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Are Small Business Concerns "Nontraditional Defense Contractors?"

Don Mansfield

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To answer the title question--most likely yes, for DoD. A recent DFARS final rule, Procurement of Commercial Items (DFARS Case 2016-D006), added the following definition at DFARS 202.101:

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“Nontraditional defense contractor” means an entity that is not currently performing and has not performed any contract or subcontract for DoD that is subject to full coverage under the cost accounting standards prescribed pursuant to 41 U.S.C. 1502 and the regulations implementing such section, for at least the 1-year period preceding the solicitation of sources by DoD for the procurement (10 U.S.C. 2302(9)). 

Since small business concerns are exempt from CAS, most small business concerns would fall within the definition. This has significant consequences because the final rule also added the following at DFARS 212.102(a)(iii):

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Nontraditional defense contractors. In accordance with 10 U.S.C. 2380a, contracting officers may treat supplies and services provided by nontraditional defense contractors as commercial items. This permissive authority is intended to enhance defense innovation and investment, enable DoD to acquire items that otherwise might not have been available, and create incentives for nontraditional defense contractors to do business with DoD. It is not intended to recategorize current noncommercial items, however, when appropriate, contracting officers may consider applying commercial item procedures to the procurement of supplies and services from business segments that meet the definition of “nontraditional defense contractor” even though they have been established under traditional defense contractors. The decision to apply commercial item procedures to the procurement of supplies and services from nontraditional defense contractors does not require a commercial item determination and does not mean the item is commercial.

So, DoD contracting officers can use FAR part 12 procedures to buy both commercial and noncommercial items from most small business concerns. I admit that I did not appreciate the scope of this rule when I first read it. I would have expected more dancing in the streets by both small business concerns and DoD contracting officers. Maybe there was and I missed it.



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Don,

Yes, what you write is in line with my interpretation of the rule. It has potential benefits to small business IF contracting officers take advantage of the flexibility it offers. 

A small business is a non-traditional defense contractor, under the new DFARS rule. So is a segment of a traditional defense contractor, if it qualifies. Contracting officers may use Part 12 procedures to acquire goods and services from non-traditional defense contractors without making a determination that the goods/services being procured are commercial items, regardless of dollar value.

So far, so good.

But how many COs will actually take advantage of this new rule? Even before the rule, how many COs were comfortable making pure Part 12 acquisitions without going over to Part 15 to borrow some process steps? To my way of thinking, that's the concern. That concern is exacerbated when I see the discretion baked into the language: "may" gives a lot of discretion.

Show me guidance memos and instructions directing implementation of the new "permissive" rule and I might dance a jig. Until then, I remain a bit skeptical.

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I had the same thoughts of h2h about who would adopt the "may" option and then I began thinking about the CO that does want take advantage of the "may" and played it out in my mind.  Not sure I have it right but....

First scenario -

  1. The DoD does market research.

  2. It determines that there adequate small businesses to set aside the procurement.

  3. All small businesses are non-traditional defense contractors so the DoD decides to use Commercial Item acquisition procedures without having to do a commercial item determination.

  4. Offers responding do not have to provide Certified Cost or Pricing Data.

Or another-  

  1. The DoD does market research.

  2. DoD determines not to set aside and it is a procurement that does not use Commercial Item acquisition procedures.

  3. The DoD also determines that adequate competition will not occur and includes DFARS Clause 252.215-7070.

  4. A small business responds and states it is a non-traditional defense contractor and states that it is not providing certified cost or pricing data.

  5. The CO treats the supplies/services of the non-traditional defense contractor as if they are commercial items and agrees that cost or pricing data is not required. 

In the first scenario I think I have it right but what about the second one?   It seems that DoD has forgotten or has on purpose failed to give the “may” option to CO’s with regard to DFARS Clause 252.215-7010 as there is no exception available to the CO if the offeror is a non-traditional DoD contractor.

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On 3/31/2018 at 9:14 AM, C Culham said:

I had the same thoughts of h2h about who would adopt the "may" option and then I began thinking about the CO that does want take advantage of the "may" and played it out in my mind.  Not sure I have it right but....

First scenario -

  1. The DoD does market research.

  2. It determines that there adequate small businesses to set aside the procurement.

  3. Most small businesses are non-traditional defense contractors so the DoD decides to use Commercial Item acquisition procedures without having to do a commercial item determination.

  4. Offers responding do not have to provide Certified Cost or Pricing Data.

Or another-  

  1. The DoD does market research.

  2. DoD determines not to set aside and it is a procurement that does not use Commercial Item acquisition procedures.

  3. A small business responds and states it is a non-traditional defense contractor and states that it is not providing certified cost or pricing data.

  4. The CO treats the supplies/services of the non-traditional defense contractor as if they are commercial items and agrees that cost or pricing data is not required. 

Carl,

With respect to Scenario 1, Item 3, I would correct your statement to read "ALL small businesses are non-traditional defense contractors..." by statute, small businesses are exempt from CAS coverage, so that makes them non-traditional defense contractors, according to the DFARS definition.

