Download to read offline
Uploaded byRobert E Jones
Commercial Items Past, Present, & Future
The document provides a comprehensive history of the evolution of commercial item procurement regulations, detailing significant legislation from the past 30+ years, including the Competition in Contracting Act and the Federal Acquisition Reform Act. It discusses the ongoing reforms and updates, including current initiatives like Better Buying Power 3.0 and future DFARS case updates aimed at simplifying commercial item acquisition procedures. Key case studies highlight the implications of these regulations on cybersecurity and pricing determinations in defense contracting.
Commercial Items Past, Present, & Future
- 1. Commercial Item Past,Present, & Future Robert E. Jones
- 3.
- 4.
- 5.
- 6. 30+ Years ofHistory! Additional detailed slides available on our website: www.leftbrainpro.com/greenville16
- 7. Through the Years Competitionin Contracting Act 1984 Defense Procurement Reform Act 1985 Blue Ribbon Commission 1986 Section 800 Panel Report 1990 DFARS 210 & 211 1991 National Performance Review 193 Federal Acquisition Streamlining Act 1994
- 8. Through the Years FederalAcquisition Reform Act 1996 Service Acquisition Reform Act 2006 DoDIG Report 2006 Acquisition Advisory Panel 2007 NDAA 2007 DCAA Memo 2011 DFARS Update 2012
- 9. Present NDAA 2013 PL 112-239,2013 Another attempt to eliminate “of a type” and “offered for sale.”
- 10. Present Better Buying Power3.0 http://bbp.dau.mil Increase competition and involve industry.
- 11. Present NDAA 2016 –Sec 851-857 PL 114-92, 2016
- 12.
- 13. Future DFARS Case 2013-D034 Retractedand replaced on December 7, 2015 Attempt to implement significant commercial sales.
- 14. Future DFARS Case 2016-D006 “Procurementof Commercial Items” Implements requirements of NDAA 2016. Status due: 2/3/2016
- 15. Benefits of aCommercial Item Simplified acquisition procedures Development/NRE costs Commercial/industry T&C Commercial/industry quality program Exemptions
- 16. Cost or PricingData 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
- 17. Exemptions TINA (now TruthfulCost or Pricing Data Act) CAS (Cost Accounting Standards) Changes must be bi-lateral Audits and records
- 18. Government vs Commercial 58+government-unique clauses apply to DoD acquisitions 50+ government-unique clauses apply to civilian acquisitions Required flow-downs to subcontractors (FAR 52.244-6) IP rights
- 19. Government vs Commercial Terminationfor Convenience (FAR 49) Warranties (FAR 46.7) Inspection (FAR 46.1) Changes Claims & Disputes
- 20. Case Study #1 Applevs FBI Is this a question of cybersecurity, national security, commercial items, or all 3?
- 21. Case Study #2 C-130Jand follow-on training. Original commercial item determination was flawed.
- 22. Your Commercial Items Doyour market research. Document the determination. Document your price justification.
- 23.
- 24. Contact Info Robert E.Jones Robert@leftbrainpro.com O (614) 556-4415 M (513) 728-1163
- 25. Detail History SlidesFollow
- 26. Past Competition in Contracting Act PL98-369, 1984 “…promote the use of commercial products whenever practicable.”
- 27. Past Defense Procurement Reform Act PL98-525, 1985 “…standard or commercial parts…whenever such use is technically acceptable and cost effective.”
- 28. Past Blue Ribbon Commission onDefense Management 1986 Competition “which should be used aggressively in the buying of systems, products and professional services.”
- 29. Past Section 800 PanelReport PL 101-510, 1990 Stronger policy language favoring the use of commercial and NDIs.
- 30. Past DFARS 210 and211 1991 210 NDI 211 Early predecessor of commercial items
- 31.
- 32. Past Federal Acquisition Streamlining Act(FASA) PL 103-355, 1994 Congress established a preference for commercial items.
- 33. Past Federal Acquisition Reform Act(FARA) PL 104-106, 1996 Fair and reasonable price should be determined by looking at the market, not at the contractor’s cost.
