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DFARS PART 212—ACQUISITION OF COMMERCIAL ITEMS, Nontraditional Defense Contractors


flvlaw

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Question: Can DFARS 212 nontraditional defense contractor authority to use FAR 12 commercial procedures apply to nontraditional subcontractors? 

Background:

Defense Federal Acquisition Regulation Supplement: Commercial Item Determinations (DFARS Case 2020-D033), posted on 04/28/2022 provides that FAR Part 12 Commercial procedures can be used by "non-traditional defense contractors" even if the item is not commercial. 

PART 212—ACQUISITION OF COMMERCIAL ITEMS

Authority:  41 U.S.C. 1303 and 48 CFR chapter 1.

212.102 

Applicability.

(a)(i) Use of FAR part 12 procedures.

Use of FAR part 12 procedures is based on—

(A) A determination that an item is a commercial item (see paragraph (a)(iii) of this section); or

(B) Applicability of one of the following statutes that provide for treatment as a commercial item and use of FAR part 12 procedures, even though the item may not meet the definition of “commercial product” or “commercial service” at FAR 2.101 and does not require a commercial item determination:

(1) 41 U.S.C. 1903—Supplies or services to be used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack pursuant to FAR 12.102(f).

(2) 10 U.S.C. 2380a—Supplies or services from nontraditional defense contractors pursuant to 212.102(a)(iv).

10 U.S.C. 2380a
(9)
The term “nontraditional defense contractor”, with respect to a procurement or with respect to a transaction authorized under section 2371(a) or 2371b of this title, means an entity that is not currently performing and has not performed, for at least the one-year period preceding the solicitation of sources by the Department of Defense for the procurement or transaction, any contract or subcontract for the Department of Defense that is subject to full coverage under the cost accounting standards prescribed pursuant to section 1502 of title 41 and the regulations implementing such section.

DFARS  212—ACQUISITION OF COMMERCIAL ITEMS

(iv) Nontraditional defense contractors.

In accordance with 10 U.S.C. 2380a, contracting officers—

(A) Except as provided in paragraph (a)(iv)(B) of this section, 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;

(B) Shall treat services provided by a business unit that is a nontraditional defense contractor as commercial items, to the extent that such services use the same pool of employees as used for commercial customers and are priced using methodology similar to methodology used for commercial pricing; and

(C) Shall document the file when treating supplies or services from a nontraditional defense contractor as commercial items in accordance with paragraph (a)(iv)(A) or (B) of this section.

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I think the question could have been worded more clearly...

For DoD, FAR Part 12 procedures may be used for procurements where the supply or service being purchased is--

  • (A) a commercial item;
  • (B)(1) used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack; or
  • (B)(2) from nontraditional defense contractors.

Take your pick -- (A), (B)(1), or (B)(2).

Or, in other words, exactly the words you quoted.

Does this answer your question?

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The question in bold at the top reflects a fundamental misunderstanding.  Subcontractors don’t get awarded anything using FAR procedures.  They get awarded business-to-business subcontracts under uniform commercial code or common law.  The subcontracts also include what the prime contract’s FAR-based clauses and provisions say must be applied to subcontracts (i.e., they get the flowdowns).  One of those flowdowns is usually DFARS 252.215-7010, requiring certified cost or pricing data be submitted to the prime contractor.  Now, understanding all that, if the prime solicitation doesn’t include this provision, then does that answer your question?  If still unsatisfied, read on.

If the flowdown must occur, then the subcontractor may, however, be excepted from this provision’s certified data requirement.  As you may know, commercial items are one of those exceptions.  As I am trying to point out and have you read, DFARS 252.215-7010 details how a prime contractor can respond to the CO’s solicitation by saying the subcontract is for a commercial item.  There are five provided reasons it can be commercial.  One of those five is “nontraditional defense contractor.”

If you are seeking some other advantage for a subcontract to be called nontraditional, please let us know.  I have fully described the advantage in terms of certified data requirements for you, though.

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Just to clarify - the designation as a nontraditional contractor is only available on prime contracts with the government. The authorizing statue says that the head of an agency may authorize the treatment of products or services as commercial if coming from nontraditional contractors. Furthermore, the acquisition gets treated as a commercial item acquisition; the products or services themselves do not become commercial. This benefits subs because the prime's contract will only have commercial item clauses in it, so only these will flow down to a sub.

But if the prime has a non-commercial item contract, and a sub meets the definition of a nontraditional contractor, the sub must nevertheless establish that its product is commercial if it wants the benefits of a commercial item subcontract. There is no authority for a prime to treat a subcontract as commercial just because it comes from a nontraditional contractor.

