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s/w maintenance agreements and commerciality

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scenario:

the s/w license purchased is not a commercial item.

however, will the supporting maintenance agreements fall into same category? The maintenance are services are 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.

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What is "s/w" and what does it have to do with subcontracting?

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How is the maintenance priced?

Also it is strange that the license doesn't meet the definition of commerciality per your post but you're asking about maintenance of teh same package. Or is the maintenance pretty much the same support that the contractor provides for s/w that is commercial?

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Agree w/formerfed's comment wondering about the license not being commercial.

My FAR book happened to be open to 2.101 for something else when I read this thread, so it didn't take long to see that the commercial item definition explicitly includes, to summarize pertinent language, non-governmental items licensed, or offered for license, to the general public.

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I won't get into the substance of whether the software maintenance is a commercial item, but consider this:

In the first instance, the higher-tier contractor needs to determine whether an exception to cost or pricing data applies. However, if the government CO does not concur, the CO is not powerless. See FAR 15.403-1©(3), including the language, "the contracting officer determines." If you are relying on "of a type," and since the maintenance is a service, see esp. FAR 15.403-1©(3)(ii).

If reasonable minds could differ on commerciality, and the CO did not concur with the contractor's commerciality determination, the CO's judgment wouldn't be arbitrary or capricious, so the government likely would not violate any obligation to negotiate in good faith if it insisted that the higher-tier contractor not rely on the commercial item exception.

If this is a DoD contract, consider also DFARS 244.402(a) & DFARS 244.303.

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Agree w/formerfed's comment wondering about the license not being commercial.

My FAR book happened to be open to 2.101 for something else when I read this thread, so it didn't take long to see that the commercial item definition explicitly includes, to summarize pertinent language, non-governmental items licensed, or offered for license, to the general public.

this forum has had discussions where just being offered to general public does not meet criteria for commerciality. I happen to agree with that. I believe the end user (governemnt) and the intended use of the item overides sales data to commercial companies, or offered on GSA, or offered to general public.

Both the license, and maintenance are on GSA schedule, however this software is specific for government use.

The maintenance agreements however are a seperate procurement, performed on seperate purchase orders, and without getting into details of who and how software maintenance is performed, at least in my mind, is "general" or commercial in nature.

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Why wouldn't the software maintenance be a commercial item? Would the contractor employ a special class of programmers used only for government work? Would it use techniques unique to government work? Tools? It is not clear to me how the nature of the program to be maintained effects the commerciality of the maintenance unless the contractor will use a special class of programmers, special techniques, or tools. It seems to me that software maintenance is software maintenance, no matter what program is being maintained. For that matter, I don't see how a software license would not be a commercial item, notwithstanding the nature of the program being licensed. Is there something about the license itself that makes it unique to the government? Is it an unusual license in some way?

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Why wouldn't the software maintenance be a commercial item? Would the contractor employ a special class of programmers used only for government work? Would it use techniques unique to government work? Tools? It is not clear to me how the nature of the program to be maintained effects the commerciality of the maintenance unless the contractor will use a special class of programmers, special techniques, or tools. It seems to me that software maintenance is software maintenance, no matter what program is being maintained. For that matter, I don't see how a software license would not be a commercial item, notwithstanding the nature of the program being licensed. Is there something about the license itself that makes it unique to the government? Is it an unusual license in some way?

thanks Vern - I think you nailed it

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Only hearing one side, there certainly isn't enough here to say that this software maintenance is not a commercial item. The only fact that causes one pause is that he concedes the software itself is not a commercial item. See the fifth heading under the definition of commercial item (maintenance services on commercial items are generally commercial items if similar services are offered to the general public under similar T&Cs). As this doesn't apply, are we limited to the sixth heading for these maintenance services?

That said, it seems that Vern is jumping straight to "of a type" when he says, "It seems to me that software maintenance is software maintenance." Shouldn't the analysis start with what is actually being purchased by the government? For instance, if the software here are algorithms that only have military utility, I wouldn't start with the assumption that this software is a commercial item, simply because there is such a thing as commercial software.

Maybe the way to get there would be to focus on "minor modifications" under the third major heading in the definition of commercial item. How, if at all, is the item offered to the government different from the commercial item in its "function or essential physical characteristics of an item or component"? How different?

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Only hearing one side, there certainly isn't enough here to say that this software maintenance is not a commercial item. The only fact that causes one pause is that he concedes the software itself is not a commercial item. See the fifth heading under the definition of commercial item (maintenance services on commercial items are generally commercial items if similar services are offered to the general public under similar T&Cs). As this doesn't apply, are we limited to the sixth heading for these maintenance services?

