DoD Allows Contracts for Products or Services Using FAR Part 12 to Serve as Prior Commercial Item Determinations
Government Contracts Update
Date: June 23, 2022
The Department of Defense (“DoD”) recently issued a final rule that revises DFARS 212.102 and makes it easier for DoD contracting officers to rely on past commercial sales to the government as fair evidence of a prior commercial item determination (“CID”) for a particular item. Federal procurement regulations require contracting officials to analyze and document whether specific products or services meet the FAR definition of “commercial product” or “commercial service” in the form of a CID. DFARS 212.102 instructs contracting officers on the treatment of prior CIDs and nontraditional defense contractors. The rule also updates DFARS 212.102(a)(iii) to clarify that CIDs are only required for acquisitions that exceed the simplified acquisition threshold.
The final rule requires the government to treat a contract previously awarded using FAR Part 12 procedures as a prior CID for the acquired product or service, unless the head of a contracting activity determines that the prior use of the FAR Part 12 procedures was improper or is no longer appropriate. The final rule implements Section 848 of the NDAA for FY 2018 and applies to DoD contracts regardless of dollar value.
It is important to note, however, that prior FAR Part 12 purchases made pursuant to 41 U.S.C. 1093 (for supplies or services to be used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack) or 10 U.S.C. 2307a (for supplies or services from nontraditional defense contractors) may not serve as a prior CID, unless the products or services purchased in that prior acquisition otherwise received a CID.
Background – Commercial Products and Services
In recent years, the federal government has focused on the purchase of goods or services that are “commercial products” or “commercial services.” The definition of a “commercial product” or “commercial service,” for purposes of federal procurements, can be complex and vary depending on the item at issue, but in general, a commercial product or commercial service is something that is sold to the general public and used for purposes other than exclusively governmental purposes.
From the government’s perspective, the commercial marketplace shapes these items by ensuring adequate price competition, allowing for private research and development, and capturing market efficiencies inherent to publicly available commercial products or services. The government therefore assumes less risk when it purchases commercial products or services. The acquisition process for commercial products or services requires fewer regulatory fail-safes because issues such as price reasonableness have already been addressed by the commercial market.
Accordingly, the FAR, which is the regulatory framework for all federal government acquisitions, utilizes more streamlined procedures when the government is acquiring a commercial product or service.
Commercial Item Determinations under New DFARS Final Rule
As previously noted, CIDs reflect a contracting official’s analysis that a specific product or service meets the regulatory definition of “commercial product” or “commercial service.” Under the applicable regulations, an adequate CID clearly identifies and supports how the product or service meets the commercial item definition in FAR 2.101. A CID should include market analysis and, if applicable, subcontractor sales history. Technical analysis, logic, explanations, and justifications supporting conclusions that items are “of a type,” “evolved,” or “modifications” should also be included to support the determination. Contractors and suppliers are expected to support and document their CIDs. Additionally, FAR 15.404-3(b) requires contractors to conduct appropriate price or cost analyses to establish the reasonableness of proposed subcontract prices and include these analyses in cost proposals. Contractors also are expected to have policies and procedures to ensure accomplishment of these efforts.
When determining whether a contract previously awarded using FAR Part 12 may serve as a CID, the new DFARS final rule emphasizes the use of prior CIDs and previous acquisitions conducted using FAR Part 12 commercial item acquisition procedures. The contracting officer also may rely on a product’s commerciality determination in the DOD’s Commercial Item Database, a previous contract, or “other evidence” that identifies the product or service as being acquired using FAR Part 12 procedures.
The final rule does not clearly define the term “other evidence.” In response to public comment, the DoD acknowledged that while examples of “other evidence” may be helpful, it is impossible to provide an exhaustive list, and examples may inhibit the work of contracting officers by hampering their ability to “exercise sound business judgment on a case-by-case basis.”
However, in some circumstances, using FAR Part 12 procedures to acquire a product or service may be insufficient to satisfy the CID designation. For example, contracting officers may determine that the use of FAR Part 12 procedures was improper or that it is no longer acceptable to procure the product or service using commercial item acquisition channels, thereby nullifying the product or service as the basis for a CID. Most notably, products “treated as commercial items” that are acquired under 41 U.S.C. 1903 (products procured using the special emergency procurement authority for supplies or services to be used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack) and 10 U.S.C. 2380a (for supplies or services provided by nontraditional defense contractors) may not serve as a CID unless the products or services purchased in that prior acquisition otherwise received a CID.
The government suggests that the new DFARS final rule will streamline and simplify FAR Part 12 and CID procedures, extending the key goals outlined in Executive Orders 12866 and 13563, which direct agencies to maximize efficiencies and benefits of enacting regulatory alternatives that enhance overall benefits to public health, the environment, and the economy.
Selling commercial products or services to the federal government is beneficial for many companies and contractors because not only do significantly fewer laws and regulations apply, but such companies are also exempt from many of the traditional government contract requirements that increase administrative costs and risks. Acquisitions of commercial products or services, as implemented and encouraged in FAR Part 12, also brings significant benefit to DoD including: creation and integration of new technology; greater product availability and reliability; reduced acquisition cycle times; lower life cycle costs; increased competition; and an expanded pool of innovative and non-traditional contractors that seek to do business with DoD.
The new DFARS final rule is expected to benefit not only the government but also contractors as it will preclude them from the administrative burden of supporting a CID.
FOR MORE INFORMATION
For more information on the final rule, CIDs, or FAR Part 12 procurement procedures, please contact one of our Thompson Hine attorneys listed below.
Francis E. (Chip) Purcell, Jr.
Ryan S. Spiegel
Joseph R. Berger
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