Expansion of Definition of Commercial Item

FAR (Federal Acquisition Regulation) was amended today to expand the definition of "commercial item". The definition heretofore has been written broadly to include seven different scenarios or situations. Now there's an eighth. The eighth and newest category of commercial items reads as follows:

A non-developmental item, if the procuring agency determines the item was developed exclusively at private expense and sold in substantial quantities, on a competitive basis, to multiple State and local governments or to multiple foreign governments.

The first question when reading this definition is what is a "non-development item". Well, FAR has a definition for that as well. In FAR 2.101, we read:

A non-developmental item (NDI) means:

• Any previously developed item of supply used exclusively for governmental purposes by a Federal agency, a State or local government, or a foreign government with which the United States has a mutual defense cooperation agreement
• Any item described above that requires only minor modification or modifications of a type customarily available in the commercial marketplace in order to meet the requirements of the procuring department or agency
• Any item of supply being produced that does not meet the requirements above solely because the item is not yet in use.

Like any commercial item procurement, contractors should not assume that a contracting officer will know or would likely consider whether an item being offered qualifies as a commercial item. Offerors should be ensure that such distinctions are highlighted.

This change to FAR was necessitated based on a provision in the 2018 NDAA. FAR Part 12 creates a preference for buying commercial items and provides relief from certain record-keeping, reporting, and compliance requirements. According to an analysis performed by the Section 809 Panel, commercial acquisitions are subject to 138 contract clauses while acquisitions for NDI that do not meet the commercial item definition as well as acquisitions for noncommercial items could be subject to nearly 500 clauses, including TINA (Truth in Negotiations Act) which has long been recognized as one of the most costly statutes and regulations in Federal procurement.

The full text of the expanded definition of "commercial item" is available here.

FAR Councils Propose to Broaden the Definition of "Commercial Item"

The FAR Councils have proposed a new rule, based on requirements of the 2018 NDAA (National Defense Authorization Act) that will expand the definition of "commercial items" appearing in FAR (Federal Acquisition Regulations) 2.101.

Under the proposed rule, NDI (non-developmental items) that are developed exclusively at private expanse and sold in substantial quantities to multiple foreign governments may be treated as commercial items.

Because commercial items, which include commercially available off-the-shelf items, are sold to the Government in the same way as NDIs, the Government can take advantage of the previous testing and general acceptance of the product in the commercial marketplace or by a state, local, or foreign government.

Here are some examples of NDIs that would be considered commercial items under the expanded definition:

• Protective vests used by police departments and rescue equipment used by fire and rescue units
• Defense products previously developed by defense agencies of U.S. allies and used exclusively for governmental purposes by Federal agencies, state or local governments, or a foreign government
• Items that require only minor modifications to meet the requirements of the procuring agency; and
• A mechanical dereefer (mechanism for releasing parachute reefing lines) used with the U.S. Army's cargo parachutes that was developed for and first used by the Canadian Army.

It is expected that the new expanded definition will achieve savings for both contractors and the Government. According to an analysis published by the Section 809 Panel, commercial item acquisitions are subject to up to 138 contract clauses, while acquisitions for NDIs that do not meet the commercial item definition as well as acquisitions for non-commercial items could be subject to nearly 500 clauses, depending on the principal type and purpose of the contract.

The full text of the proposed rule can be found here.

NDAA 2019 - Commercial Products and Commercial Services

The President signed the 2019 NDAA (National Defense Authorization Act) named for Senator John McCain on Monday this week. We've covered a couple of the provisions in the legislation that are of interest to Government contractors, especially small businesses. Monday we discussed the prohibition against contracting officers arbitrarily withholding consent to subcontract just because they didn't like the price or the estimated cost and yesterday we took a look at a provision designed to enhance the effectiveness of PTACs (Procurement Technical Assistance Centers). Yesterday we discussed a new requirement  that allows the Defense Department to pay small businesses in 15 days rather than the traditional 30 days. Today we will look at the new definition of "commercial items". There are two definitions now, one for commercial products and the other for commercial services. These will become important distinctions as the Government's stated preference is to buy commercial first and if commercial items are not available, then to utilize some other procurement mechanism.

