The regulatory environment changes with each session of Congress and each National Defense Authorization Act. The interpretation and application of these regulations is subject to change with each agency, most notably the DoD which has different requirements for commercial items and intellectual property rights, two subjects with strong ties. Come learn more about the regulatory hurdles in selling “commercial items” to the Government. The Government has a stated preference to purchase commercial items whenever possible, and have commercial items incorporated into non-commercial deliverables as addressed FAR 12.000 and 12.101, respectively. One of the main reasons Government wanted to participate in the commercial marketplace was to take advantage of the efficiencies and cost reductions that naturally occur as part of commercial competition. In particular, Government realized that many requirements were onerous and unnecessary, adding time and money to acquisitions. "We must avoid placing our non-value added, unique government administrative processes on contract when a commercial equivalent protects our and the customer’s interests." (Commercial Pricing Information Guide) One of the trade-offs in the commercial marketplace is the relinquishment of some intellectual property rights. Some argue that the availability of commercial item exemptions is narrowing due to abuse and misuse as documented in a number of attempts to change the regulations. Specifically, there is a push to change the “of a type” definition of a commercial item in FAR 2.101. The phrase "of a type" was specifically included in the Federal Acquisition Streamlining Act of 1994 (FASA) because Congress wanted a broad interpretation of commercial items. Note that FASA did not remove price "justification" (one of the exemptions) for commercial suppliers; the requirement has always been for the Contracting Officer to determine price reasonableness, something that suppliers are still obligated to support. FASA established a preference for the types of information used to assess price reasonableness and made submission of cost or pricing data the least preferred method of determining price reasonableness. FAR 15.402 is clear that contracting officers shall purchase supplies and services from responsible sources at fair and reasonable prices. It seems the DOD has developed an aversion to buying commercial items and issued a final rule that, among other things, requires the supplier to provide market and cost data for commercial items acquisitions exceeding $1 million. The new rule applies only to suppliers utilizing the “of a type” category of commercial items, and will require the supplier to provide pricing and cost data, but no justification or explanation of such data. (77 Fed. Reg. 11480, 3/12/2012) (DFARS 212.102)

2. Breakout Session #C05
Robert E. Jones, Advisor, Left
Brain Professionals Inc.
Monday, July 28, 2014
4:00 PM – 5:15 PM
Selling Commercial Items in 2014 –
Regulatory & Procedural Updates

3. 3
Agenda
• Definition
• Determinations
• Regulatory History
• Recent Changes
• Future

4. 4
Takeaway #1
Top 10 resources for selling commercial
items
1.FAR 2.101
2.FAR 12
3.Commercial Item Handbook
4.FASA
5.Clinger-Cohen Act of 1996

5. 5
Takeaway #1
6. Defense Standardization Program
7. DFARS 212.5
8. DCAA Audit Guidance – Subcontract
Commercial Items
9. DCAA Memo – FPRA
http://www.dcaa.mil/mmr/11-PSP-017.pdf
10.DAU Commercial Pricing Information
Guide

6. 6
Definition of Commercial Item
• FAR 2.101

7. 7
Commercial Item Determination
• Market research (FAR 10.001(a)(3)(II))
• Price reasonableness (FAR 15.402,
12.209)

8. 8
Cost or Pricing Data
• FAR 15.403-1 Prohibition on obtaining
certified cost or pricing data
• FAR 15.303-3 Requiring data other than
certified cost or pricing data

9. 9
Benefits of Selling a Commercial Item
• Simplified acquisition procedures
• Development/NRE costs
• Commercial/industry T&C
• Commercial/industry quality program
• Exemptions

10. 10
FAR 12 Simplified Acquisition

11. 11
Exemptions
• TINA
• CAS
• Changes must be bi-lateral
• Audits and records

12. 12
Government vs Commercial Contracts
• 58 government-unique clauses apply to
DoD acquisitions (DFARS 212.5)
• 50+ government-unique clauses apply to
civilian acquisitions
• Required flow-downs to subcontractors
(FAR 52.244-6)
• IP rights

13. 13
Government vs Commercial Contracts
• Termination for Convenience (FAR 49)
• Warranties (FAR 46.7)
• Inspection (FAR 46.1)
• Changes
• Claims & Disputes

14. 14
Regulatory Timeline of Events
• 1984 - 2013

15. 15
Competition in Contracting Act
• PL 98-369, 1984
• “…promote the use of commercial products
whenever practicable.”

