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DoD's suggested changes to definition of commercial item

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DoD routinely makes proposals toward the upcoming National Defense Authorization Act (NDAA). Examples are here. Most recently, on 28 March, DoD proposed a change in the 41 USC definition of a commercial item by making three changes:

  1. delete phrase "of a type" to arrive at "...an item, other than real property, that—
    is of a type customarily used by the general public....
  2. eliminate items offered for sale but not yet sold
  3. change "substantial" quantities to read "like" quantities

Complete text of the DoD proposal concluding with suggested edits of the definition is available here or by clicking on the "commercial item" link on the left at this site:

Current Situation:

Most articles in trade publications seem to focus on and accept the idea that any abuse from overly broad use of commerciality would be reduced and better pricing would be obtained by deleting "of a type' from the definition:

* Page 4 of INSIDE THE PENTAGON, 5 April

* Defense News, 30 April

* Defense Systems, May 2

Based on these same articles and as specifically addressed in the Defense News article, there is some concern within industry that any tightening of the definition will reduce use of commerciality to establish price reasonableness Perhaps because of the emphasis on eliminating "of a type" buys, there is little recognition that -- at least at face value -- changing "substantial" quantities to "like" quantities would seemingly broaden the potential for use of commerciality.


Despite the DoD proposal's assertion that its changes to the 41 USC definition "would prompt commensurate adjustments of the Federal Acquisition Regulation." a quick look at FAR 201-1 Definitions and FAR 15.403-1 Obtaining Certified Cost or Pricing Data reveals some minor quibbles and one major disconnect:

* Any tightening accomplished by deleting "of a type" from the first paragraph of FAR's definition to arrive at "Any item, other than real property, that is of a type customarily used by the general public or by non-governmental entities..." means little.compared to the latitude provided by the third paragraph allowing for commercial items to include "Minor modifications... made to meet Federal Government requirements" with the assessment of "minor" left as a judgment call based on the extent of modifications.

* As for "substantial quantities," FAR's definition of commercial item (paragraphs 1 through 4 applying to both supplies and services) doesn't use the term." It shows up only in para 6 (services involving established catalog or market prices) and para 8 (nondevelopmental items developed at private expense) where in both cases context precludes a simple change from 'substantial" to "like." As a sidenote, 'substantial quantities" also shows up in the subsequent definition of Commercially available off-the-shelf (COTS), where "substantial" is actually needed to define COTS.

* More importantly, FAR 15's coverage of the commercial exception to cost and pricing data was already revised in 2009 to satisfy the language of Section 868 of PL 110-417 regarding both "substantial quantities" and "items of a type." The Interim Rule calling for implementation of this change is here and what follows with emphasis added in blue is current text of FAR 15.403-1©(3)(ii)(A) :

When purchasing services that are not offered and sold competitively in substantial quantities in the commercial marketplace, but are of a type offered and sold competitively in substantial quantities in the commercial marketplace, they may be considered commercial items (thus meeting the purpose of 41 U.S.C. 254b and 10 U.S.C. 2306a for truth in negotiations) only if the contracting officer determines in writing that the offeror has submitted sufficient information to evaluate, through price analysis, the reasonableness of the price of such services.

***end of text***


DoD's March 28 legislative proposal toward the 2013 National Defense Authorization Act attempts to close a door which -- at least for services -- has already been pretty well nailed shut. Perhaps similar wording should be considered for supplies. Finally, the wording of proposed changes would be awkward to implement in FAR and would risk failing to satisfy Section 868 of PL 110-417.

Personal Opinion:

Yes, there have been abuses of commerciality, perhaps even including the recent presidential helicopter program. I once personally fought and lost a battle to avoid an absurd series of small-purchase security upgrades to the private residence that President Nixon referred to as his "Western White House." These things happen.

When the consequences of a PCO determination involve bullets and blood, the exigency of the situation may enter into the decision as to whether modification of a commercial item is extensive enough to require preparation and submission of cost and pricing data. It's always possible to second guess such decisions and there will always be part of the bureaucracy in favor of cost and pricing data.

Finally, it looks like the budget folks in the Pentagon have put forward a position without coordinating with their contracting and legal counterparts.


Comments on any or all of the above would be welcome.

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Too long to read. Can you cut to the chase? How about:

DoD has proposed tightening the definition of commercial items in FAR 2.101. The idea is to reduce abuse of commercial item policies. Industry is concerned that tightening the definition will result in more demands for certified cost or pricing data.

What do you think of DoD's proposal?

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I look at proposed legislation but really don't get worked-up about something unless it looks like the President will sign it.

I have a very hard time getting worked-up about DOD's recommendations for proposed legislation. There's just too much sausage that still has to be made.


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