- 34. Past Service Acquisition Reform Act(SARA) PL 109-163, 2006 Allowed certain products or services to qualify regardless of whether they actually were offered commercially.
- 35. Past DoD IG Report 2006“Report on Commercial Contracting for the Acquisition of Defense Systems” DoD had “relinquished the benefits of buying truly commercial products.”
- 36. Past 2006 “Contract Management: DoD Vulnerabilitiesto Contracting Fraud, Waste, and Abuse”
- 37. Past Acquisition Advisory Panel 2007 https://www.acquisition.gov /seven_steps/library/DraftF inalReport.pdf “offeredand sold competitively, in substantial quantities, in the commercial marketplace.”
- 38. Past NDAA 2007 PL 109-364,2006 Attempt to remove “of a type” and “offered for sale.”
- 39. Past DCAA Memo September 2011 MRD11-PSP-017(R) Previous commercial item determination not acceptable.
- 40. Past DFARS Update 2012 DFARS212.102 CI acquisitions over $1M require additional approval.
Editor's Notes
- #6 The statutory definition of standalone ‘‘commercial services’’ in 41 U.S.C. § 403(12)(F) is: ‘‘Services offered and sold competitively, in substantial quantities, in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions.’’ However, the definition of a ‘‘commercial item’’ in subsection (12)(A) of the same statutory section, refers to any item that is ‘‘of a type’’ customarily used by the general public (with additional requirements). Thus, Congress omitted the phrase ‘‘of a type’’ from the statutory definition of standalone ‘‘commercial services.’
- #9 DoDIG 2006 – Osprey engines and C-130J and subsequent training. Original determination as a commercial item deemed faulty, so reliance on that to issue a training contract as a commercial item was also faulty.
- #10 While the effort to contain the overuse of the commercial item definitions continues, DOD also is asking Congress to add to the 2013 NDAA bill, a provision which would make permanent the FAR subpart 13.5 test program authority to issue solicitations for purchase of commercial items in excess of the simplified acquisition threshold pursuant to the special simplified procedures which expired on January 1, 2012. While perhaps this request may seem inconsistent with the concerns about possible vulnerabilities Because of the perceived misuse of the commercial item authority, the government also appears to Recognize that purchase of commercial items using simplified procedures, if used properly, is beneficial to the system. While it appeared that the authority was allowed to lapse because agencies were not using these procedures extensively, in a letter on January 4, 2012, the DOD Director of Defense Procurement and Acquisition Policy sought the opinions of DOD activities on whether to reinstate the test program. He pointed out that the Federal Procurement Data System information for fiscal year 2010 indicated 6,921 actions under this authority totaling $1.9 billion (or 0.53 percent of all FY 10 purchases) and for FY 2011, 7,180 actions under this authority worth $2.1 billion (or .56 percent of all FY 11 purchases). He also requested data and anecdotal information on the importance and benefits of the program. DOD’s recent DFARS revision, which requires higher-level scrutiny of the contracting officer’s commercial Item determination, would appear to be a solid and useful step in ensuring that only true commercial Items are purchased using commercial item procedures. This determination should focus on whether the commercial item has a price history in the marketplace that will support a meaningful price analysis. This initiative should be made governmentwide. In addition, Congress should address the issue of whether or not the commercial item definition is too broad as well as the pricing vulnerabilities identified by the various panels. In any such review, Congress needs to hear from industry concerning these issues. Industry should be prepared to address with empirical evidence concerns that the commercial item coverage is too broad to allow for meaningful price determinations. Contractors must make the Case that the prices they are charging for commercial items are fair and reasonable. However, currently, the question of whether the government is paying too much for certain items identified as ‘‘commercial items’’ remains an open one. Given the government’s budget concerns, it is certain that DOD, which appears to have taken the lead on this issue, will continue to take steps to ensure it is obtaining best value in its commercial buys. UPDATE: NDAA 2013 also tried to codify >50% commercial sales requirements. They had some squirelly language, but industry knew the intent and responded accordingly. In 2012, DoD proposed to remove items “offered for sale” and “of a type” from the definition of a commercial item in the FAR. That proposal was uniformly rejected by the Congress. Instead, Section 831 of FY13 NDAA directed DoD to issue guidance and training on the use of its authorities to procure commercial items, including standards for determining whether information on the prices at which the same or similar items have previously been sold is adequate for evaluating the reasonableness of price.