16. 16
Defense Procurement Reform Act
• PL 98-525, 1985
• “…standard or commercial
parts…whenever such use is technically
acceptable and cost effective.”

17. 17
Blue Ribbon Commission
on Defense Management
• 1986
• Foremost among commercial practices is
competition, “which should be used
aggressively in the buying of systems,
products and professional services.”

18. 18
Section 800 Panel Report
• PL 101-510, 1990
• Stronger policy language favoring the use
of commercial and nondevelopmental
items

19. 19
DFARS 210 and 211
• 1991
• 210 – Nondevelopmental items
• 211 – Early predecessor of commercial
items

20. 20
National Performance Review
• 1993

21. 21
Federal Acquisition Streamlining Act
• PL 103-355, 1994
• Congress established a preference for
commercial items

22. 22
Federal Acquisition Reform Act
• PL 104-106, 1996
• Fair and reasonable price should be
determined by looking at the market, not a
the contractor’s cost.

23. 23
Service Acquisition Reform Act
• PL 109-163, 2006
• An exception to the prescribed market-
based approach to defining commercial tha
allows certain products or services to
qualify for “commercial item” status,
regardless of whether they actually were
offered commercially.

24. 24
DoD IG Report
• 2006 “Report on Commercial Contracting
for the Acquisition of Defense Systems”
• DOD had ‘‘relinquished the benefits of
buying truly commercial products’’

25. 25
GAO Report
• 2006 ‘‘Contract Management: DOD
Vulnerabilities to Contracting Fraud,
Waste, and Abuse,’’

26. 26
Acquisition Advisory Panel
• 2007
• https://www.acquisition.gov/comp/aap/24102_GSA.pdf

27. 27
NDAA 2007
• PL 109-364, 2006

28. 28
Takeaway #2
• Know your products and services!

29. 29
Recent Changes
• DCAA Memo September 2011
• DFARS Update

30. 30
DFARS Update
• DFARS 212.102, 2012
• FAR 12 acquisitions exceeding $1 million in value, except
for acquisitions made pursuant to FAR 12.102(f)(1), the
contracting officer shall—
• Obtain approval at one level above the contracting officer
when a commercial item determination relies on
subsections of the “commercial item” definition at FAR
2.101 :

31. 31
DFARS Update
• (1)(ii) Has been offered for sale, lease, or
license to the general public;
• (3) Modifications
• (4) Combinations of items, or
• (6) Services.

32. 32
NDAA 2013 Proposal
• Eliminate items ‘‘of a type’’
• Eliminate items or services merely offered
for sale, lease, or license (but not yet sold,
leased, or licensed)
• Adjust the threshold that requires prior sale
of ‘‘substantial’’ quantities to one that
allows prior sale of ‘‘like’’ quantities

33. 33
Takeaway #3
• Do your research and stand strong!

34. 34
Disputes and Claims
• FAR 33 Disputes and Appeals
• False Statements Act
• 18 USC §1001
• Civil False Claims Act
• 31 USC §3729
• Contract Disputes Act
• 41 USC §601-613

35. 35
Future of Commercial Items

36. 36
3 Takeaways
• Top 10 resources for selling commercial
items.
• Know your products and services!
• Do your research and stand strong!

37. 37
Questions
Robert E. Jones
robert@leftbrainpro.com
(513) 728-1163

38. 38