That said, it seems that Vern is jumping straight to "of a type" when he says, "It seems to me that software maintenance is software maintenance." Shouldn't the analysis start with what is actually being purchased by the government? For instance, if the software here are algorithms that only have military utility, I wouldn't start with the assumption that this software is a commercial item, simply because there is such a thing as commercial software.

Maybe the way to get there would be to focus on "minor modifications" under the third major heading in the definition of commercial item. How, if at all, is the item offered to the government different from the commercial item in its "function or essential physical characteristics of an item or component"? How different?

Jacques - here is what I think.

S/W, and S/W licenses are one thing.

S/W maintenace renewals are different.

S/W can be created for military only, and the license that supports the S/W cannot be differentiated away from that.

What I think Vern and I agree on is the "exercise" of renewing software agreements, regardless if the S/W is to a military or to a military program, is a commercial service.

Do you agree to that?

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Both the license, and maintenance are on GSA schedule, however this software is specific for government use.

I thought that if it was on a GSA schedule, then it was commercial. FAR 8.402(a) states:

The Federal Supply Schedule program is also known as the GSA Schedules Program or the Multiple Award Schedule Program. The Federal Supply Schedule program is directed and managed by GSA and provides Federal agencies (see 8.002) with a simplified process for obtaining commercial supplies and services at prices associated with volume buying...

[bold added].

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What I think Vern and I agree on is the "exercise" of renewing software agreements, regardless if the S/W is to a military or to a military program, is a commercial service.

General,

I don't see the distinction you're trying to make. When the government buys software, a license is what it is buying. If the software isn't a commercial item, then the license is not a commercial item. How could the first time you buy the license be a noncommercial transaction, but the second time you buy it, it is commercial (assuming the facts don't change)?

While it is rank speculation on my part, I suspect you may have been too quick to concede that the software was not a commercial item. Simchak & Vogel have a great discussion of the intersection of commercial items and software/technical data in Licensing Software and Technology to the U.S. Government (2000), beginning at 288. You may want to take a look.

If I'm wrong, and the software doesn't qualify as a commercial item, then my "going in" position is that the only way the services related to that noncommercial item will be treated as a commercial item is if they qualify as such under the sixth heading of commercial item in FAR Part 2 as stand-alone services. The only way I can conceive to avoid this result would be to focus on the end result of the service rather than on the service itself, to make the results of the effort a "commercial item" under the first few headings. As I don't have a handle on the scope of what you call software maintenance, that may or may not be something that could be done with a straight face.

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When the government buys software, a license is what it is buying. If the software isn't a commercial item, then the license is not a commercial item.?

Is the government buying software or a use right? Is it the features of the software that determines commerciality or the features of the use right?

If your are hiring someone to repair internal combustion engines, what does the nature of the vehicle--function and configuration--have to do with the commerciality of the service?

These are just questions, not assertions.

And what about Don's point? If the software is available on GSA schedule, why isn't it commercial? Didn't the GSA contracting officer already make that determination? Why revisit it?

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If your are hiring someone to repair internal combustion engines, what does the nature of the vehicle--function and configuration--have to do with the commerciality of the service?

Vern, I couldn't tell if your questions were directed to anyone in particular or to all. I would suggest this is exactly what FAR Part 2 does with the fifth heading for commercial items.

"Commercial item" means...

(5) Installation services, maintenance services, repair services, training services, and other services if--

(i) Such services are procured for support of an item referred to in paragraph (1), (2), (3), or (4) of this definition, regardless of whether such services are provided by the same source or at the same time as the item; and

(ii) The source of such services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government;

(emphasis added).

For commercial items other than services, I would repeat my earlier suggestion that, in deciding whether what is being delivered under the contract is a commercial item, one focus on the delivered item itself. If that item, with all its peculiarities, in its own right qualifies as a commercial item under the first heading, great. If it doesn't, go to the second heading. If it doesn't qualify under the second, go to the third. If it doesn't qualify under the first three, go to the fourth. Don't begin the analysis by jumping to the fact that you can think of a commercial item that contains an internal combustion engine.

I agree that if the engine in your example is a commercial item, and the service relates solely to that engine, the fact the engine is housed in a noncommercial item wouldn't prevent that engine repair service from being a commercial service. I don't see how the analogy relates to maintenance of noncommercial software. Probably unlike engine repair, at least with software patches you can attempt to argue the patch is a deliverable commercial item, and therefore the transaction isn't for services.

On the one hand, the distinction between commercial items generally and commercial services specifically seems to have taken on greater importance with the recent changes to FAR 15.403-1?(3)(ii) brought on by the 2009 Defense Authorization Act. On the other, there seems to be greater flexibility for performance-based services under FAR 12.102(f)(1) and 15.403-1?(3)(iv).