- #11 Sounds a lot like commercial items and it is. Have you heard about the DoD office in Silicon Valley? They are actively courting industry (commercial items), but it’s a strained courtship because industry is cautious about jumping into a relationship with the Government.
- #12 Subtitle E--Provisions Relating to Commercial Items (Sec. 851) Requires DOD to: (1) establish and maintain a centralized capability to oversee the making of commercial item determinations for DOD procurements, and (2) provide public access to the determinations. Permits a contracting officer to presume that a prior commercial item determination made by a DOD component may serve as a determination for subsequent procurements of the items. (Sec. 852) Modifies the information that a contractor is required to submit to DOD to support a price reasonableness determination. (Sec. 853) Requires a contracting officer to consider evidence provided by an offeror of recent purchase prices paid by the government for the same or similar commercial items in establishing price reasonableness if the previous prices remain a valid reference for comparison after considering other relevant factors. (Sec. 854) Requires DOD to submit to Congress a report identifying the defense-unique provisions of law that are applicable for the procurement of commercial items or commercial off-the-shelf items, both at the prime and subcontract level. (Sec. 855) Requires DOD to issue guidance and conduct reviews to ensure that defense acquisition officials and specified documents fully comply with requirements regarding market research and the preference for commercial items. (Sec. 856) Requires a written determination to be made prior to any conversion of the procurement of commercial items to a non-commercial acquisition procedure. Requires DOD to establish procedures to track conversions of future contracts and subcontracts for improved analysis and reporting. (Sec. 857) Authorizes DOD to treat goods and services provided by a non-traditional contractor as a commercial item.
- #15 Commercial items continue to be one of the most debated topics in federal acquisition and acquisition reform. Industry was deeply surprised to see the issuance of a proposed rule on August 3, 2015, regarding commercial item pricing. A media backlash ensued with feedback from the American Bar Association’s Section of Public Contract Law, the Council of Defense and Space Industry Associations (CODSIA), and the Acquisition Reform Working Group (ARWG). Possibly most disturbing was DoD’s implication that the changes were predicated on Section 831 of FY13 NDAA. Sen. John McCain pointed out in a public letter to Sec. Ashton Carter that the impact of the proposed rule would undermine the Pentagon’s goal of increased access to commercial suppliers. The Pentagon’s stated goal of increasing the innovation and affordability of defense technology contradicts the proposed rule and ongoing acquisition policies and practices in some agencies and offices. DoD closed the DFARS case on December 7, 2015. A new DFARS case addressing both Section 831 of FY13 NDAA and the commercial item provisions in FY16 NDAA was opened the same day.
- #16 Large commercial buyers generally require sellers to use the buyers’ contracts which include the buyers’ standard terms and conditions. This allows all offerors to compete on a common basis. The use of standard terms and conditions streamlines the acquisition process, making it easier to compare competing offers, eliminating the need to negotiate individual contract terms with each offeror, and facilitating contract management.
- #17 All facts that, as of the date of agreement on the price of a contract (or the price of a contract modification), or, if applicable consistent with [TINA], another date agreed upon between the parties, a prudent buyer or seller would reasonably expect to affect price negotiations significantly. Such term does not include information that is judgmental, but does include the factual information from which a judgment was derived. When certified cost or pricing data are not required to be submitted under this section for a contract, subcontract, or modification of a contract or subcontract, the contracting officer shall require submission of data other than certified cost or pricing data to the extent necessary to determine the reasonableness of the price of the contract, subcontract, or modification of the contract or subcontract. Except in the case of a contract or subcontract covered by the exceptions in subsection (b)(1)(A), the contracting officer shall require that the data submitted include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement.
- #18 Commercial buyers rely extensively on competition when acquiring goods and services. Commercial buyers further facilitate competition by defining their requirements in a manner that allows services to be acquired on a fixed-price basis in most instances. Commercial buyers rely on competition for the pricing of commercial goods and services. They achieve competition by carefully defining their requirements in a manner that facilitates competitive offers and fixed-price bids. In the absence of competition, commercial buyers rely on market research, benchmarking, and, in some cases, cost-related data provided by the seller, to determine a price range.
