data required for commerciality

[Fara Fasat]

I’m interested in the forum’s thoughts on this. As I explain below, it looks like DoD pulled a fast one and made a significant change to the rules for determining commerciality. As far as I can tell, they slipped it into the final rule without publishing it in the proposed rule and providing industry a chance to comment on it. It is DFARS Case 2023-D010. The proposed rule is at 88 FR 88554 (Dec 22, 2023), and the final rule is at 89 FR 46805 (May 30, 2024).

The final rule mostly implements section 803 of the 2023 NDAA, which mandated certain data requirements for commerciality determinations and price reasonableness determinations on major weapons systems. So far so good. But then in the final rule three words were added to DFARS 252.215-7010(b)(1)(ii), that were not in the proposed rule. It now says that prices are included in the minimum information that must be submitted to support a commerciality decision. It does this by revising the provision for certified cost or pricing data – 252.215-7010 -- in the following way. I’ve highlighted the new text:

"(b)(1)(ii) For a commercial product or commercial service exception, the Offeror shall submit, at a minimum, information that is adequate for determining commerciality and evaluating the reasonableness of the price for this acquisition, including prices at which the same product or service or similar products or services have been sold in the commercial market."

Once more, as far as I can tell, this new text was not in the proposed rule, and furthermore does not appear to be required by the NDAA.

Maybe I’m reading too much into it, but I have always maintained a strict wall between the information required for commerciality and information to support price reasonableness, with price information only required for the latter. DoD’s own commercial item guides, both the 2000 and 2018 versions, have stated that commerciality and price reasonableness are completely separate and independent determinations, as do all training materials, articles, and presentations that I have saved over the years. Nevertheless it’s been a constant battle with COs and customers who want to see sales and price information before making a commerciality determination. This change breaks down that wall and gives COs and customers the justification they need to demand price information just for a commerciality determination.

So, looking for thoughts on the following:

1. Was it genuinely slipped in without prior notice or did I miss something?
2. Is there a way to grammatically interpret the new version so that prices are not required for a commerciality determination?
3. Is it a significant change or no big deal?
4. If it is a significant change without an opportunity for public comment, what can be done?

[Don Mansfield]

The final rule explains why the language was added under "Other Changes".

I think the response to the first comment in the final rule addresses your concern. The data envisioned for establishing commerciality is not the same for establishing price reasonableness.

[Fara Fasat]

OK, I see that they explained it as an "other change." But their explanation states that the change is "to clarify that the information to be provided by the offeror pursuant to this paragraph is also for purposes of determining commerciality." That is exactly my point: everything required for price reasonableness is now also required for determining commerciality. That's a departure from their own publications and guidance.

To me, that (a) seems like a big change from 30 years of practice, and (b) deserved proper notice in the proposed rule to give industry a chance to comment. Furthermore, 252.215-7010 goes in all contracts where cost or pricing data might be required, not just major weapons systems. That seems well beyond the scope of the rule, which was "to implement a section of the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 that clarifies the data to be provided for certain procurements related to major weapon systems." So in the process of implementing the changes for major weapons systems, they added an "other change" that affects all contracts.

[Don Mansfield]

17 hours ago, Fara Fasat said:

That is exactly my point: everything required for price reasonableness is now also required for determining commerciality. That's a departure from their own publications and guidance.

I don't think that's what they're saying in their response to the first comment:

Quote

For the commerciality determination, section 803, as implemented in this rule, allows contractors to, for example, identify the comparable commercial product it sells or that is sold in the commercial market and provide the contracting officer a comparison between the physical characteristics and functionality of such a product and the subsystem, component, or spare part, if available.

For the price reasonableness determination, section 803, as implemented in this rule, allows the offeror to provide or give the contracting officer access to a representative sample of prices paid for the same or similar commercial products under comparable terms and conditions and, if not feasible, to provide the prices paid for the same or similar commercial products sold under different terms and conditions.

Two different determinations, two different sets of data. The pricing data is used to determine price reasonableness.

I think this change requires the submission of additional data and they snuck it in without addressing its effect on the information collection burden of the provision. Unsurprising for DoD. 

[Fara Fasat]

On 8/3/2024 at 9:55 AM, Don Mansfield said:

Two different determinations, two different sets of data. The pricing data is used to determine price reasonableness.

I agree that's what their comment says, and what they claim the rule is doing. However, it's more than just an information collection burden. The change they made to 252.215-7010 now makes pricing information required for the commerciality determination. It's no longer two different sets of data. Prices are now required for both determinations. The new 7010 says:

"... the Offeror shall submit, at a minimum, information that is adequate for determining commerciality and evaluating the reasonableness of the price for this acquisition, including prices at which the same product or service or similar products or services have been sold in the commercial market."

Is there a way to read this sentence so that prices are only required for the price reasonableness determination? Doesn't look like it to me.