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Vern, I couldn't tell if your questions were directed to anyone in particular or to all. I would suggest this is exactly what FAR Part 2 does with the fifth heading for commercial items.

(emphasis added).

For commercial items other than services, I would repeat my earlier suggestion that, in deciding whether what is being delivered under the contract is a commercial item, one focus on the delivered item itself. If that item, with all its peculiarities, in its own right qualifies as a commercial item under the first heading, great. If it doesn't, go to the second heading. If it doesn't qualify under the second, go to the third. If it doesn't qualify under the first three, go to the fourth. Don't begin the analysis by jumping to the fact that you can think of a commercial item that contains an internal combustion engine.

I agree that if the engine in your example is a commercial item, and the service relates solely to that engine, the fact the engine is housed in a noncommercial item wouldn't prevent that engine repair service from being a commercial service. I don't see how the analogy relates to maintenance of noncommercial software. Probably unlike engine repair, at least with software patches you can attempt to argue the patch is a deliverable commercial item, and therefore the transaction isn't for services.

On the one hand, the distinction between commercial items generally and commercial services specifically seems to have taken on greater importance with the recent changes to FAR 15.403-1?(3)(ii) brought on by the 2009 Defense Authorization Act. On the other, there seems to be greater flexibility for performance-based services under FAR 12.102(f)(1) and 15.403-1?(3)(iv).

reinvesting revenue derived from maintenance agreements is to enhance, upgrade, create , better and new products. I suppose the argument can be that a non commercial item, and associated services therefore are non commercial too.

I too thought GSA was only commercial items and services. Is this true?

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Jacques:

What about Don's point? Both the software and the service are on GSA schedule. Such items are commercial items as determined by the GSA contracting officer? Why is general revisiting the issue?

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Vern, I wouldn't suggest that the GSA CO has made a determination that the particular software is a commercial item. Rather, I would suggest that, for the order to be within scope of the FSS, the software has to be a commercial item. It sounds like the CO placing the order is talking a little bit out of both sides of his mouth, unless this is being treated as a nonschedule buy under FAR 8.402(f).

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Jacques,

general said that both the license and the maintenance are on the GSA Schedule.

Don, I'm not an expert of the Federal Supply Schedule. I see the reference to "commercial supplies and services" both in FAR 8.402(a) & 38.101(a), but I don't see anything in the FAR to suggest that the commerciality decision by the GSA CO is conclusive as to all conceivable orders. It seems more likely that the GSA CO found the work to be generally commercial, and that each ordering activity should to be satisfied that the specific work ordered is commercial. While it seems very likely the ordering activity CO dropped the ball, aside from the nonschedule procedures previously discussed, it doesn't appear that the limitation on the use of the FSS to "commercial supplies and services" is statutory. There may be some other regulation or Executive Order that would prevent an individual deviation, but, let's not hang the government CO just yet. I assume, perhaps without foundation, that "commercial supplies and services" and "commercial items," should be used interchangably. If the basic contract was awarded under commercial item procedures, then, you would want to be sure that what you were buying was a commercial item. If you don't think the terms are interchangable, then at the very least you would want to make sure you could use commercial item procedures for your noncommercial item (FAR 12.102(g)).

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Jacques,

This is the way the GSA multiple award process works. An offeror submits a proposal against the Schedule solicitation for commercial items. Part of the proposal consists of their commercial pricelist annotated to reflect all the products and services they wish to offer. They also submit a Commercial Sales Practice Format which states the dollar value of sales to the general public over the preceeding 12 months as well as the discounts provided off the commercial price for various categories of customers including what's proposed to GSA as part of the offer. So in effect, the contractor is saying everything they offer is commercial and submitting data to support that. The GSA CO reviews the data, accepts that it is commercial based upon what the offeror says, and uses the information to negotiate prices.

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Vern, I wouldn't suggest that the GSA CO has made a determination that the particular software is a commercial item. Rather, I would suggest that, for the order to be within scope of the FSS, the software has to be a commercial item. It sounds like the CO placing the order is talking a little bit out of both sides of his mouth, unless this is being treated as a nonschedule buy under FAR 8.402(f).

FormerFed

You referenced FAR 8.402.

more text of 8.402 states "Additionally, the Department of Defense (DoD) manages similar systems of schedule-type contracting for military items; however, DoD systems are not covered by this subpart"

what does this mean ?

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General_

That was Jacques that said that. But what it means is DoD puts it's own schedule like programs in place just for military items. FAR 8.4 doesn't apply to the DoD specific system; just FSS and VA ones.

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