Long Term Agreement

Introduction

A Long Term Agreement (LTA) is an agreement entered into between a prime contractor and a subcontractor to establish pricing for future purchases of specified items. LTAs are an acceptable pricing method since FAR allows a prime contractor to reach price agreement with a subcontractor in advance of agreement with the Government. It is not uncommon for contractors to enter into an LTA with a subcontractor in advance of a specific Government Request for Proposal (RFP). An LTA can benefit the Government by providing better subcontract pricing due to a more stabilized business volume and reduced acquisition cycle times.

It should be noted that the existence of an LTA negotiated prior to a prime contract award does not relieve the prime contractor from obtaining certified cost or pricing data prior to subcontract award when required by FAR 15.404-3(c).

GUIDANCE

LTAs are an acceptable pricing method since FAR allows a prime contractor to reach price agreement with a subcontractor in advance of agreement with the Government. FAR 15.404-3(c) provides that the contractor obtain and analyze certified cost or pricing data before awarding any subcontract expected to exceed the cost or pricing data threshold (i.e., $700,000 as of October 1, 2010), unless an exception in FAR 15.403-1(b) applies (e.g., adequate price competition, commercial item, etc.). This requirement applies to all subcontract awards regardless of how far in advance a price agreement is reached (see FAR 15.404-3(c)(4)). Contractors are generally not required to obtain updated cost or pricing data when proposed subcontract costs are based on existing LTAs that were negotiated in accordance with applicable FAR and DFARS requirements.