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2 hours ago, Fara Fasat said:

Just to clarify - the designation as a nontraditional contractor is only available on prime contracts with the government. The authorizing statue says that the head of an agency may authorize the treatment of products or services as commercial if coming from nontraditional contractors. Furthermore, the acquisition gets treated as a commercial item acquisition; the products or services themselves do not become commercial. This benefits subs because the prime's contract will only have commercial item clauses in it, so only these will flow down to a sub.

But if the prime has a non-commercial item contract, and a sub meets the definition of a nontraditional contractor, the sub must nevertheless establish that its product is commercial if it wants the benefits of a commercial item subcontract. There is no authority for a prime to treat a subcontract as commercial just because it comes from a nontraditional contractor.

I don’t think I agree with any of that, Fara.  Read the provision.  It sets forth nontraditional defense contractor as a basis for the commercial item exception right alongside “items previously determined commercial.”  The two bases for the exception are equal in the eyes of the provision.  That one is subparagraph (A), and this one is (E):

(E) For items provided by nontraditional defense contractors, a statement that the entity is not currently performing and has not performed, for at least the 1-year period preceding the solicitation of sources by DoD for the procurement or transaction, 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.”

Is there a DFARS or PGI you are thinking of that adds red tape to the CO’s acceptance of this basis in negotiations with the prime contractor?  Or what?

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That section of the DFARS just says that the items can be treated as commercial items. It doesn't say they are commercial items. Furthermore, the authority is only granted to the head of an agency and then the contracting officer. There is no clause or anything else that tells a prime it can provide the same treatment to subs. DFARS 212.102 only talks about the contracting officer. If this authority were to be passed on to primes, I would expect there to be a clause doing so. 

My statement is fairly limited -- I'm saying that a nontraditional contractor can only use that status in a prime contract with DoD. If it is a subcontractor, and the prime contract is not commercial, then the sub will have to establish the commerciality of its products.

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15 minutes ago, Fara Fasat said:

That section of the DFARS just says that the items can be treated as commercial items.

No, the provision at DFARS 252.215-7010 doesn’t.

16 minutes ago, Fara Fasat said:

DFARS 212.102 only talks about the contracting officer.

Do you agree with me that primes don’t follow FAR/DFARS Part 12 when they award subcontracts?

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6 hours ago, ji20874 said:

I think the question could have been worded more clearly...

For DoD, FAR Part 12 procedures may be used for procurements where the supply or service being purchased is--

  • (A) a commercial item;
  • (B)(1) used to facilitate defense against or recovery from cyber, nuclear, biological, chemical, or radiological attack; or
  • (B)(2) from nontraditional defense contractors.

Take your pick -- (A), (B)(1), or (B)(2).

Or, in other words, exactly the words you quoted.

Does this answer your question?

Thx for response. My question was targeted at the authority for a subcontractor to use the nontraditional contractor justification.  Reading the responses I discovered that the DFARS 215 flowdown, 252.215-7010 (e) Subcontracts.

The Offeror shall insert the substance of this provision, including this paragraph (e), in subcontracts exceeding the simplified acquisition threshold defined in FAR part 2.

Paragraph (b) provides an exception for certified cost or pricing data for non-traditional contractors. I believe this answers my question. Thx everyone. I apologize for the vague question.

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1 hour ago, flvlaw said:

Paragraph (b) provides an exception for certified cost or pricing data for non-traditional contractors.

Yes, that’s my advice to contractors.

And for COs, my advice is this: read read read, as your DFARS PGI 215.403-1 instructs, the DOD Guidebook for Acquiring Commercial Items Part B: “Pricing Commercial Items”.  Be ready for sole-source contractors to challenge you by saying there is no requirement in your solicitation for their subcontractor to submit cost data.  The holes in the government’s noncommerciality arguments are so big you could drive a Mack truck through them - and they’re growing - because Congress stacked the deck against you.  So embrace the challenge of having to throw out your old process and templates where the sub submits a cost build-up and gets audited, and begin gathering market research on your upcoming subcontract costs instead.

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45 minutes ago, flvlaw said:

Paragraph (b) provides an exception for certified cost or pricing data for non-traditional contractors. I believe this answers my question. Thx everyone. I apologize for the vague question.

Careful. The Federal Register notice for the final rule contained the following:

Quote

 

Additionally, two respondents recommended clarifying that “subcontractors” be added to the definition of nontraditional defense contractors so that items provided by a subcontractor that meet the definition of a “nontraditional defense contractor” may be treated as commercial items.

Response: Section 857 amended 10 U.S.C 2380a to provide DoD with the permissive authority to treat items and services provided by nontraditional defense contractors as commercial items. This authority was neither mandatory nor was it extended to prime contractor commercial item determinations for subcontracted items and services.