With respect to Scenario 2, if there is competition, the CO is prohibited from requiring certified cost or pricing data, but may request information other than certified cost or pricing data. Correct? In this scenario, I see the small business providing sufficient information to support price reasonableness, but not more. That same DFARS rule that implemented the permissive guidance that sparked Don's blog post also provided a hierarchy of information other than certified cost or pricing data for COs to use. I hope they follow it...

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In either scenario, assuming that there is (adequate) competition, no certified cost or pricing data is required anyway. Set asides (1st scenario) use competitive procedures...

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@here_2_help @joel hoffman- I tried editing my posts.   I still may not have it right with regard to the competition matter and appreciate your reminders.  Maybe I should delete both quite honestly.

I still get back to the "may".   It just seems to me that beyond the new provision at 252.215-7013 there is no allowance for a business to state that they believe they are a non-traditional defense contractor, which then bothers me in how, in other than a set-aside, as a result of market research a CO might think they will reach non-traditional defense contractors and elect to use the "may" allowance.

Leads me the conclusion that supports Don's blog that the new category of non-traditional defense contractor will only be considered when a small business set-aside is determined?

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On 4/1/2018 at 12:08 PM, here_2_help said:

I would correct your statement to read "ALL small businesses are non-traditional defense contractors..."

That's not necessarily true. Remember that it's possible for a contractor to be small under some NAICS codes, and not small in others. So, it's possible that a contractor that is small under one NAICS code has performed a CAS-covered contract under a different NAICS code. Also, it's possible that a contractor was not small when it was awarded a CAS-covered contract, but is small now. That's why I used "most" in the blog entry.

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On 3/31/2018 at 9:14 AM, C Culham said:
  1. The DoD does market research.

  2. DoD determines not to set aside and it is a procurement that does not use Commercial Item acquisition procedures.

  3. The DoD also determines that adequate competition will not occur and includes DFARS Clause 252.215-7070.

  4. A small business responds and states it is a non-traditional defense contractor and states that it is not providing certified cost or pricing data.

  5. The CO treats the supplies/services of the non-traditional defense contractor as if they are commercial items and agrees that cost or pricing data is not required. 

In the first scenario I think I have it right but what about the second one?   It seems that DoD has forgotten or has on purpose failed to give the “may” option to CO’s with regard to DFARS Clause 252.215-7010 as there is no exception available to the CO if the offeror is a non-traditional DoD contractor.

I think you have it right in the second scenario, too. The solicitation will also include DFARS 252.215-7013. I don't understand your last sentence.

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@Don Mansfield – As I understand the new 252.215-7010 clause exceptions to cost or price data are – prices set by law/regulation and commercial item.  As provided by the 252.215-7013 provision a product/service of a non-traditional defense contractor is treated as if, but is not, a commercial item.  

My read is that a non-traditional defense contractor only exists if the CO determines prior to the solicitation stage that there companies out there that are non-traditional defense contractors.  After that, lets say prior to award but after solicitation closes or even after award (modification), a contractor could not say they are a non-traditional contractor and propose that they do not have to provide cost or pricing data.

Conclusion on my part - Market research and the CO electing to take the “may” option and solicits the need (otherwise a non-commercial item) under FAR Part 12 provides the only opportunity for a non-traditional defense contractor to not provide certified cost or pricing data.   There is no provision or clause that allows after the CO’s initial determination at solicitation for a contractor to say I am  a non-traditional defense contractor that allows the CO to say yep you are right and cost or pricing data is not required.  Exception would be if the CO was convinced that market research was flawed and many non-traditional’s were competing and change the solicitation to a commercial item acquisition.

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Seems to me the question is whether a CO would or could use Part 12 procedures, without using any Part 15 procedures, if market research determined that at least one potential offeror was a non-traditional defense contractor ("NTDC"). If the CO thought some offerors were NTDCs but some were not, could the CO use Part 15 procedures for the others but use Part 12 procedures for the NTDCs? For some reason, I think that would be problematic. So I think that leaves our CO with the same option -- use Part 12 or Part 15 procedures, but pick one and stick with it. If the CO uses Part 15, then the NTDC would seem to be stuck with that choice.

But perhaps I'm over analyzing this. What do others think?

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2 hours ago, here_2_help said:

could the CO use Part 15 procedures for the others but use Part 12 procedures for the NTDCs?

help,

It's a popular misconception that FAR part 12 procedures are for commercial items and FAR part 15 procedures are for noncommercial items. When acquiring commercial items, the CO will typically use one of three contracting methods:

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12.203 Procedures for solicitation, evaluation, and award.

Contracting officers shall use the policies unique to the acquisition of commercial items prescribed in this part in conjunction with the policies and procedures for solicitation, evaluation and award prescribed in Part 13, Simplified Acquisition Procedures; Part 14, Sealed Bidding; or Part 15, Contracting by Negotiation, as appropriate for the particular acquisition.

 

 As such, I think what you're asking is if, when acquiring noncommercial items on a competitive basis, the CO should prepare one solicitation for NTDCs (containing commercial provisions & clauses) and one for others (containing noncommercial provisions & clauses). That's a good question. I don't know.

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