Jump to content
The Wifcon Forums and Blogs

InNeedofWisdom

The Commercial Item Itself?

Recommended Posts

Epiphany:

Have you ever been told something, read something, and thought something for months, but then later concluded that what you were told and how you understood what you read was different from a plain reading of the text?

The Commercial Item Itself:

When you read paragraph (1) of the commercial item definition found in FAR 2.101, do you think paragraph (1) is saying that the proposed item itself must be either sold or offered for sale to the public [to qualify as commercial under paragraph (1)]?

When you read paragraph (1) of the commercial item definition found in 41 USC Sec. 103 (http://www.law.cornell.edu/uscode/text/41/103), do you think paragraph (1) is saying that the proposed item itself must be either sold or offered for sale to the public?

How many people do you know who say or think that only the "of a type" item must be sold or offered for sale for the proposed item to qualify as commercial under paragraph (1)? Are you familiar with any case law to support this?

Points against "Of a Type":

It may be in the best interest of the defense industry (and perhaps the government) to act as if paragraph (1) allows for an item that has never been sold or offered to the public to qualify as commercial under paragraph (1). But is that what it actually says?

What would be the point of paragraph (2) if a proposed item could qualify as commercial under paragraph (1) based on another "of a type" item having been sold or offered for sale to the public? Would not paragraph (2) be largely redundant if this was true?

Also, a proposed item could qualify for paragraph (1) or paragraph (3) because both address "of a type". When I held to my previous understanding of paragraph (1), I found it difficult to establish when a "modified item" should go under either paragraph (1) or (3).

Conclusion:

What do you think? Is it correct by definition for an item that has not itself been sold or offered for sale to the general public to be claimed as commercial under paragraph (1) of the FAR 2.101 commercial item definition? If not, do you think it is still pragmatically appropriate?

Share this post


Link to post
Share on other sites

InNeedofWisdom,

A general, generic, non-specific question might generate a discussion providing general, generic, non-specific answers. Can you provide an example where there might be some differentiation between the ITEM product and the OF A TYPE product that might be helpful in grounding the discussion?

Were I to play grammarian, I might opine that OF A TYPE modifies ITEM in ( 1 ), and that ( i ) or ( ii ) apply to ITEM. Here's how I approach it...

( 1 ) An item, other than real property, that is...

of a type customarily used by the general public . . ., and--

( i ) has been sold . . . to the general public; or

( ii ) has been offerred for sale . . . to the general public.

For the ( 1 ) definition, the ITEM has to satisfy both the and and also the or -- it must be OF A TYPE and it must be ( i ) or ( ii ).

All of this is playing grammarian. I can't offer more without an example, because I would want to interpret the text in a way that makes sense, and the example would provide a context for making sense.

Share this post


Link to post
Share on other sites

Can you provide an example where there might be some differentiation between the ITEM product and the OF A TYPE product that might be helpful in grounding the discussion?

Absolutely! :) Let's use a "space pen" as the example. This pen writes in outer space and for this example only NASA may buy it. Here is my train of thought:

1. Is the space pen "of a type" normally used by the public? (Yes)

2. Has the space pen been sold or offered to the public? (No, in this example only NASA may buy it.)

3. Will the space pen be available to the public by time of delivery to NASA? (No)

4. Is the modification "of a type" normally available to the public? (For this example I would say, "No", but others might say, "Yes".)

5. Is the modification minor to meet federal requirements? (If we assume the space pen costs $1,000 and the original pen only $10, then I would say, "No.")

Some people might say that the space pen is commercial because the "of a type" item used by the public has been sold to the public. Instead of going to definition (3) and making judgment calls about modifications "of a type" or minor v. major, these people might say it qualifies for definition (1) based on the "of a type" item being sold to the public.

Share this post


Link to post
Share on other sites

If I were a NASA contracting officer buying more space pens, I might not want to call it a commercial item -- I wouldn't have any commercial sales to establish the reasonableness of the price, and I would be barred from getting certified cost or pricing data. I might pay $1,000 per pen when certified cost or pricing data, if it were provided, might suggest a design and production cost of $400 per pen. My grammarian example would support my decision, because ( i ) and ( ii ) apply to ITEM, not OF A TYPE.

