DoD Adds "Value Analysis" as a Factor in Determining Price Reasonableness

DoD is proposing to revise its FAR (Federal Acquisition Regulations) Supplement to implement provisions contained in the 2017 NDAA (National Defense Authorization Act) to address how contracting officers may require offerors to submit relevant information to support market research when acquiring commercial items.

Agencies must conduct market research to support the determination of price reasonableness of commercial items. Sometimes however, market research comes up empty with nothing to support the reasonableness of the prices an offeror is proposing.

This new rule will not impose any new requirements on offerors but will allow offerors to submit information or analysis relating to the value of a commercial item to aid in the Government's determination of the reasonableness of the price of those items. Contracting officers in turn, may consider such information or analysis, in addition to any other information available in justifying price reasonableness.

This proposed rule introduces a new term; 'value analysis'. Value analysis means a systematic and objective evaluation of the function of a product and its related costs, whose purpose is to ensure optimum value. Value analysis is used to understand what features or characteristics of a given product or service, or offered terms and conditions warrant consideration as having legitimate value to the Government. A contracting officer may consider such information or analysis in addition to the information required to be submitted. 

Read more about this proposed rule here. Note that the proposal directs the reader to a PGI (Procedures, Guidance, and Information) reference for additional guidance on the use of value analysis that has not yet been published.

Seems like this is a good opportunity for offerors to inform contracting officers of any added value of the commercial items beyond the essential or basic Government requirements.

Implementing NDAA Provisions - GAO Review

The 2019 NDAA (National Defense Authorization Act) contained a provision for GAO to review DoD's regulatory implementation of acquisition-related provisions between 2010 and 2018. There were about 180 of them. The purpose of the review was to determine how DoD implements acquisition-related  NDAA provisions in its DFARS (DoD FAR Supplement). Congress, of course, was concerned about the length of time it takes for a provision to go from law to implementing regulation.

After each NDAA is enacted, the staff of the Defense Acquisition Regulations System identify which provisions to implement through regulatory changes and which to implement through other means. Sometimes, rather than changing the DFARS, DoD can issue a 'class deviation' which allows its buying organizations to temporarily diverge from the acquisition regulations. Other changes can be implemented through its less formal PG&I (Procedures, Guidance, and Information) system.

GAO completed its review and found that on average, it took DoD about a year to implement an NDAA provision. In a few cases, it took more than two years. That didn't seem to concern GAO at all. The thing that did concern GAO was the lack of a mechanism to clearly communicate to Congress, industry, and other interested parties the status of regulatory or other changes based on NDAA provisions. Using only publicly-available reports and information, it is difficult for an interest party to find the implementation status of any given acquisition-related NDAA provision. As a result, interested parties are not always aware of what provisions have been implemented and when. This information is important for congressional oversight and to industry for planning and compliance purposes.

GAO recommended that DoD develop a mechanism to better communicate the implementation status of acquisition-related NDAA provisions, particularly those that direct a change or consideration of a change to the DFARS. DoD concurred with GAO's recommendation. It will be interesting to see how long it takes DoD to implement such a system.

DoD Cancels Acquisition Streamlining Contract Clause

Back in February 2017, a Presidential Executive Order (EO 13777) established a Federal policy to alleviate unnecessary regulatory burden on the American people. In response to that EO, the Defense Department established a Regulatory Reform Task Force to review and validate DoD regulations, including DFARS (DoD FAR Supplement). DoD established a subgroup within the DoD Regulatory Reform Task Force to specifically review DFARS provisions and clauses.

It is difficult to make regulatory changes even when everyone knows and realizes that a particular regulation is redundant or of dubious value. This is especially true when regulations are implementing a statutory requirement. The statute must be changed first and that involves Congress and the President.

So far, the DoD Regulatory Reform Task Force has been concentrating on DFARS provisions that are redundant or closely approximate requirements stated elsewhere. This is the case published this week where DoD is removing DFARS Clause 252.211-7000, Acquisition Streamlining. Now why would DoD want to remove a clause that promotes "acquisition streamlining"? Isn't acquisition streamlining a good thing? A noble goal?

Perhaps. But in this case, the contract clause places the burden on contractors. DFARS 252.211-7000, Acquisition Streamlining (now deleted) requires contractors to prepare acquisition streamlining recommendations in accordance with the performance work statement and submit them to the Government. This particular clause was added to implement a requirement of a DoD Directive (DoDD 5000.43) that has since been cancelled. Moreover, FAR (Federal Acquisition Regulations) 7.1, Acquisition Plans, already includes similar provision involving industry engagement as considerations to be made when preparing written acquisition plans. Since the implementing DoD Directive and FAR 7.1 addresses acquisition streamlining, DoD considered its version of the clause unnecessary and therefore cancelled it.

In cancelling the requirement, DoD announced that it will continue to encourage industry participation during the design and development of contract requirements and through other methods.