Commercial Item Acquisitions: A Brief Update Alan Chvotkin, Esq. Professional Services Council To the ABA PCL Accounting, Cost and Pricing Committee April 11, 2017

COMMERCIAL ITEMS – THE BASICS Chvotkin’s critical three-prong analysis must be undertaken Does good or service meet the definition(s) of a commercial item? What are the methods for the government to acquire the item? What are the government techniques for making the price reasonableness determination? FAR provides definitions (2.101), acquisition methods (8, 12, 13, 14, and even 15), as well as information on pricing techniques Agency FAR supplements (particularly DFARS) elaborate on requirements The responsibility for making the determination of commerciality rests with the “procurement” contracting officer

Commercial Item Determination – Supplies (FAR 2.101) Is the item “of a type” customarily used by the public for other than government purposes? If yes, has the item been sold, leased or licensed to the general public? [If so, it is a commercial item!] If no, has the item evolved from such item that is not yet available but will be available in the commercial marketplace to meet government requirements? [If so, it is a commercial item!] Does it meet the criteria in 1 or 2 except for modifications? Is the modification “of a type” customarily available in the commercial marketplace? [If so, it is a commercial item!] If not, is it a minor modification that does not significantly alter the non-governmental function, essential characteristics, or purpose? [If so, it is a commercial item!] Is this any combination of items meeting the requirements of 1, 2 or 3 and that are of a type customarily combined and sold in combination to the general public? [If so, it is a commercial item!]

Commercial Item Determination – Services (FAR 2.101) Is this for installation, maintenance, repair, training or other services of a commercial product? If yes, are the services in support of commercial items? If yes, does the company provide similar services contemporaneously to the general public under similar terms and conditions? [If so, the service is a commercial item!] Is this a service “of a type” offered and sold competitively in substantial quantities based on established catalog or market priced for specific tasks to be performed or specific outcomes to be achieved? [If so, the service is a commercial item!] Is this an item or combination of items transferred between or among separate divisions, or non-development items sold in substantial quantities competitively to state or local governments? [If so, the service is a commercial item!]

Active DoD Actions DFARS proposed rule: Procurement of Commercial Items (DFARS 2016- D006; 8/11/16) implementing requirements of law and providing guidance to contracting officers to promote consistency and uniformity in the acquisition process ABA PCL 10/12/16 comments CODSIA 10/28/16 comments Guidance on Commercial Item Determinations and Determination of Price Reasonableness for Commercial Items (DPAP 9/2/16 memo) DoD Guidebook for Acquiring Commercial Items – Parts A and B (2/24/17) DCMA Commercial Item Centers of Excellence resource

Selected FY 17 NDAA Provisions Sec. 873: Clarification of requirements relating to commercial item determinations (expands DoD centralized records relating to commercial item determinations to include market research and price reasonableness analysis, and eliminates the requirement that such records be publicly available) Sec. 874: Inapplicability of Certain Laws and Regulations to the Acquisition of Commercial Items and COTS (requires DFARS to list defense-unique provisions of law and clauses not expressly required by law that are not applicable to (1) commercial item contracts; (2) subcontracts under such contracts; and (3) contracts for COTS) Sec. 876: Preference for Commercial Sales (requires new guidance providing for a written determination that (1) market research was conducted before DoD may award a contract for certain services that are not commercial services and (2) no commercial services are suitable to meet agency needs)

Selected FY 17 NDAA Provisions (cont.) Sec. 877: Treatment of commingled items purchased by contractors as commercial items (the purchase of items valued at less than $10,000 for use in the performance of multiple contracts and not identifiable to any particular contract shall be treated as a commercial item) Sec. 878: Treatment of services provided by non-traditional contractors as commercial items (treats business units of non- traditional contractors that offer services as a commercial item if the business unit uses the same personnel and similar pricing methodologies used for commercial pricing)

What’s Next? For DoD: For Other Agencies: Finalize DFARS 2016-D006 case? Assess impact of FY 17 NDAA provisions on current regulations and policy Adjudicate comments on 2/17 Commercial Items Guidebook For Other Agencies: Assess impact of statutory changes on current regulations and policy But Executive Branch regulatory freeze still in effect and Trump “2 for 1” and Regulatory Review Executive Orders must be addressed Congress: Will additional statutory changes be made?

DoD Feb 24, 2017 Guidebook for Acquiring Commercial Items Part A – Commercial Item Determinations Overview and Vision Forward Market Research to Encourage Competition Commercial Item Determination Use of Commercial Item Determination New Determinations Other Considerations

DoD Feb 24, 2017 Guidebook for Acquiring Commercial Items Part B – Pricing Commercial Items Overview Value Analysis Market Research Pricing Analysis Prime and Subcontract Price Analysis Services Price Analysis Beyond Price Analysis Preparing for and Conducting Negotiations

Executive Vice President and Counsel Professional Services Council QUESTIONS? Alan Chvotkin, Esq. Executive Vice President and Counsel Professional Services Council (703) 875-8059 Chvotkin@pscouncil.org www.pscouncil.org