10.4 Negotiating Terms and Conditions

Once the contracting officer has identified, through market research, the commercial terms and conditions he or she wishes to include in a particular solicitation, the next challenge is to negotiate them with the contractor. FAR Part 12 allows COs to accept offers that include terms and conditions that differ from those in the solicitation. COs should be cautious, however, when evaluating differing terms and conditions.

Many commercial companies have their own preprinted terms and conditions, and companies and trade associations often consider their own terms and conditions to be the standard within the industry. However, no mandatory or standard terms and conditions exist in the private sector. All terms and conditions in commercial agreements are negotiable between the parties to each specific agreement, and the negotiation results are largely governed by the market leverage of the buyer and seller.

This does not mean, however, that every single term and condition for every single contract is separately negotiated. That would be too inefficient and makes no business sense. Rather, it is the customary commercial practice to start with preprinted terms and conditions, and negotiate differences on an exceptional basis. FAR Part 12 envisions the same general scenario for terms and conditions for the Government's commercial item contracts.

It is important for the buyer to remember that industry has no standard terms and conditions. The buyer must not be persuaded by the offeror that, just because the offeror has preprinted terms and conditions, they automatically represent standard or customary commercial practice. Rather, the buyer should rely on market research to identify those terms and conditions that are most typical (i.e., customary commercial practice) for commercial agreements similar to the one that the buyer is planning to award.

The terms and conditions prescribed in FAR Part 12 seek to balance the interests of both the buyer and seller. These terms and conditions are generally appropriate for use in a wide range of acquisitions. However, market research may indicate that other customary commercial practices are appropriate for the acquisition of a particular item. These practices should be considered for incorporation into the solicitation and contract if the contracting officer determines that they are appropriate for concluding a business arrangement that is satisfactory to both parties and not otherwise precluded by law or executive order.

Customary commercial practice is an excellent indicator of the appropriateness of using particular terms and conditions in a solicitation and the resulting contract. When customary commercial practice indicates that a particular matter should be the subject of a provision or clause, it may be helpful, therefore, to compare the existing FAR system provisions and clauses with customary commercial practices. The contract should not be inundated with unnecessary provisions and clauses, but those that are deemed appropriate for the acquisition should not be left out.