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Construction Contracts - Commercial Item or Not?
By Mike Wolff on Thursday, February 28, 2002 - 11:08 pm:

We've been having this discussion in my office - do construction contracts meet the definition of being a commercial item? I say that they do. The definition of CI is so convoluted - it is over a 1.5 pages long - that I think that basically any service that is readily available from commercial contractors is a CI. Additionally, no where in the FAR does it say that construction contracts do NOT meet the definition of what a commercial item is.

I'd like the educated opinions of those of you on this board. (Request for you Anonymouses out there, please identify yourself somehow so we know who is who - thanks.)



By joel hoffman on Friday, March 01, 2002 - 07:57 am:

As of now, no construction is not a commercial item. This is official hearsay, as the DAR chair of the FAR Part 36 has personally told me this.

There are several reasons. One of which is that you'd be foolish to allow contractors ro draft the standard terms and conditions for your contract. There are at least seven organizations which draft model contracts, with every format having numerous user selected options regarding risk allocation.

P.S, It is standard commercial practice for the owner to draft the contract language. Even in most design-build situations, the owner retains a professional to draft the terms and conditions. In standard design-bid-build, the owner is responsible for the adequacy of the design and it would be foolhardy to allow the industry to draft the terms and conditions.

It would take a Philadelphia lawyer to evaluate competitive commercial proposals and to compare the proposed contract conditions.

With that said, there are some exceptions, most notably for pre=fab structures, commercially produced and provided under industry standard terms and conditions woth pre=established installation charges.

happy sails! joel

By Vern Edwards on Friday, March 01, 2002 - 10:32 am:


I would like to add to what Joel has said about your question.

When FAR Part 12 was initially promulgated, in FAC 90-32, the Federal Register explanatory material was silent about its application to construction. Based on the definition of commercial item in FAR 2.101, construction fits the bill. [Presumably, it would fall under paragaph (f), since construction is really a service and is market priced.] However, the commercial items clauses were clearly inappropriate for construction (e.g., no changes clause, no differing site conditions clause, etc.).

When the rules in FAR subpart 13.5 for the simplified acquisition test program for commercial items were initially promulgated, in FAC 90-45, the FAC explanatory material stated that the test program could not be used for acquisitions of construction, even though agencies may use simplified acquisition procedures for construction acquisitions at or below the simplified acquisition threshold. It said:

"At the present time, this rule does not extend authority to use the special test procedures for construction. The proposed language included on construction, in Part 13, was not intended to address the applicability of the test procedures to construction and the language in the final rule has been amended to eliminate this ambiguity. The broader issue of the applicability of the FARs commercial items policies to construction contracting is under review."

To the best of my knowledge, this was the first public statement by the FAR Council about the application of the commercial items rules to construction acquisitions. In my opinion, the statement was ambiguous.

The main problem with using the commercial items procedures in FAR Part 12 to acquire construction remains the clause set. The FAR clauses that are currently applicable to construction already reflect commercial practices, for the most part. Government construction contracting is already as close to commercial construction contracting as it is likely to get. Changing the clauses now would create all kinds of uncertainty and risk, since there is a considerable body of case law based on the current clause language and there would be little to gain by making any changes. The combined synopsis/solicitation procedure isn't useful in construction, because of the need for specs and drawings and Davis-Bacon wage determinations. Allowing agencies to give prospective contractors less than 30 days to submit bids or proposals wouldn't be a good idea, because bidders and offerors need time to obtain estimates and quotes from prospective subcontractors.

By ji20874 on Friday, March 01, 2002 - 04:18 pm:

The FAR is not silent on this issue -- the definition in FAR Part 2 for a commercial item says "[a]ny item, other than real property..." A building is real property, and therefore a building is not a commercial item. Perhaps someday, commercial practices for construction will be okay when words are added to FAR Subpart 36.4.

This said, I will add that I once bought a building as a commercial item because we bought a log cabin kit installed on our own foundation -- military civil engineers built the foundation, and the log cabin kit, installed at our site, was bought as a FAR Part 12 commercial item WITH a combined synopsis/solicitation.

By Mike Wolff on Friday, March 01, 2002 - 04:33 pm:

Ji29874 - Using your logic, mechanical maintenance and elevator maintenance, for example, would NOT be commercial items, because these services are performed on real property. Construction contracts include alterations to real property, roof repairs, spandrel gasket repairs, etc. While all these these are performed on real property, they are not the actual construction of real property.

Additionally, I think that your purchase of a log cabin kit as a commercial item may be improper, because in that instance, as you described it, the cabin was real property, and therefore specifically excluded from being a CI.

This is the problem with the definition of CI - it shouldn't take more than half a page to describe what a CI is - maybe it would be easier for the FAR Council to describe what a CI is NOT, and call everything else a CI.

By Vern Edwards on Friday, March 01, 2002 - 10:26 pm:


FAR is silent on the issue. The construction of a building is not the purchase of a building. The purchase of a building is a purchase of supplies. See the definition of supplies in FAR 2.101. While you're at it, see the definition of construction in the same section.

By anon1 on Monday, March 04, 2002 - 02:20 pm:

Just my little two cents based on personal contracting experience.

I once bought a prefab building, essentially, a kit, under commercial practices. The kit was delivered. Our forces and a subcontractor proceeded to take the Supplied items,which made up the kit, erected it, did the landscaping, et.al. The sequence after delivery of the items became the construction contract.

I excluded the Walsh-Healey Act from the commercial buy which passed under CPSR review.

By joel hoffman on Monday, March 04, 2002 - 07:23 pm:

So far, everyone agrees with me that "purchasing" a pre-fab or kit building can be a supply contract, using commercial acquisition practices. Erection of the building must be reviewed on a case by case basis, depending upon the amount of labor and other costs involved.

By the way, such purchases by DOD Agencies are regulated by a DOD Instruction, as implemented by Air Force and Army Regulations (probably Navy, too). Relocatable buildings must be approved by the Service Headquarters elements for installations. They are considered personal property - not real property.

There are restrictions on the percentage of cost to erect or to remove them. If you exceed the percentage, it's considered real property, etc., etc.

I have the references, but I'm TDY, so don't have access to my files and don't have time to re-research. You can find the DODI in Deskbook and you can do a search under the AF or Army regulations to find those, too.

I recently answered an Ask A Professor question concerning relocatable buildings, providing the references. However, the Deskbook database lost the answer and they might not have re-posted it. happy sails! joel