- #21 I speculate that this is an example of USA’s loss of technological power house. In the past, Government and DoD spent Billions of dollars on R&D. Companies developed products and technology that later transitioned to the consumer/commercial marketplace. In recent years, the technological power has shifted to industry. Government and DoD reduced R&D spending over the past 25 years and now see some of the results. Platforms are in service longer with many of them struggling. A recent interview of an Air Force executive noted that some 50% of JSTARS is grounded due to maintenance and repair. The average age of the fleet has increased. DoD has shifted funds not only from R&D, but also away from new or updated platforms to focus on daily operations. We keep hearing “do more without more (aka with less) from Washington.
- #24 While the effort to contain the overuse of the commercial item definitions continues, DOD also is asking Congress to add to the 2013 NDAA bill, a provision which would make permanent the FAR subpart 13.5 test program authority to issue solicitations for purchase of commercial items in excess of the simplified acquisition threshold pursuant to the special simplified procedures which expired on January 1, 2012. While perhaps this request may seem inconsistent with the concerns about possible vulnerabilities Because of the perceived misuse of the commercial item authority, the government also appears to Recognize that purchase of commercial items using simplified procedures, if used properly, is beneficial to the system. While it appeared that the authority was allowed to lapse because agencies were not using these procedures extensively, in a letter on January 4, 2012, the DOD Director of Defense Procurement and Acquisition Policy sought the opinions of DOD activities on whether to reinstate the test program. He pointed out that the Federal Procurement Data System information for fiscal year 2010 indicated 6,921 actions under this authority totaling $1.9 billion (or 0.53 percent of all FY 10 purchases) and for FY 2011, 7,180 actions under this authority worth $2.1 billion (or .56 percent of all FY 11 purchases). He also requested data and anecdotal information on the importance and benefits of the program. DOD’s recent DFARS revision, which requires higher-level scrutiny of the contracting officer’s commercial Item determination, would appear to be a solid and useful step in ensuring that only true commercial Items are purchased using commercial item procedures. This determination should focus on whether the commercial item has a price history in the marketplace that will support a meaningful price analysis. This initiative should be made governmentwide. In addition, Congress should address the issue of whether or not the commercial item definition is too broad as well as the pricing vulnerabilities identified by the various panels. In any such review, Congress needs to hear from industry concerning these issues. Industry should be prepared to address with empirical evidence concerns that the commercial item coverage is too broad to allow for meaningful price determinations. Contractors must make the Case that the prices they are charging for commercial items are fair and reasonable. However, currently, the question of whether the government is paying too much for certain items identified as ‘‘commercial items’’ remains an open one. Given the government’s budget concerns, it is certain that DOD, which appears to have taken the lead on this issue, will continue to take steps to ensure it is obtaining best value in its commercial buys.
- #30 A new statutory definition of commercial items An expanded exemption for “adequate price competition” in the Truth in Negotiations Act; relief from inappropriate requirements for cost or pricing data when a competitively awarded contract for commercial items or services is modified; new exemptions to technical data requirements in commercial item acquisitions; relief from “Buy American” restrictions
- #32 The National Performance Review began on March 3, 1993 when President Clinton announced a six-month review of the federal government and asked Vice President Gore to lead the effort. Unlike past efforts that relied on outsiders, the Vice President gathered experienced federal workers and organized them into teams to examine federal agencies and issues that cut across agencies, such as personnel, procurement or budget policies. The goal: identify problems and offer solutions and ideas for savings. In addition, the President asked each cabinet secretary to organize a 'Reinvention Team' to work from within each agency and to create 'Reinvention Laboratories' where experiments in new ways of doing business could begin immediately. The Vice President and the National Performance Review teams sought input from people all across America. Vice President Gore spoke with workers at every major agency and at federal centers around the country. He visited programs that work and companies that have implemented new practices, dramatically changing their operations and decreasing costs while increasing profits in the process. The Vice President and the National Performance Review teams learned from the state and local leaders who have put many of these ideas into practice and they listened to the very best experts in the country -- from business, government, and the academic academy -- at special conferences in Philadelphia and Nashville. And, they listened to the American people whose letters and phone calls were invaluable. The National Performance Review focused on how government should work, not on what it should do. The National Performance Review teams examined every cabinet department and 10 agencies. A 'bottom-up' review of the Department of Defense and the work of the Health Care and Welfare Reform Task Forces at the Department of Health and Human Services both covered areas that the National Health Review did not.
