Thursday, August 2, 2018

DoD Needs to Enhance its Commercial Item Determination Process

The Department of Defense prefers to buy goods and services from the commercial marketplace to take advantage of new innovations and save on acquisition costs. However, DoD's process for determining whether an item can be purchased commercially - and at a fair and reasonable price - is often long and challenging. This was GAO's (Government Accountability Office) conclusion in a recent report (see Improved Information Sharing Could Help DOD Determine Whether Items Are Commercial and Reasonably Priced.

DoD's process for determining if an item is available for purchase in the commercial marketplace at a reasonable price includes (i) market analysis, (ii) commercial item determination, (iii) price reasonableness determination, and finally, (iv) contract award. Sounds simple but its not. It takes a long time and these steps are usually challenging. GAO found four interrelated factors, each with its set of challenges that influenced how and whether DoD determines if an item is commercial and if its price is reasonable. These factors include:

  1. Availability of marketplace information. Market research is a key component that informs commercial item and price reasonableness determinations. However, GAO found that obtaining market-related information can be challenging because the products DOD requires may not be widely available in the commercial marketplace.
  2. Ability to obtain contractor data: When adequate market information is not available, DOD officials turn to the contractor for information to support the commercial item determination or data to make a price reasonableness determination. In the case studies GAO reviewed, most contractors provided relevant information, but not without delays and challenges. For example, while pricing data is key to DOD’s ability to determine price reasonableness, several contracting officers reported that contractors were less willing to provide this data once an item was determined commercial.
  3. Extent of modifications to an item: When a commercial item must be modified to meet DOD’s requirements, DOD officials may have to take additional steps, such as completing a comparative analysis of commercial items to the modified item. For example, in one case, a commercial navigation system had to be modified to withstand an explosion. To make the commercial item determination DOD officials had to make an on-site visit to the manufacturer to gain in-depth understanding of the services provided and to ensure they met DOD requirements.
  4. Reliability of prior commercial item determinations: Contracting officers may presume that an item is commercial if a DOD component had previously made that determination. However, GAO found that, in some cases, contracting officers reviewing a prior determination discovered that it was based on inaccurate information.

It seems to us that prospective contractors are not doing themselves any favors by withholding information necessary for the Government to determine price reasonableness (factor no. 2, above). The only justification we can surmise is that prospective contractors do not want the public to know prices afforded to customers or perhaps they're trying to sell to the Government at a higher price.

GAO recommended that DoD develop a strategy for how information related to reasonableness determinations should be shared across the Department. DoD agreed.

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