Share this post


Link to post
Share on other sites

If I were a NASA contracting officer buying more space pens, I might not want to call it a commercial item -- I wouldn't have any commercial sales to establish the reasonableness of the price, and I would be barred from getting certified cost or pricing data. I might pay $1,000 per pen when certified cost or pricing data, if it were provided, might suggest a design and production cost of $400 per pen. My grammarian example would support my decision, because ( i ) and ( ii ) apply to ITEM, not OF A TYPE.

I agree. :)

Share this post


Link to post
Share on other sites

INOW, in your example you posit that "2. Has the space pen been sold or offered to the public? (No, in this example only NASA may buy it.)" Of course, you can set the facts of a hypothetical as you choose, and I assume that "only NASA may buy it" really means that "only NASA is allowed to buy it" (public sales are restricted) rather than "only NASA has bought it" (public sales are permitted, but no one from the public has bought it). Suppose the item has been offered for sale to the public, but no member of the public has yet made the purchase (I have seen situation, but I do not remember specifically what the item was, though I think it had to do with data storage devices for communicatons systems). How would the offer to the public, without a sale to the public, affect your rationale?

Share this post


Link to post
Share on other sites

Here is the first paragraph of the definition of commercial item that appears in FAR 2.101

"Commercial item" means—(1) Any item, other than real property, that is of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and (i) Has been sold, leased, or licensed to the general public; or (ii) Has been offered for sale, lease, or license to the general public[.]

The question is whether (i) and (ii) apply to "item" or to "type". In other words, must the particular item itself have been sold, etc., or offered for sale, etc., or is it enough that the class ("type") of which the item is a member has been sold or offered for sale, even though the particular item has not?

In my opinion the item itself must have been sold or offered for sale, because the relative pronoun "that" introduces an adjectival clause -- "is of a type... has been sold... has been been offered for sale" -- which ultimately modifies the pronoun's antecedent noun: "item".

However, statutory and regulatory interpretation entail more than grammatical and syntactical analysis. They matter, but they're not all that matter. See Scalia and Garner, Reading Law: The Interpretation of Legal Texts (2012): "No canon of interpretation is absolute. Each may be overcome by the strength of differing principles that point in other directions."

Another way of reading paragraph (1) would be: A commercial item is a product or service (1) that is one of a class of products or services that has been customarily used by the general public for private and commercial purposes and (2) that has been sold or offered for sale.

Putting "that" in front of both adjectival clauses clears thing up.

It strikes me that the author(s) of the sentence were not very good writers. If the thing has been sold to the general public, then it stands to reason that it is being used for other than government purposes. Why doesn't the sentence just say: A commercial item is a product or service that has been sold or offered for sale to the general public or to non-governmental entities? Why the need for the bit about "of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes"? I mean, if a private citizen buys an antique Sherman tank and drives it around, it clearly is not for "governmental" purposes. Criminal purposes, maybe, but not governmental purposes. Even if the citizen is using it to make citizen's arrests of speeders, the purpose is not governmental, since the citizen does is not employed by or otherwise empowered by the government. Right?

Of course, the bit about "of a type" indicates that the particular item need not have been actually used, which is likely the case if it has only been offered for sale, but not actually sold. So the particular item need not have been actually used and sold, as long as it is within a class of items that has been used and sold. Like a horse owned by some people I know out of one of their mares. The worthless beast is some kind of pet. They don't ride it. They just feed it and pet it. It has never been ridden and has not been sold, but it belongs to a class, Equus ferus caballus, the domesticated horse, members of which have been ridden and sold.

I could go on, but, really, who knows what the definition means? What do you want it to mean? Go with that until you have an official interpretation.

Share this post


Link to post
Share on other sites
The question is whether (i) and (ii) apply to "item" or to "type". In other words, must the particular item itself have been sold, etc., or offered for sale, etc., or is it enough that the class ("type") of which the item is a member has been sold or offered for sale, even though the particular item has not?

Yes, that is the basic question. I enjoyed reading your posting and the example about the tank. :) It makes sense.

It strikes me that the author(s) of the sentence were not very good writers. If the thing has been sold to the general public, then it stands to reason that it is being used for other than government purposes. Why doesn't the sentence just say: A commercial item is a product or service that has been sold or offered for sale to the general public or to non-governmental entities?

I think the writers of the first paragraph were trying to quote the 41 USC Section 103 definition (http://www.law.cornell.edu/uscode/text/41/103) while making a confusing change in structure.

I could go on, but, really, who knows what the definition means? What do you want it to mean? Go with that until you have an official interpretation.

