundation for the PNM.
A contractor submits a proposal for $1.8M on a services contract. The IGE is $1.4M. Before negotiations, the CO documents a pre-negotiation objective of $1.45M, identifies the specific areas where the contractor's proposal appears excessive (labor hours in Phase 2, material costs without adequate support), and notes the profit objective is 10%. When the contractor opens at $1.8M and the CO pushes back, the CO is not guessing - they have specific, documented reasons why Phase 2 hours are too high. That is a negotiation. Without the pre-neg, it is just a conversation about whose number sounds better.
This is the single most important mindset shift for a new contracting officer entering price negotiations. You are not trying to win. You are not trying to get the lowest possible price. You are not trying to grind the contractor into the ground. You are trying to arrive at a price that is fair and reasonable to both the Government and the contractor.
What does fair and reasonable mean in practice? It means the price is realistic for the work to be done - not so high that the Government overpays, but not so low that the contractor cannot perform and may cut corners or submit a claim later. A contractor who accepts an impossibly low price to win the contract is a problem waiting to happen. The Government's interest is served by contractors who can actually deliver at the agreed price with quality and on schedule.
Practically, this means you approach negotiations with respect, not adversarial energy. You explain your analysis when you push back on a number. You listen when the contractor explains their rationale. You make concessions when the contractor's position is supported. You hold firm when it is not. And when you are done, the contractor should understand why the agreed price is fair even if it is lower than what they proposed.
The contractor is also a party with legitimate interests. If you squeeze a contractor's profit to zero on a five-year services contract, you should not be surprised when they under-staff it, request equitable adjustments, or walk away at the first option period. Sustainable contracts come from fair prices - not from COs who treated negotiations as combat.
FAR 15.406-3(a) lays out the required elements of the PNM. Every element has a purpose - together they tell the story of how the Government arrived at the negotiated price and why it is defensible.
Answer the questions below and the tool will generate draft language for each required PNM section. Copy individual sections or use the full output as a starting framework.
Review and edit each section before incorporating into your official memorandum.
🔒 Placeholder text in red must be filled in before use. Do not include source-selection sensitive information.When you negotiate a contract and need to determine a fair profit, you can't just pick a number out of thin air. The Government uses a structured method called Weighted Guidelines (DFARS 215.404-71) to calculate what profit a contractor actually deserves based on five factors. Each factor gets a percentage rate, you multiply it against relevant costs, and add them all up. The result is your negotiation objective for profit.
This method is required whenever you have cost or pricing data (TINA applies) - so typically sole source awards or modifications above $2 million. You document everything on DD Form 1547, which becomes part of your price negotiation record.
The primary reference for PNM requirements. FAR 15.406-1 covers pre-negotiation objectives; FAR 15.406-3 covers the PNM itself and its required elements.
Open FAR 15.4The standard for what makes a price fair and reasonable, and the contracting officer's responsibility to determine it before award.
Open FAR 15.405The toolbox for determining price reasonableness - competition, prior prices, market research, parametric estimates, cost analysis, and more.
Open FAR 15.404-1Structured approach to establishing the Government's profit or fee objective. Includes weighted guidelines for cost-type and fixed-price contracts.
Open FAR 15.404-4When certified cost or pricing data is required, the $2M threshold, and the consequences of defective pricing.
Open FAR 15.403-4Adequate price competition, commercial items, catalog prices, and other exceptions that waive the certified cost or pricing data requirement.
Open FAR 15.403-1DoD-specific PNM requirements including additional documentation for profit analysis, DCAA involvement, and modifications over $15M.
Open DFARS 215.406-3DoD supplements to FAR price analysis, including requirements to use SPRS, consider prior prices paid, and document the basis for profit.
Open DFARS 215.404-1