Commercial product. Commercial product means a product, other than real property, that is of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes and has been sold, leased, or licensed, or offered for sale, lease, or license, to the general public. It also means a product that evolved from a commercial product through advances in technology or performance and is not yet available in the commercial marketplace but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Federal Government solicitation. Thirdly, it also includes a product that satisfies the above criteria were it not for modifications of a type customarily available in the commercial marketplace or minor modifications made to meet Federal Government requirements.

Commercial services. Commercial services means any of the following:

1. Installation services, maintenance services, repair services, training services, and other services if those services are procured for support of a commercial product, regardless of whether the services are provided by the same source or at the same time as the commercial product and the source of the 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.
3. A service described above even though the service is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor.

 Note that for commercial services, if they are not procured to support a commercial product, must have been sold in substantial quantities in the commercial marketplace.

Contract Financing on Commercial Contracts

In many circumstances, the Government will award "commercial contracts". Usually, under commercial contracts, it is contractors' responsibility to provide all resources necessary for contract performance including financing. However, Government regulations also recognize that in some markets, the provisions for financing by the buyer is a commercial practice.

Under FAR (Federal Acquisition Regulations) 32.2 (and corresponding statutes), the Government will allow for interim payments and advance payments for commercial purchases under certain circumstances. The overarching requirement that needs to be satisfied is a determination that offering financing will be in the best interests of the Government. Beyond that, the following circumstances must be satisfied.

1. The contract item financed is a commercial supply or service
2. The contract price exceeds the simplified acquisition threshold (currently set at $150,000)
3. The contracting officer determines that it is appropriate or customary in the commercial marketplace to make financing payments for the item
4. Adequate security is obtained (more on this below)
5. Prior to any performance of work, the aggregate of commercial advance payments shall not exceed 15 percent of the contract price
6. The contract is awarded on the basis of competitive procedures
7. The contracting officer obtains concurrence from the payment office concerning liquidation provisions when required.

Security for Government Financing. Statutes require that the Government obtain adequate security for Government financing. Typically the solicitation will specify the type of security the Government will accept. In some cases, the offeror's financial condition could be considered adequate security provided the offeror agree to provide additional security should the financial condition become inadequate as security.

If the security is in the form of a lien on work-in-process, inventory, property, etc, it is considered paramount to all other liens and is effective immediately upon the first payment without filing, notice, or other action by the Government.

Other forms of security would include a surety, irrevocable letter of credit, bond, a third-part guarantee, and title to identified assets.

The ability to obtain contract financing on commercial contracts should reduce the need for many companies to go out and borrow working capital in order to pursue Government contracts.

Commercial Item Preference - Market Research Still Required

Existing statutes and regulations require the Government to ensure that its requirements with respect to a procurement of supplies or services are stated in terms of (i) functions to be performed, (ii) performance required, or (iii) essential physical characteristics. This is necessary so that commercial items, to the extent practical, can be procured to fulfill such requirements and sellers of commercial items are provided an opportunity to compete in any procurement to fill such requirements (see 10 USC 2377).

Although the regulations impose a strong preference to purchase commercial items, contracting officers must also determine that prices are fair and reasonable.  Just because a price is in a catalog or just because a contractor sells the same or similar items commercially, does not mean that the prices quoted to the Government are fair and reasonable. Perhaps there are other vendors offering commercial items that meet the Government's needs for lower prices. Anecdotal evidence suggests that in their push to buy commercially, to comply with regulations, and please their bosses, some contracting officers have entered into commercial item contracts without first determining that the prices were fair and reasonable.

To allay this concern, the House included a provision in the 2017 NDAA that will require contracting officers to (always) conduct market research to support the determination of reasonableness. The Senate agreed. Specifically, the provision, included as Sec 871 in the 2017 NDAA reads as follows:

Market Research For Price Analysis.—The Secretary of Defense shall ensure that procurement officials in the Department of Defense conduct or obtain market research to support the determination of the reasonableness of price for commercial items contained in any bid or offer submitted in response to an agency solicitation. To the extent necessary to support such market research, the procurement official for the solicitation ...

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.

