More Prodding by DoD to Increase Use of Commercial Pricing

The Department of Defense (DOD) updated its guidance late last week on commercial item determinations and the determination of price reasonableness for commercial items. Although there is a current DFARS (DoD FAR Supplement) case making its way through the rule-making process (see DFARS Case 2016-D0006), the DoD wants to jump-start the process to improve consistency and timeliness.

The guidance addresses those concerns about consistency and timeliness.

There have been instances where it has taken the Department too long to render commercial item determinations, particularly for items not sold in the competitive commercial marketplace. Further, there have been instances where one contracting officer within the Department has reached a determination about the commerciality of an item that is inconsistent with a determination made for the same or similar item elsewhere in the Department.

Inconsistent determinations are a problem and are a direct result on the contracting officer's exercise of judgment in making those determinations. Everyone's "judgment" is different. Contractors, especially contractors with multiple business units, experience such inconsistencies all the time. Contract auditors take different positions with respect to similar fact situations. Usually it all gets unraveled but after a lot of contractor time and expense.

The big news in this new guidance is the establishment of Commercial Item Centers of Excellence within the DCMA (Defense Contract Management Agency). These centers of excellence will be staffed with a cadre of engineers and price/cost analysts to advise procuring contracting officers (PCOs) in their determinations of commerciality. These "experts" will also be an excellent resource to support commercial item pricing. These centers will also be available to assist prime contractors in their commerciality determinations of subcontracts.

The new guidance also strongly reaffirms the policy that contracting officers may presume that a prior commercial item determination made by a Defense organization shall serve as a determination for subsequent procurements of such items. It talks about an eventual database where such information will be stored. In the meantime, contractors should be aware of attempts to re-invent the wheel - perform another commercial item determination after one has already been granted for the same part. In this regard, a contractor's knowledge will be more complete than the Government's.

The guidance also contains a mechanism for elevating disagreements about whether an item or product is truly a commercial item. Disagreements must be escalated and that creates more work. As a result, we would not expect to see too many disagreements.

You can read the entire guidance memorandum by clicking here.