- #33 FASA made a wide range of changes in acquisition policy and procurement law by exempting purchases of commercial products from several statutes, while expanding the definition of a “commercial product.” FASA established a preference for the acquisition of commercial items ‘‘to the maximum extent practicable.’’ Goods or services that meet this threshold definition for commercial items are exempted from certain statutory and regulatory acquisition provisions. In particular, they are exempted from cost accounting standards and certified cost or pricing data requirements. Of relevance here, the Clinger-Cohen Act established another benefit for items falling within the definition of commercial item – it allowed for simplified procedures for the acquisition of commercial items with a purchase of $5 million or less, also known as the ‘‘Test program for Certain Commercial Items.’’
- #34 FASA and FARA focused on obtaining the benefits of the commercial marketplace through competition, historical pricing, benchmark pricing, etc. FARA made additional statutory changes, such as exempting commercial items from certain cost disclosure and cost accounting standards that discouraged commercial companies from doing business with the government. The Act also amended the definition of ‘‘commercial items’’ to include established ‘‘market prices’’ within the provision governing standalone services. This amendment adopted the language already adopted in the FAR definition that implemented FASA.. Through statutorily mandated inflation increases, the threshold reached 6.5 million dollars before the authority expired.???
- #36 his audit reviewed 86 contract actions on 42 DOD contracts for commercial items issued during fiscal years 2003 and 2004. The value of these contract actions was approximately $4 billion, and each contract was awarded for $15 million or more. The results of the review were eye-opening: in 35 out of 42 of the commercial contracts reviewed (83 percent) the DOD IG found that contracting officials did not adequately justify the commercial nature of the contracts. In these contract actions, DOD had ‘‘relinquished the benefits of buying truly commercial products’’ and waived the protections of the Truth in Negotiations Act, which would have provided ‘‘better visibility to establish fair and reasonable prices.’’ One of the IG’s specific findings was that contracting officials ‘‘used loopholes in the broad commercial item definition to justify acquiring defense systems and subsystems without determining that a commercial market exists.’’ The report also identified specific instances where the contracting officers justified commercial item purchases because the items they were acquiring — V-22 Osprey aircraft engines and versions of a multi-purpose wheeled vehicle — were ‘‘of a type’’ (or similar to) a commercial item customarily used by the general public. In these instances, the contracting officers did not justify the similarity claimed. Regardless, the contracting officers used commercial item procedures for the contract actions, thus avoiding the requirements for cost and pricing data. In addition, the DOD IG found that the Air Force issued a modification to a contract for logistical support and training services for the C-130J aircraft because the C-130J had been acquired as a commercial item which itself was a flawed determination. In short, the DOD IG concluded that the commercial item definition was too broad and allowed contracting officials to award contracts for defense systems and subsystems that had no commercial market and no meaningful pricing history. Among the recommendations for solving this problem was to tighten the commercial item definition, a recommendation with which DOD itself, at that time, did not concur.
- #37 Also in 2006, GAO issued a report entitled ‘‘Contract Management: DOD Vulnerabilities to Contracting Fraud, Waste, and Abuse,’’ which identified that ‘‘DOD sometimes uses commercial item procedures to procure items that are misclassified and therefore not subject to the forces of a competitive marketplace.’’ GAO noted that DOD’s misclassification of items as commercial or designating an item as being a commercial item when it is not readily available in the commercial market, seriously affected DOD’s ability to assess the reasonableness of the contractor’s price and obtain best value. GAO characterized this situation as a ‘‘vulnerability’’ requiring attention.