I want the definition to mean whatever will keep me away from defective pricing and a false claims lawsuit. The DoD TINA statute (http://www.law.cornell.edu/uscode/text/10/2306a) in (h)(3) references (for the definition of commercial item) the 41 USC Section 103 definition.

Thank you for quoting from Reading Law: The Interpretation of Legal Texts (2012). Any ideas on where I could look for any case law on this would be much appreciated. I think this kind of issue could come up in 1) A defective pricing/false claims case or 2) A defense contractor appealing to the ASBCA for either a DACO's decision to disapprove the business system or disallow a portion of incurred cost (e.g. profit on an IOT at price when commerciality was not clearly proven). Case law on this kind thing would be a dream come true (for a beggar). :)

Share this post


Link to post
Share on other sites

If you think about "of a type", it doesn't make much sense. People buy particular items. The items they buy may fall into a class of items, but they don't buy the class, they buy a particular item. So what does it mean to say that "a type" of thing has been sold to the general public?

The Air Force tried to classify the C-130J transport aircraft as a commercial item, so that they wouldn't have to require the submission of cost or pricing data from Lockheed Martin and apply other policies to the acquisition. Transport aircraft are commonly sold for non-governmental purposes, and various models of the C-130 have been sold commercially. The C-130J is "of a type" sold commercially. The DODIG did not agree. See Contracting for and Performance of the C-130J Aircraft, D-2004-102, July 23, 2004, http://www.dodig.mil/audit/reports/fy04/04-102.pdf. The IG did not discuss the "of a type" language. Indeed, the IG made no mention of it.

DOD has since proposed legislation to eliminate the "of a type" language from the definition. http://pogoarchives.org/m/co/dod-legislative-proposal-commercial-item-definition-20120400.pdf. It explained thusly:

This proposal would (1) eliminate items “of a type” from the existing statutory prescription; (2) eliminate items or services merely offered for sale, lease, or license (but not yet sold, leased, or licensed) to the general public from the existing statutory definition; and (3) adjust the threshold that requires prior sale of “substantial” quantities to one that allows prior sale of “like” quantities. The first two changes would preclude any further abuse in the overly broad application of the statutory definition. The third change would recognize that a sale in the commercial market is sufficient for purposes of determining fair and reasonable prices if the magnitude of such sale is comparable, or “like”, the quantity to be purchased by the DoD or other Federal agency.

The current statute is focused on the "nature" of the goods and services currently being sold in the competitive commercial marketplace, not the individual vendors selling (or the end users acquiring) those goods and services. It is the "nature" of the items or services, not the end user of such items or services, which should be considered in the determination of whether or not an item or service is considered to be "commercial." The removal of "of a type" and "offered for sale" would not restrict new vendors from qualifying their goods and services as commercial items. Additionally, it is important to note that "next generation" items may meet this criteria where new or additional functionality or value is available in the commercial market place.

Share this post


Link to post
Share on other sites

If you think about "of a type", it doesn't make much sense. People buy particular items. The items they buy may fall into a class of items, but they don't buy the class, they buy a particular item. So what does it mean to say that "a type" of thing has been sold to the general public?

Right, that is a good point. :) I like to think about the illustration of a basket with a red apple, green apple, orange, and grenade. All items are "of a type" in size. Only the red and green apple are "of a type" in flavor. But both the apples and the orange are "of a type" in use (eaten for nourishment). I think "in use" is the key to understanding "of a type" in paragraph (1). However, some people may think that if the item is "of a type" in use, it automatically meets definition (1) even without the item itself being sold to the public or offerred for sale. I say they should take the route of (3)(ii).

Thank you for providing the link to the DoD IG report on the C-130J. I am relieved that the AF took the route of (3)(ii) [instead of just (1)]. I think the DoD IG would not have been able to take issue with the procurement if the PCO had 1) Used FAR 15 instead of FAR 12 and 2) Obtained certified cost or pricing data (CCOPD) only on the minor modification IAW FAR 15.403-1( c )(3)(iii)( B ). But did all this happen before the change was made to require CCOPD on the minor modification if the modification was larger than the greater of either the TINA threshold or 5% of the contract?

Share this post


Link to post
Share on other sites

I'm moving on, InNeed. The history of the Air Force's attempts to use Part 12 to buy major systems is well documented. You can find more info on the internet.

