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Government Contracts Monitor

DOD Issues New Guidance on Commercial Item Determinations

September 13, 2016

By: Lindsay Simmons

On September 2, 2016, Defense Procurement and Acquisition Policy (DPAP) Director, Claire M. Grady, issued a guidance memo concerning commercial item determinations and the determination of price reasonableness for commercial items. The memo begins by noting the proposed rule issued August 11, 2016 under DFARS Case 2016-D006 implementing Sections 851-853 and 855-857 of the FY 2016 National Defense Authorization Act (NDAA) and, among other things, providing guidance to contracting officers concerning price reasonableness and commercial item determinations. That DFARS Case is currently making its way through the rulemaking process. In the meantime, this DPAP guidance is intended to address the underlying tenets of that legislation to improve consistency and timeliness.

DPAP considers commercial products and solutions to be critical components to Department of Defense (DoD) mission success. While the vast majority of the millions of DoD commercial item transactions each year are accomplished rapidly and provide timely, cost-effective support to the warfighter, DPAP notes that it sometimes takes DoD too long to make commercial item determinations, especially those relating to items not sold in the competitive commercial marketplace. In addition, contracting officers have sometimes reached inconsistent determinations regarding the same or similar items. The Memo describes several DoD efforts to address such timeliness and consistency issues.

First, the Defense Contract Management Agency (DCMA) has stood up six Commercial Item Centers of Excellence (CoEs) aligned with various contractor market sectors. The CoEs will be staffed with engineers and cost/price analysts who will advise procuring contracting officers (PCOs) in their determinations. Note, however, prime contractors continue to be responsible for determining the commerciality of a particular subcontracted supply or service.

The Memo also notes recent legislation providing that a prior commercial item determination made by a Military Department, Defense Agency, or DoD field activity shall serve as a determination for subsequent procurements of the subject item. DPAP expects DoD to develop a “robust database of commercial item determinations, providing the acquisition team access to the universe or prior determinations and the supporting rationale” over time. In the meantime, and pending the adoption of the implementing DFARS rule and related tools, “contracting officers should adopt the practice of recognizing prior known determinations.” The Memo describes the procedures to be followed by the contracting officer to challenge or adopt prior determinations.

In hopes of streamlining the process and achieving more predictable and consistent outcomes, the Director, Defense Pricing and the DCMA’s Cost & Pricing Center Director have begun working with interested companies to develop advance agreements to define the types of supporting data that a company would be required to provide and would be deemed sufficient. Interested contracts will have the opportunity to identify specific products and services it seeks to have designated as “commercial items” and any resulting agreements will be uploaded by DCMA to the Contract Business Analysis Repository (CBAR) for future use by PCOs.

Finally, the Memo notes that Section 855 of the FY 2016 NDAA reinforced the longstanding stator preference for the acquisition of commercial items and that the law now requires that, “by default, information technology (IT) products and services in excess of the simplified acquisition threshold should be commercial.” DoD is in the process of preparing implementing regulations requiring the head of the agency to determine, prior to the acquisition of any non-commercial IT, that commercial IT is unsuitable to satisfy the Department’s needs.

Clearly, the acquisition of commercial items will continue to be an important part of DoD procurement in coming years. Let’s hope that the Department’s efforts to speed up and make consistent the process of commercial item determinations related price reasonableness determinations prove effective. We will continue to monitor and report on developments in this area, including the progress of DFARS Case 2016-D006.

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