Smith has one-year left on his contract and will paid $7.5 million next year.
"That's an ongoing process as we speak," Dorsey said, via the Associated Press. "We've had communication with his reps and that's kinda where we are. I don't really talk about [negotiations] outside of the building."
The Chiefs acquired Smith from the San Francisco 49ers in February 2013 for the Chiefs' second round pick in the 2013 NFL Draft and a conditional pick in this year's Draft.
MORE COVERAGE: 2014 NFL Free agent signings
Smith completed 61 percent of his passes for 3,313 yards with 23 touchdowns and seven interceptions for the Chiefs last season, leading the team to the playoffs for the first time since 2010. He was also selected to his first Pro Bowl and ran for a career-high 431 yards.