On April 4, 2023, the Defense Contract Management Agency’s (“DCMA”) Commercial Item Group held an industry day at Fort Lee in Virginia. The DCMA Commercial Item Group assists DOD purchasers in determining whether items provided to DoD qualify as commercial products or services and, thus, will be subject to fewer federal acquisition and DoD requirements. The Commercial Item Group also assists with market research, technical analysis, price analysis, negotiation support, commercial item database maintenance and providing support on commercial products and services initiatives.
Throughout the industry day, the Commercial Item Group emphasized that its goal is to maximize the number of products and services that will be considered “commercial,” but only to the extent allowed by the applicable regulations and only with the contractor’s active participation in providing applicable information to demonstrate commerciality.
Statutory and Regulatory Updates
The Commercial Item Group also highlighted statutory and regulatory updates impacting commercial products and services. An amendment to the DFARS provides that if a commercial product or service has been previously acquired under FAR Part 12, that serves as a commercial item determination. DFARS 212.102(a)(ii)(A), (iii). In other words, if a contractor had a prior FAR Part 12 prime contract with the government for the product or service at issue, that is enough to establish the product or service is commercial for future acquisitions. Further, Section 803 of the Fiscal Year 2023 National Defense Authorization Act amends data requirements for commercial products in major weapon systems. This is still in the process of being implemented through regulations.
Commercial Products and Services Determinations
Notably, Fiscal Year 2023 thus far has seen a sharp increase in findings that products or services are “other than commercial.” While Fiscal Years 2019-2022 saw between 12%-27% “other than commercial” determinations, these determinations for FY 2023 are at a whopping 58%. The Commercial Item Group noted that the problem often lies in insufficient data from the contractor to show a product or service meets the definition, and stressed that in making a determination of commerciality contractors must share data. (Note in the case of services, frequently the government adds many unique terms and conditions – so the commerciality determination is largely outside of the contractor’s control.) Approximately 72% of “other than commercial” determinations result from not having enough information. This is particularly true when trying to establish the product or service is “of a type” sold to the public. Contractors and subcontractors often express discomfort at sharing information such as invoices and pricing to establish commerciality. To alleviate some concern, the Commercial Item Group stated it will work with contractors and subcontractors on “over the shoulder” reviews that will shield sensitive pricing information to the maximum extent practicable. Currently, a contractor or subcontractor cannot contact the Commercial Item Group directly about specific cases, but the group hosts monthly virtual office hours the first Thursday of every month where contractors are welcome to discuss general issues and questions.
The Commercial Item Group provided many tips throughout the industry day on creating a compelling commercial product or service package. Contractors seeking commerciality determinations are encouraged to:
- State the particular sub-definition of FAR 2.101 met by the product or service;
- Provide evidence to support each element of the relevant definition.
- Describe the salient characteristics of the product or service.
- A useful framework is to describe the form, fit, and function.
- For services, describe the proposed scope of work in sufficient detail.
- Compare the product or service to those in the commercial marketplace (where applicable).
- It is important to highlight similarities and differences. There is no requirement the product or service is exactly the same.
- Demonstrate the product or service is used in the commercial marketplace.
- While a commercial catalog may be important, it does not necessarily address whether the item is used by the public.
- Invoices are frequently used to substantiate sales history, but contractors should be mindful that too many redactions may make the invoice insufficient to determine commerciality.
- A single sale or a small handful of sales may be insufficient to demonstrate commerciality.
- Verify whether all elements of the applicable definition are covered.
- The Commercial Item Group reiterated it is insufficient to assert the product or service is “of a type” used in the commercial marketplace. Contractors need to provide evidence to support that assertion.
- Describe the salient characteristics of the product or service.
Another session during the industry day discussed the relationship between pricing and commerciality. While commerciality is driven by the definition from FAR 2.101, pricing may provide meaningful data in establishing commerciality. For example, a significant price difference may indicate that the proclaimed “minor modification” is not minor after all.
Interesting Points for Contractors to Consider
Throughout the day, the Commercial Item Group mentioned a number of ideas it is currently exploring that may be interesting to contractors, to include:
- Creating an avenue for contractors to be able to directly contact DCMA/the Commercial Item Group without requiring a request from the Buying Command.
- Creating an electronic commercial catalog of non-National Stock Number items so that DoD is better able to track what it is buying, from whom, and how much it is paying. Conceptually, the database would standardize descriptions of products and services (currently different vendors or resellers use different names and descriptions). The database would enable DoD to employ better data analytics on what it is buying and at what prices. It would also allow better insight into the supply chain. This catalog would be in addition to the pre-existing DOD commercial item database that tracks commerciality decisions.
The Commercial Item Group posted the slides used during the industry day here. Information regarding the Commercial Item Group is available here.