DoD Proposing to Amend Rules on Commercial Pricing

The Department of Defense issued a proposal to amend it DFARS (DoD FAR Supplement) to, essentially, make it more difficult for contracting officers to request certified cost or pricing data or data other than certified cost or pricing data in lieu of awarding contracts based on commercial item determinations. The proposed regulations were required by sections of the NDAAs (National Defense Authorization Acts) from fiscal years 2013 and 2016.

One of the key provision should alleviate many contractor frustrations. Under the proposed regulations, contracting officers may presume that a prior commercial item determination made by a military department, a defense agency, or another component of DoD shall serve as a determination for subsequent procurements of such items. Too many times, contractors have to prove over and over again that the items it sells to the Government are commercial items. Now if that happens, contractors should be able to direct the contracting officer to prior determinations and satisfy the requirement.

Unfortunately, some contracting officers believe that they alone possess the holy grain of commercial item determinations and do not want to rely on what some other person has done. The new regulations answers that situation by stepping the determination up a level:

If the contracting officer does not make the presumption  and instead chooses to proceed with a procurement of an item previously determined to be a commercial item using procedures other than the procedures authorized for the procurement of a commercial item, the contracting officer shall request a review of the commercial item determination by the head of the contracting activity that will conduct the procurement.

Perhaps that will work, perhaps not. Another key provision of the proposed regulations are new definitions of "market research" and "nontraditional defense contractors". These read as follows:

Market research means a review of existing systems, subsystems, capabilities, and technologies that are available or could be made available to meet the needs of DoD in whole or in part. The review may include any of the techniques for conducting market research provided in section 10.002(b)(2) of the FAR and shall include, at a minimum, contacting knowledgeable individuals in Government and industry regarding existing market capabilities (section 855 of the National Defense Authorization Act for Fiscal Year 2016 (Pub. L. 114-92)). 

Nontraditional defense contractor means an entity that is not currently performing and has not performed any contract or subcontract for DoD that is subject to full coverage under the cost accounting standards prescribed pursuant to 41 U.S.C. 1502 and the regulations implementing such section, for at least the 1-year period preceding the solicitation of sources by DoD for the procurement or transaction (10 U.S.C. 2302(9)).

You can read the full text of the proposed regulations here.

Customary Commercial Practices

The Federal Acquisition Streamlining Act of 1994 (FASA) established a preference and specific requirements for acquiring commercial items that meet an agency's needs. FAR requires market research by the acquiring agency to address, among other things, customary practices regarding the provision of the commercial item. Consistent with this approach, FAR bars the tailoring of solicitations for commercial items in a manner inconsistent with customary commercial practice unless a waiver is obtained. If a waiver is requested, it must describe the customary commercial practice found in the marketplace, support the need to include a term or condition that is inconsistent with that practice, and include a determination that the use of the customary commercial practice is inconsistent with the needs of the Government. That may be a lot of hoops to jump through but the purpose is to encourage acquisitions of commercial items when and where possible.

A recent bid protest decision passed down from the Comptroller General's office (i.e the GAO) sheds some insight on how the Government conducts its market research and determines customary commercial practices.

The Army issued a solicitation for waste management services (i.e. garbage pickup) at Fort Polk Louisiana. Offerors were required to submit fixed rices on a per-ton basis. Before the contract was awarded, one of the bidders protested on the grounds that the requirement to propose fixed prices on a per-ton basis was inconsistent with commercial practices.The Army agreed to take corrective action and so this appeal was dropped.

However, the Army's corrective action did not change the solicitation requirements for fixed prices on a per-ton basis. It set out to demonstrate that garbage pick-up on a per-ton basis was a commercial practice. And so, the offeror protested once again.

The offeror maintained that customary commercial practices for regular trash collection schedules are not priced on a per-ton basis since contractors' costs are driven by the number and frequency and distance between stops on a collection schedule. The costs a contractor incurs are essentially the same whether the refuse containers are full, partially full, or empty.

The Army responded that it had performed market research to justify its per-ton pricing. It reviewed other Army refuse contracts, requested feedback from industry in "Sources Sought Notice (SSN) and contacted a sales representative from a company in New York.

The Comptroller General didn't buy the Army's logic. It stated that the Army's market research failed to reasonably support its conclusion that pricing for refuse contracts on a per-ton basis reflects customary commercial practice.