[Don Mansfield]

Given the explanation in the final rule, I read this as--

1. Information that is adequate for determining commerciality, and

2. Information that is adequate for evaluating the reasonableness of price.

Two different sets of data for two different purposes. The first set does not include pricing information.

I think you are assuming that your interpretation is the only reasonable one.

 

[Fara Fasat]

Nope, I'm not. But so far I'm not convinced that the change maintains that separation. Maybe a grammarian could explain how it does (or doesn't). My interpretation of "including prices ..." is that it applies to both items preceding it, since they are connected by "and" with no comma.

[Don Mansfield]

Take a look at DFARS 234.7002(d). Do you see anything about prices?

In any case, the provision requires submission of pricing information. It doesn't limit what the Government can use it for.

[Fara Fasat]

Darn it Don, you're dancing all around the issue. 234.7002 is irrelevant to my question. The issue is the change to 252.215-7010, which applies to all contracts, not just major weapons systems.

Try a direct answer to this: Does the new sentence in 252.215-7010 say that prices shall be required for a commerciality determination? If you don't think it does, then explain how the sentence structure leads you to that conclusion. If you say that it does, then take the next step and say whether it is a change from 30 years of practice and guidance on commerciality determinations, where price had no part in the commerciality determination.

[Don Mansfield]

So do you accept that--according to DFARS 234.7002(d)--pricing data are not relevant for determining commerciality for major weapon systems?

[Fara Fasat]

The dance continues. Instead of answering my question, you pose one of your own. OK, I'll answer yours, and I hope you'll answer mine.

True, 232.7002(d) does not mention prices. That is a consistent implementation of the NDAA, which separately addresses the requirements for commerciality and for price reasonableness, for major weapons systems. Had DoD stopped there, all would be well.

BUT ... they added those three words to 252.7010(b)(1)(ii). That change:

1. Was not in the NDAA or required by it;
2. applies to all acquisitions, not just major weapons systems, and is arguably beyond the scope of the NDAA;
3. was not in the changes listed in the proposed rule, so that there was no opportunity to comment on it.

252.7010 used to be a list of the information that shall be provided for a price reasonableness determination. Now it says that all that information shall be required for determining commerciality and price reasonableness. DoD's explanation of this, blithely described as an  "other change," admits that the change means that "the information to be provided by the offeror pursuant to this paragraph is also for purposes of determining commerciality."

So back to my questions: is all of the price information in 252.7010(b)(1)(ii) now required for a commerciality determination, as DoD says? Is that a departure from the past 30 years, where price information was not required for the commerciality determination? Remember, 252.7010 applies to all acquisitions, not just major weapons systems.

[Neil Roberts]

On 8/2/2024 at 11:13 AM, Fara Fasat said:

Is it a significant change or no big deal?

From my point of view it is not a big deal. Price always had to be justified so what is the resistance to providing that which was already required? Maybe, in the end, a commercial product or service is not the way to go. I am interested in learning what industry arguments would be. 

Any member of the public may submit a memo to the DOD Defense Acquisition Regulations Director laying out the rationale that perhaps due process was not provided in applying the regulation to non major weapons systems. 

[Vern Edwards]

19 hours ago, Fara Fasat said:

The dance continues. Instead of answering my question, you pose one of your own. OK, I'll answer yours, and I hope you'll answer mine.

Reading the back and forth between Don and FARA, I am reminded that the FAR contains countless rules and that many of them come with exceptions. The exceptions generally apply to certain classes of entities or transactions. The creation of such exceptions requires safeguards to ensure that the exceptions apply only as intended and that cheaters should be prevented from enjoying them. That means developing airtight definitions, such as "commercial products", "commercial services", etc. Those seeking to enjoy the exceptions are required to provide proof of their qualification.

The commercial products and services rules in FAR Part 12 are simply one very big set of exceptions to a lot of other rules. Congress included Section 803 in the 2023 NDAA in order to close a loophole.

It is almost always the case that the rules and definitions applying to exceptions are among the most complex and confusing, and the FAR and DAR Councils have never mastered the art of reliably clear writing. I have read the proposed and final rules that Don and FARA have been going back and forth about, and I must say that I am utterly confused by the addition of the three words that are the basis of FARA's inquiry.

I don't know what that sentence in DFARs 215-7010 means, the DAR Council's final rule "explanation" notwithstanding. The Council apparently thinks that adding those three words clarified the rule, but did not change it. Maybe they actually believe that.

[Fara Fasat]

I had prepared a longer response to Neil, but after reading Vern's I'll just shorten it to this: DoD did make a change, and my opinion is that it is significant. For 30 years from FARA and FASA, and from DoD's 2001 Commercial Item Guide to the 2018 version, DoD has maintained that price had no role in the commercial item determination. I can provide the quotes if anyone needs them. Now, through an unannounced, "other change", they "clarify" that "oh, sales and price information always was required for a commerciality determination." I don't buy it. I think they've been looking to make this change and they hitched a ride on the NDAA implementation.