- #38 In January 2007, the Acquisition Advisory Panel (AAP), which was charged with reviewing the use of government wide commercial practices in acquiring services, among other things, issued its final report. The report reaffirmed the DOD IG and GAO findings that the commercial item definition was too broad. As identified by the AAP, the most critical element of this definition is that a service must be ‘‘offered and Sold competitively, in substantial quantities, in the commercial marketplace.’’ For the government, the underlying thinking was that when commercial services are sold in substantial quantities, commercial market forces determine both price and the nature of the services offered and a price analysis can be readily supported. However, the AAP concluded that the broadness of the ‘‘of a type’’ language permitted goods and services not sold in substantial quantities in the commercial marketplace to be classified as ‘‘commercial’’ and acquired using the streamlined procedures of the FAR. The AAP expressed its concern that this could put the government at a significant disadvantage with respect to pricing when there is limited or no competition. Based on its review of the legislative history concerning the promotion of commercial item buying, the AAP believed it was clear that Congress had always intended that pricing for commercial items and services be based on either competition or market prices. It cited the conference report accompanying the National Defense Authorization Act for Fiscal Year 1996, which added ‘‘market prices’’ to the FASA definition of commercial item applicable to services, and provided that market prices are current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated from sources independent of the offeror. Ultimately, the AAP found that the FAR’s definition of commercial services was too broad. The AAP recommended that the standalone definition of commercial services in FAR 2.101 be amended to delete the ‘‘of a type’’ language to ensure that only those services sold in substantial quantities in the commercial marketplace be viewed as ‘‘commercial.’’ The AAP stated that other services should be acquired under traditional contracting methods such as under FAR part 15.37
- #39 After GAO, DOD IG and the AAP weighed in on the actual and potential risks in commercial buying in terms of achieving fair and reasonable prices, DOD responded by issuing updated guidance aimed at ensuring that DOD contracting officers performed the appropriate determination of fair and reasonable prices in commercial item buys. However, this initiative did not address directly the definition issue specifically identified by the AAP and the DOD IG: that the current statutory definition of commercial items was too broad to allow only truly commercial items to be identified for purchase. The 2007 National Defense Authorization Act directed that DOD recommend changes to the law to Eliminate vulnerabilities that increased the risk of fraud, waste and abuse at DOD. The Act established a Panel on Contracting Integrity consisting of senior leaders representing a cross-section of the DOD. The panel’s report to Congress found that commercial item acquisitions governmentwide continued to be Vulnerable to pricing deficiencies because fair and reasonable pricing could not always be established due to lack of competition and the lack of a requirement for cost and pricing data. The panel essentially reconfirmed the findings of the GAO, the DOD IG and AAP that the commercial item definition is too broad and continues to pose contracting risks. The panel concluded that the situation could not be fully addressed unless the statutory definition of ‘‘commercial item’’ was amended and clarified to eliminate the phrases ‘‘of a type’’ and ‘‘offered for sale.’’ It recommended a legislative fix. It also proposed developing minimum documentation requirements for commercial item determinations by contracting officers. This year, DOD has moved forward on both these recommendations with mixed results.
- #41 FAR 12.102(f)(1) Contracting officers may treat any acquisition of supplies or services that, as determined by the head of the agency, are to be used to facilitate defense against or recovery from nuclear, biological, chemical, or radiological attack, as an acquisition of commercial items. However, while the proposal to amend the commercial item definition faces stiff industry opposition, the DOD panel’s recommendation to ‘‘beef up’’ documentation requirements for commercial item determinations Was implemented by DOD in a revision to the Defense Federal Acquisition Regulation Supplement (DFARS) at 212.102 on March 12, 2012. DOD issued a final rule which, as relevant here, requires a higher-level approval for commercial item determinations for acquisitions exceeding $1 million when the determination is based on ‘‘of a type’’ or ‘‘offered for sale’’ language in the definition of commercial item. DOD’s expectation is that this higher-level review will serve as a check on the over-reliance or misuse of the ‘‘of a type’’ language and ‘‘offered for sale’’ language to buy items for which the commerciality of the item may be an issue and there is no adequate way to make a fair and reasonable price determination under commercial item procedures.