First, it was unreasonable for the Army to rely on other Government refuse contracts as a basis for establishing customary commercial practice since contracts with the federal government are not generally considered to be part of the commercial marketplace.

With respect to the SSN (Sources Sought Notice), the Army received seven responses. Four stated that pricing should be on a monthly basis and three did not comment. The Army's reliance on three of the respondents who did not comment on this issue provides no basis for the Army to conclude that the solicitation's pricing terms were consistent with customary commercial priactice.

Finally, contacting a trash collector in another state did not provide an adequate basis for concluding that the price-per-ton approach constituted customary commercial practice. The record did not contain or even reference any particular commercial refuse contract to which the New York trash company was a party. Nor did the record contain any documentation from the company representative or support for the "expertise and knowledge" of the sales representative.

The Army was trying hard to award the contract to the incumbent contractor but was foiled, at least for the time being.

You can read the entire decision by clicking here.

Commercial Items - How the Government Determines Price Reasonableness

The DoD Director of Defense Pricing issued guidance (actually a reminder of existing policy) to contracting officers and those empowered to bind the Government in contracting matters, pertaining to (i) commercial items and (ii) the determination of reasonableness of price for commercial items.

DoD spent $60 billion on commercial items last year. The concept behind the commercial items pricing exception to TINA (the Truth in Negotiations Act), is that the item, its value, and its price, are results of supply and demand in a commercial marketplace where buyers and sellers have other commercial alternatives which compete with the commercial item(s) being purchased.

At the end of the day, contracting officers have to ask themselves whether they are paying a fair and reasonable price. There are several ways to approach that question. When acquiring commercial items, the preference is to use market-based pricing when determining a fair and reasonable price. If market based pricing is not available however, FAR Part 12 provides the flexibility to use a variety of pricing techniques to include, but not limited to cost/price analyses, parametric estimating, should-cost techniques and/or analogous pricing of similar items in determining whether the Government is paying a fair and reasonable price.

If market based pricing is not available, a Contracting Officer may use cost-based analysis.  That doesn't mean the contracting officer should require certified cost or pricing data. FAR 15.403 recognizes that there are times when other than certified cost and/or pricing data is needed to determine a fair and reasonable price. "Other than certified cost or pricing data" takes many forms and in certain instances, the only difference between "certified cost and pricing data" and "other than certified cost and pricing data" can be the fact that the data is certified.

The primary purpose of obtaining "other than certified cost or pricing data" is to support the justification that the Government is paying a fair and reasonable price for the item being purchased. The FAR preference is for contracting officers to seek information through market research and other Governmental sources. In cases where items have minimal or no sales history to non-governmental entities, market research by the contracting officer is difficult and often fruitless. In these instances, the contractor should be asked to provide information on why the price it wishes to pay is fair and reasonable. The statute and the regulations provide that contracting officers shall require "appropriate information on the prices at which the same or similar items have been previously sold that is adequate for evaluating the reasonableness of the price.

The standard used by the contracting officer to determine price reasonableness is whether a reasonable businessman or business woman reviewing the data would conclude that it is sufficient to demonstrate that the taxpayers are paying a fair and reasonable price for the item.

You can read the full memorandum here.

Commercial Item Definition - Proposed Change

Each year, Government agencies prepare and send in "legislative proposals" to Congress for its consideration. Last year, for example, DoD sent in 12 different packages of legislative proposals for consideration under the National Defense Authorization Act (NDAA) for FY 2012. For the FY2013 NDAA, it has already submitted six packages with more expected before a June cut-off date. Not all of these proposals make it through the legislative process of course but many do.

One of the proposals submitted in a package on March 28, 2013 would revise the definition of the term "commercial pricing" by

1. eliminating the "of a type" criterion, 
2. eliminating items or services that are merely offered for sale but not yet sold, and 
3. adjust the threshold that requires prior sale of "substantial" quantities to one that allows prior sale of "like" quantities.

In DoD's view, this proposal would permit the Government to acquire commercial items at better prices by ensuring that such items are only those goods or services that actually have been sold, leased, or licensed in comparable quantities in the commercial marketplace and therefore have prices that clearly are based on competitive market pricing or established catalog prices.