My longer response also had an explanation for why commercial item status is important before getting to price reasonableness, but I've decided not to drag this out. Those who have fought this with customers know why it's important.

 

[Don Mansfield]

On 8/7/2024 at 10:00 AM, Fara Fasat said:

So back to my questions: is all of the price information in 252.7010(b)(1)(ii) now required for a commerciality determination, as DoD says? Is that a departure from the past 30 years, where price information was not required for the commerciality determination? Remember, 252.7010 applies to all acquisitions, not just major weapons systems.

I think your assumption--that pricing information has not been required for the commerciality determination--is flawed. Consider the definition of commercial service:

 

Quote

Commercial service means—

(1) Installation services, maintenance services, repair services, training services, and other services if—

(i) Such services are procured for support of a commercial product as defined in this section, regardless of whether such services are provided by the same source or at the same time as the commercial product; 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;

(2) 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 or specific outcomes to be achieved and under standard commercial terms and conditions. For purposes of these services—

(i) Catalog price means a price included in a catalog, price list, schedule, or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers, and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and

(ii) Market prices means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors; 

 

 

Wouldn't one need to know "prices at which the same product or service or similar products or services have been sold in the commercial market" to determine if a source was proposing terms and conditions similar to those offered to the Federal Government?

Wouldn't one need to know "prices at which the same product or service or similar products or services have been sold in the commercial market" to determine whether a service was based on market prices?

In some cases, pricing information is relevant to determining commerciality. In some cases, it's not. How a contracting officer uses pricing information to support a commerciality determination--if at all--will depend on what criterion they use to support a positive determination.

Now if you are going to claim that the provision language inserted in the final rule now requires DoD contracting officers to use pricing information in all commerciality determinations, bless your heart. I wish you luck in convincing anyone that's what it means. 

 

 

[Fara Fasat]

You are correct - prices have been required in the definition for commercial services. It was my mistake not to direct my comments to products. I work in the product world and think in that box. From the responses so far, I don't think anyone has been misled. Nevertheless, you are correct.

16 minutes ago, Don Mansfield said:

In some cases, pricing information is relevant to determining commerciality.

Now, for products: that statement is incorrect. Here is what DoD had to say, before this change:

2001 DoD Commercial Item Handbook: on page 10, under the heading “Common Misperceptions….” “Furthermore, the offered price is not part of the commercial item determination. The commerciality determination precedes and is separate from the price reasonableness determination.”

DoD memo entitled “Clarification Regarding Application of FAR Part 12 (date unknown): “The determination of commerciality or noncommerciality precedes and is separate from the determination of price reasonableness. Concerns about the future ability to determine an offered price fair and reasonable do not factor into the decision as to whether a product or service is commercial.”

2018 DoD Guidebook for Acquiring Commercial Items goes further, and breaks up commerciality and price into two separate volumes. 

I won't argue your last paragraph. I think "shall submit" and "including prices" means prices are now required. You don't. I will say that we have already had a prime tell us that they wanted to see sales and price information for a commerciality determination, pointing to the new provision. Apparently they didn't need much convincing.

[Don Mansfield]

18 minutes ago, Fara Fasat said:

I won't argue your last paragraph. I think "shall submit" and "including prices" means prices are now required. You don't.

I didn't say the provision did not require submission of "prices at which the same product or service or similar products or services have been sold in the commercial market"--it clearly does. We part ways when you say that contracting officers will necessarily use that information to determine commerciality.

 

[Don Mansfield]

18 minutes ago, Fara Fasat said:

I will say that we have already had a prime tell us that they wanted to see sales and price information for a commerciality determination, pointing to the new provision.

Wouldn't they need that evidence to determine that the product in question was "sold, leased, or licensed to the general public"?

[Fara Fasat]

Yes in general, no with respect to a particular offeror. One of the misperceptions of commercial items is that the offeror needs to show that it has sold, leased, or licensed the product. In fact, the offeror itself never need to have sold the product or a similar product. As the Guide says, "An item is commercial because of the supply or service itself, not because of who provides the item." If a supplier is entering the market for a particular product that is available on the commercial market, it will have no sales history. That doesn't make the product noncommercial.  A widget is a widget, whether or not a particular supplier has sold one before. 

Besides, the DoD Guides, both versions, stress the importance of doing market research first to determine if what they need can be met in the commercial marketplace. If the market research is done properly, a supplier shouldn't have to prove anything, let alone provide sales and price information. In my experience, primes don't do any market research at all. They shift the burden and require a "commercial item justification" from the supplier to prove that the product meets the CP definition.