 

 

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Thanks Don. I remember reading that several months ago but had forgotten about it when responding to this thread. We had looked into it when this question came up in my company. Our conclusion was that it was for primes only. We were looking to take advantage of it, but decided we couldn't.

For WifWaf: read DFARS 212.102(a)(iii). "contracting officers ... (A) ... may treat supplies and services provided by nontraditional defense contractors as commercial items." "The decision to apply commercial item procedures ... does not require a commercial item determination and does not mean the item is commercial."

Why the inclusion of (b)(1)(ii)(E) in the flowdown of 252.215-7010? Well, it wouldn't be the first inconsistency we've seen in the FAR and DFARS. If DoD intended primes to have that authority, I expect they would have done it with a specific statement, not indirectly through the flowdown of a prime contract clause. For example, 244.402 specifically states that primes are responsible for making commercial item determinations for subcontracts. There is no equivalent statement allowing primes to treat products from a nontraditional subcontractor as commercial items.

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In traditional sole-source-prime negotiations of subcontract costs, the CID is the prime’s to write and provide to the CO.  The prime implores the CO to agree with him about his proposal to grant the subcontractor a commercial item exception, because the CO will then relent on pursuing the sub’s certified cost data and cost analysis.  The prime does this by arguing for the exact way(s) it meets the Commercial Product or Commercial Service definitions.  Those definitions are a negotiation standard, albeit ones where the CO has little leverage as I’ve said.

In the nontraditional case though, the prime simply provides the CO the attestation from the provision that I have put in quotes above.  There’s no negotiation standard, because either the government or the prime, depending on your stance in this debate, has all the power.  Even though primes don't have the statutory power as Don pointed out, they have the negotiation power when they're sole-source.  They can refuse to budge.

Quite a precarious position to be in with no procedures, guidance, and instruction on the subject.  You will have to use your judgment!  It helps to not care if you don’t get the cost data because your market research can negotiate a fair and reasonable price via price analysis instead.  They call it "negotiation jujitsu" when you can use the other party's power against them, right?  Where are my Art of War readers?  Or at least, where are my MMA fans.

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Isn't that amazing?  If we cannot read our solicitations and apply what they say, the rule-making process here actually made it more difficult for nontraditional defense contractors to enter the market.  That is where I have been coming from in this thread.  The essential information from the above link as applied to this thread and some background info (for beginners) is that:

  1. DOD created DFARS 252.215-7010 four years ago and now prescribes it in lieu of FAR 52.215-20.
  2. The -7010 provision includes a flowdown requirement and the -20 provision did not.
  3. The -20 provision relied on FAR 52.215-12 as the operative clause for determining to grant subcontractors certified cost/pricing data exceptions.  FAR 52.215-12 includes a flowdown requirement.
  4. FAR 52.215-12 wholly relies on the FAR's certified cost/pricing data exceptions with no relaxation of their statutory language - unlike the -7010 provision, which may inadvertently contradict it (if applied by primes to subcontractors), at paragraph (b)(ii)(3)(E) quoted above.  The FAR 52.215-12 clause is still required alongside the -7010 provision.
  5. The DAR Council's wording of -7010 is written in a way where practitioners cannot agree whether prime contractors should be flowing down -7010(b)'s more relaxed language to include a nontraditional defense (sub)contractor exception, or should continue only flowing down FAR 52.215-12's statutory exceptions. 

If nontraditional defense subcontractors are just a myth and a misnomer, I would say there's traction for a FAR 1.502 unsolicited proposed revision to the DFARS here, and the DAR Council's own Federal Register comment (quoted by Don above) is all the data and rationale needed to permit its evaluation.

My revision to the DFARS would be to remove the flowdown requirement from -7010, and to furthermore amend DFARS 252.215-7013, "Supplies and Services Provided by Nontraditional Defense Contractors", to say "10 U.S.C 2380a provides DoD with the permissive authority to treat items and services provided by nontraditional defense contractors as commercial items. This authority was neither mandatory nor was it extended to prime contractor commercial item determinations for subcontracted items and services."

What would yours be, Fara?

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I hadn't noticed this until your question made me look closer, but -- 252.215-7010 is a provision. A provision is defined as: "Solicitation provision or provision means a term or condition used only in solicitations and applying only before contract award." Provisions don't go in contracts, so why is there even a flowdown requirement? Take away the flowdown and there's no longer a rabbit hole to go down.

This whole thing is a mess so I'm not going to waste any more time on it. The DAR council said that the authority was not extended to prime contractors, and that's been good enough for the others on this thread, and it's good enough for me.

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