The DoD Inspector General and the GAO have been critical of DoD's use of commercial item pricing. Those oversight agencies have found that DoD sometimes uses commercial item procedures to procure items that are misclassified as commercial items and therefore not subject to the forces of a competitive marketplace. Misclassification of items as commercial can leave DoD (as well as all Government agencies) vulnerable to accepting prices that are not the best value for the Government. Another DoD-IG report concluded that the commercial item definition is broad and has allowed contracting officials to award contracts for defense systems and subsystems that had no commercial market.

Subcontract Costs Based on Commercial Item Pricing

A couple of weeks ago, we ran a three part series dealing with the Government's purchases of commercial items and some of the factors that the Government considers in determining whether items meet the precise definition of "commercial items". Today we want to focus on prime contractor responsibilities when they include subcontract costs based on commercial item pricing in a proposal or public voucher.


When a prime/higher-tier contractor includes proposed subcontract costs for commercial items in its proposal, the prime/higher-tier contractor is required to make a commercial item determination (CID) and perform the appropriate cost or price analysis to establish a fair and reasonable price, in accordance with Department of Defense FAR Supplement (DFARS) 244.402 and Federal Acquisition Regulation (FAR) 15.404-3. The Government auditor (e.g. DCAA) or the price analyst/contracting officer (e.g. DCMA) will review the adequacy of the prime/higher-tier contractor’s CID and associated cost/price analysis as a basis for opining on the adequacy of the CID and the reasonableness of the proposed subcontract costs included in the prime/higher-tier contractor’s proposal.


Prime contractors and all of their subcontractors are required to purchase supplies and services from responsible sources at fair and reasonable prices, including those determined to be commercial items. DFARS 244.402(a) states "Contractors shall determine whether a particular subcontract item meets the definition of a commercial item.” Prime/higher-tier contractors are expected to exercise reasonable business judgment in making the CID and documenting its determination. In addition, FAR 15.404-3(b) states that the prime contractor shall conduct appropriate cost/price analyses to establish the reasonableness of proposed subcontract prices and include these analyses in its proposal.

An adequate CID clearly identifies and supports how the item meets the commercial item definition in FAR 2.101. Generally, support for a CID would include market analysis and sales history. Failure to include adequate support could result in an estimating system deficiency and possible withholds on billings.

In some cases, the contracting officer may not agree with a prime contractor/higher-tier subcontractor's CID. FAR 15.403-1(c)(3) states in part, “If the contracting officer determines that an item claimed to be commercial is, in fact, not commercial and that no other exception or waiver applies, … the contracting officer shall require submission of certified cost or pricing data.”

Commercial Items - Part III

In our previous two posts on this subject, we described the Government's penchant for buying goods and services commercially and provided a bit of regulatory guidance on what does and does not constitute commercial items and commercial practices. As we conclude this short series today, we will be discussing some general policies and practices the Government uses to make those purchases.

The basic policies and procedures are contained in FAR Part 12. Most agencies have supplemental regulations. For DoD, its DFARS 212. Additionally, each agency has specific policies and procedures that implement the regulations. For DoD, its PGI 212 (Procedures, Guidance, and Instructions). Fundamentally, commercial item policies and procedures rely heavily on the education, training, and professional expertise of Government acquisition personnel. Government acquisition personnel are trained and instructed to use flexibility and exercise sound business judgment in its interpretations and application of policies and procedures.

The decision to use a commercial item to meet the Government's requirements for a specific acquisition is based on market research and an analysis of the marketplace. Contracting officers must ensure that the contract files fully and adequately document the market research and rationale supporting a conclusion that the commercial item definition (described in Part I) has been satisfied. Failure to do so risks having awards overturned if losing bidders appeal to the GAO (Government Accountability Office).  Under DoD rules, commercial items over $1 million must have a written determination that the item(s) satisfy the commercial item definition.

While the documentation requirements on contracting officers are extensive, they are even more cumbersome  for determinations involving modifications of a type customarily available in the commercial marketplace and items offered, but not yet sold, leased, or licensed to the general public. In these situations the documentation must clearly detail the particulars of the modifications and sales offers. When such items lack sufficient market pricing information, contracting officers must support determinations that prices are fair and reasonable by other means. The fact that a price is included in a catalog does not necessarily mean that it is fair and reasonable.

