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garth

Who makes a Commerical Item Determination

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Per an interim rule implementing Sections 805 and 815 of the National Defense Authorization Act for Fiscal Year 2008 (Pub. L. 110?181) issued July 15th Part 234 of the DFARS has now been revised appearing to transfer the responsibility ? for major weapon system procurements including their subsystems and components - of determining whether an item is a commercial item from the contractor to the contracting officer.

However 244.402 was not revised and still states the contractor ? not the contracting officer ? has the responsibility to determine whether a subcontracted meets the definition of a commercial item, notwithstanding under FAR 15.403-1?(3) if the contracting officer makes an independent determination otherwise, the contracting officer can require the submission of cost or pricing data.

(1) Is there now a conflict in the regulations as to who makes a commercial item determination for subcontracts?

(2) If so which takes precedence?

(3) If the contracting officer now has the responsibility to make that determination for subcontracts is it the ACO or PCO?

(4) If it is the PCO do they have the responsibility as all the lower tier subcontractors as well?

(5) If it is the PCO and a prime contractor is placing a subcontractor for an items that are used across multiple prime contracts, do each of the PCOs make an independent determination?

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(B) Subsystems. A subsystem of a major weapon system (other than a commercially available off-the-shelf item) may be treated as a commercial item and acquired under procedures established for the acquisition of commercial items only if--

(1) The subsystem is intended for a major weapon system that is being acquired, or has been acquired, under procedures established for the acquisition of commercial items in accordance with paragraph (a) of this section; or

(2) The contracting officer determines in writing that--

(i) The subsystem is a commercial item; and

(ii) The offeror has submitted sufficient information to evaluate, through price analysis, the reasonableness of the price for the subsystem.

? Components and spare parts. (1) A component or spare part for a major weapon system (other than a commercially available off-the-shelf item) may be treated as a commercial item only if--

(i) The component or spare part is intended for--

(A) A major weapon system that is being acquired, or has been acquired, under procedures established for the acquisition of commercial items in accordance with paragraph (a) of this section; or

(B) A subsystem of a major weapon system that is being acquired, or has been acquired, under procedures established for the acquisition of commercial items in accordance with paragraph (B) of this section; or

(ii) The contracting officer determines in writing that--

(A) The component or spare part is a commercial item; and

(B) The offeror has submitted sufficient information to evaluate, through price analysis, the reasonableness of the price for the component or spare part.

(2) This paragraph ? shall apply only to components and spare parts that are acquired by DoD through a prime contract or a modification to a prime contract, or through a subcontract under a prime contract or modification to a prime contract on which the prime contractor adds no, or negligible, value.

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Hi Garth,

Let me venture into these rough waters with some trepidation. First, I assume you are a contractor and not a Government contracting officer. If I'm wrong, ignore this post.

1. Revisions to the FAR and DFARS are interesting and worthy of note. But for contractors, there is little if any effect unless a solicitation or contract clause has been revised. The FAR and agency supplements provide guidance to acquisition personnel of the executive branch; contractors agree to comply with clauses including in their contracts.

2. Regardless of regulatory changes -- or even clause revisions -- contractors must comply with the version of the clauses in effect at the time their contract(s) are executed (the contract effectivity date and execution date need not be the same, but commonly are the same).

3. As always, unless a specific clause directs otherwise, contractors operate according to their policies and procedures (including when applicable their CASB Disclosure Statements). Periodically, many contractors have their purchasing policies and procedures reviewed by Government officials as part of a Purchasing System Review (CPSR). One can assume that contractor policies and procedures comply with FAR/DFARS requirements but one might also argue that, unless there is a violation of specific statute or contract requirement, the contractor's policies and procedures can be whatever they are, so long as they are disclosed and followed consistently.

4. Consent to subcontract is a requirement of most contracts.

So, my position would be that the contractor makes its commercial item determinations in accordance with its policy and procedures. Specific commercial item determinations may be reviewed as part of the consent to subcontract actions. Policies and procedures, as well as a review of a sample of commercial item determinations, are reviewed as part of the CPSR and any findings affect whether the contractor has an adequate purchasing system. Other than that, changes to FAR and DFARS guidance to executive branch acquisition officials would seem to be interesting events viewed somewhat from afar.

The foregoing is a combination of experience and regulatory guidance. I can provide some citations if necessary but your post indicates you can already read the regulations.

Hope this helps.

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Thanks here_2_help,

I confess to struggling mightily with understanding to what extend statues and regulations apply to a primes dealing with a sub - absent contractual obligations. Some appear to pierce through regardless of the lack of provisions in the contract, e.g., prohibition on cost-plus-percentage-of-cost contracts, the Service Contract Act, Comptroller Generals right to examine sub books, the Anti-Kickback Act, etc.

I do like your reading; however, I am a little cautious of such a broad application. In instances where the regulations require something of the CO ? such as the requirement for full and open competition - I understand that direction is specific to Government personnel ? notwithstanding Contractors often use that as a model to get through the CPSRs.

But the language in this case appears to be more than direction to the CO. It appears to be saying that an Item can not be considered commercial unless the CO makes the determination in writing; actually reserving the right to make such a determination to the CO (maybe analogous to reserving the right to waive cost or pricing data to the HCA.) It also specifically addresses subsystems and components which are more often than not procured by the prime contractor. And it appears to have been aware of the prime sub issue as evidence by the forth to last paragraph:

(2) paragraph © shall apply only to components and spare parts that are acquired by DoD through a prime contract or a modification to a prime contract, or through a subcontract under a prime contract or modification to a prime contract on which the prime contractor adds no, or negligible, value.

My take is this adds an additional level of confusion to a already confused process.

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Thanks here_2_help,

(2) paragraph ? shall apply only to components and spare parts that are acquired by DoD through a prime contract or a modification to a prime contract, or through a subcontract under a prime contract or modification to a prime contract on which the prime contractor adds no, or negligible, value.

My reading of the above is that it EXEMPTS from the rules all contractor activities except for those prime contracts where the contractor adds no, or negligable, value (the excessive pass-thru costs contracts).

I think it's okay to be cautious but -- dang it -- the carrier needs to get built! Why contractors are afraid of commercial item determinations, or determining that contract actions are exempt from TINA requirements, is beyond me.

H2H

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I read it similarly regarding a "component" of a major weapon system where the contractor adds value. And notwithstanding the FAR definition of ?component? is any item supplied to the Government as part of an end item or of another component ?? the exemption does not appear to apply ?subsystems? ? for which I have not been unable to find an applicable definition.

The challenge with primes and higher tier subs determining the commerciality of an item is that the guidance ? policy memos, handbook, etc. - is such that almost any items short of an atomic nuclear submarine could be determined commercial. This coupled with the responsibility for making the determination currently appears to reside with the contractor and the CO creates a fair amount of uncertainty. Once a contractor makes a determination the CO can easily disrupt progress made to date - in the sub negotiations and prime proposal process- under the assumption of commerciality by ruling otherwise.

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