Vern

Share this post


Link to post
Share on other sites

INOW, thinking about the "of a type," lets look at some examples where that might come into play. Automotive parts are frequently designed for specific vehicles. For example, there is no one size fits all air filter or oil filter. Would you say that a Fram oil filter that fits only an MRAP is a commercial item or non-commercial item when there are many different types of oil filters that are used on one or a limited number of commercial vehicles? In other words, it is a common commercial practice to have different oil filters for different vehicles.

Share this post


Link to post
Share on other sites

Would you say that a Fram oil filter that fits only an MRAP is a commercial item or non-commercial item when there are many different types of oil filters that are used on one or a limited number of commercial vehicles?

Your question is whether the item is commercial or non-commercial. :) I would say the item is commercial under paragraph (3)(ii). But some people may think that because there is an "of a type" item used by the public, they can just check box 1 for paragraph (1) and keep going. I really think part of the reason the DoD wanted to get rid of the "of a type" language in the commercial item definition was because of abuse of paragraph (1). It is one thing to believe something is commercial, but it is another thing to certify commerciality under the correct paragraph.

I had to google "MRAP" to learn it is a "Mine-Resistant Ambush Protected" vehicle (http://en.wikipedia.org/wiki/MRAP). :) If the company that sells the MRAP oil filter to the army also offers the same MRAP oil filter to the public, there should be no problem with claiming commerciality under paragraph (1). Even if the company does not offer the same MRAP oil filter to the public, there should be no problem making the judgment call that the "modification" is minor to meet army (MRAP) requirements and claiming commerciality under paragraph (3)(ii).

But there would be a problem if neither the company nor anyone else offered (nor sold) the MRAP oil filter to the public, and yet the company certified the item as commercial under paragraph (1). That would be a false claim. If the government suffered loss and wanted to destroy its working contractor relationship while placing its own program at risk, the government could take that defense contractor to court and win. But my guess is that this kind of issue has never gone to court because most things can be argued to qualify for (3)(ii). What do you think? :)

Share this post


Link to post
Share on other sites

There are two tests, so even if the MRAP oil filter is of a type commonly used by the general public and non-governmental entities for non-governmental purposes, it is not a commercial item unless it has been (i) sold or (ii) offered for sale to the general public.

Share this post


Link to post
Share on other sites

As a related topic to paragraph (1)... :)

Do you think there is one test or two tests for stand-alone commercial services under paragraph (6)?

Based on the way the definition currently reads (after the change made back in early 2007 by FAC 2005-15), I think the definition says the commercial service only must be "of a type" with another service sold using either 1) An established catalog or 2) Market prices. In other words, I think the current version of paragraph (6) allows in the case of services exactly what I think paragraph (1) does not allow in the case of supplies! :) The verb tense in paragraph (6) makes it clear that "established catalog" and "market prices" are describing another "of a type" service instead of the service actually being procured.

However, have you read what the DoD IG had to say about this subject for F-16 mission training simulator services back in March of 2006? Based on the version of the FAR prior to early 2007, the DoD IG might say that my current position is wrong. The DoD IG concluded that these simulator services should have been acquired under FAR Part 15 as non-commercial. Even though there were arguably "of a type" commercial services sold using an established catalogs or market prices, the DoD IG concluded that was not enough based on the previous version of FAR 2.101. Here is a quote from pdf pages 23-24 of the report found at http://www.dodig.mil/audit/reports/fy06/06-065.pdf:

The FAR defines commercial services as: “Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed under standard commercial terms and conditions. This does not include services that are sold based on hourly rates without an established catalog or market price for a specific service performed” (FAR Part 2.101). Additional clarification provided by the Under Secretary of Defense for Acquisition and Technology in a January 2001 memorandum specifies that “of a type” is not intended to allow the use of commercial acquisition procedures to acquire sole-source, military unique items that are not closely related to items already in the marketplace. [emphasis added]

In case you are still interested in what may seem like a very boring subject, compare the FAR 2.101 definition to the public law definition found at http://www.law.cornell.edu/uscode/text/41/103. The phrase "of a type" was simply inserted in the FAR 2.101 definition without changing the public law definition. That may explain why the current definition of FAR 2.101 appears to require only one test: "Has another "of a type" commercial service been sold using an established catalog or market prices?"

Share this post


Link to post
Share on other sites
Guest
This topic is now closed to further replies.

×