If the contracting officer cannot determine whether an offered price is fair and reasonable, even after obtaining additional information from sources other than the offeror, the contracting officer must require the offeror to submit information other than cost or pricing data to support further analysis. In extreme cases, when "other than cost or pricing data" is still not adequate to support the reasonableness of the offered price, certified cost or pricing data may be required.

Contractors who desire to sell commercially, should be prepared to assist the contracting officer in his/her documentation efforts.

Commercial Items - Part II

We began this series yesterday discussing the Government's preferred method of acquiring goods and services; making every effort to buying commercial items. Beginning with the Federal Acquisition Streamlining Act (FASA) in 1994, the Government signaled a shift from traditional buying of goods and services tailored exclusively for its own use and purposes to buying commercial items and using commercial buying practices. One of the impediments to buying commercial items is deciding what is and is not a commercial item. Obviously COTS (Commercially Available Off-The-Shelf) items are commercial but the Government's definition is much broader.

Items that require modifications of a type customarily available in the commercial marketplace, or require minor Government-unique modifications, can still be considered commercial items. To qualify as a minor modification, of a type on customarily available in the commercial marketplace made to meet Government requirements, the modification must significantly alter the nongovernmental function or essential physical characteristics of an item or component, or change the purpose of a process.

The FAR commercial item definition includes many services as well as products. A service is considered a commercial item when it is provided in support of a commercial item. A service is also considered a commercial item when it is of a type offered and sold competitively in substantial quantities in the commercial market on the basis of established catalog r market prices for specific tasks performed under standard commercial terms and conditions.

The phrase "of a type" broadens the definition so that qualifying items do not have to be identical to those in the commercial marketplace. This takes full advantage of the opportunities for modified commercial items.

If a commercial item evolves through technical or performance advances and that is not yet available in the commercial marketplace, it still meets the commercial item definition, as long as it will be available in time to satisfy the  Government's requirement (e.g. product updates, model changes, and product improvements).

For minor modifications of a type not customarily available in the commercial marketplace, the Government considers value, size, and comparative value and size of the final product. Dollar value and percentage are used as guideposts, but are not conclusive evidence that a modification is minor.

Commercial Items - Part I

Over the next few days, we will be discussing "commercial item" procurement; what are commercial items, from the Government's perspective?, the Government's preference for buying commercially, and criteria used in making source selections. Companies that can offer their products and services to the Government as commercial items have a distinct advantage over those who do not.

Since the passage of the Federal Acquisition Streamlining Act of 1994 (FASA), the preference within the Federal Government has shifted from the acquisition of items developed exclusively for the Government to the acquisition of commercial items.  This change was designed to take advantage of available and evolving technological innovations in the commercial sector.

FASA represented a dramatic shift in acquisition policy for the Federal Government.  FASA promoted maximum use of commercial items to meet the government’s needs and streamlined the process of acquiring such items following commercial market practices.  Under FASA, the concept of commercial practices is overarching and affects every functional area within the acquisition process.  Source selection is made on a "best value" rather than a "cheapest price" basis.  

The Government's preference for commercial item pricing is stated right at the beginning of FAR. The "guiding principles" section at FAR 1.102(b) states that Federal Acquisition System will:

1. Satisfy the customer in terms of cost, quality, and timeliness of the delivered  product or service by;
• Maximizing the use of commercial products and services,
• Using contractors who have a track record of successful past performance or who demonstrate a current superior ability to perform, and
• Promoting competition;
2. Minimize administrative operating costs;
3. Conduct business with integrity, fairness, and openness; and
4. Fulfill public policy objectives.

Definition

Commercial items include any item of a type customarily used by the general public, or by nongovernmental entities, for purposes other than governmental purposes that has been sold, leased, or licensed, or offered for sale, lease, or license to the general public (see FAR 2.101). The definition also includes items that are not yet in the commercial marketplace, as long as they will be available in time to satisfy Government requirements. 

Commercial items do not necessarily have to be “off-the-shelf”.  Items that require modifications of a type customarily available in the commercial marketplace, or require minor Government-unique modifications, can still be considered commercial items.  We will go into more detail tomorrow on what constitutes "minor modification".