1. LESSON 4 Commercial Contracts
15November2013
Lesson 4: Safety Stock

2. Lesson Introduction
Given a commercial contract, students will be able to determine required Quality Assurance (QA) requirements.

3. Lesson Objectives
Upon completion of this lesson, you should be able to:
Distinguish the difference between commercial items and commercially available off-the-shelf items.
Examine Federal Acquisition Regulation (FAR) polices regarding commercial contracts.
Identify the responsibilities of the Quality Assurance Specialist (QAS) regarding corrective actions on commercial contracts.
Determine DCMA’s QA surveillance responsibilities in regard to commercial contract.
Identify commercial contract scenarios that warrant escalation.
Lesson 4: Safety Stock

4. Lesson Topics
During this lesson, you will complete the following topics:
Commercial Items vs. COTS
QAS Corrective Action Responsibilities
QA Surveillance Responsibilities
Escalation

5. WIIFM? This lesson will help you understand:
The difference between standard Government contracts and commercial contracts
Why the QAS has limited surveillance
responsibilities on commercial contracts
The importance of an addenda in
commercial contracts

6. “Part 12 Contracts”
Commercial Contracts

7. Commercial items vs. COTS
Lesson Topics:
Commercial items vs. COTS
QAS Corrective Action Responsibilities
QA Surveillance Responsibilities
Escalation

8. Topic 1: Commercial Items vs. COTS
Commercial item is any item that is generally used by the public.
Commercial-Off-The-Shelf (COTS) item is a commercial item offered to the Government through a contract without modification.
Lesson 4: Safety Stock

9. Commercial Item
FAR 2.101
(1) Any item, 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 to the general
public
Has been offered for sale,
lease, or license to the
general public
U.S. Navy photo/Released

10. Commercial-Off-The-Shelf (COTS) Item
FAR 2.101
(1) Means any item or supply (including construction material) that is -
(i) A commercial item
(ii) Sold in substantial quantities in
the commercial marketplace; and
(iii) Offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace.

11. FAR Part 12 (1 of 4)
Subpart Acquisition of Commercial Items - General Policy
Agencies shall -
(a) Conduct market research to determine whether commercial items or non-developmental items are available that could meet the agency's requirements;
(b) Acquire commercial items or non-developmental items when they are available to meet the needs of the agency; and
(c) Require prime contractors and subcontractors at all tiers to incorporate, to the maximum extent practicable, commercial items or non-developmental items as components of items supplied to the agency.

12. FAR Part 12 (2 of 4) Subpart 12.208 - Contract Quality Assurance
Contracts for commercial items shall rely on contractors’ existing quality assurance systems as a substitute for Government inspection and testing before tender for acceptance unless customary market practices for the commercial item being acquired include in-process inspection. Any in-process inspection by the Government shall be conducted in a manner consistent with commercial practice.

13. FAR Part 12 (3 of 4) Subpart 12.402 - Acceptance
(a) The acceptance paragraph in is based upon the assumption that the Government will rely on the contractor's assurances that the commercial item tendered for acceptance conforms to the contract requirements. The Government inspection of commercial items will not prejudice its other rights under the acceptance paragraph.
Additionally, although the paragraph does not address the issue of rejection, the Government always has the right to refuse acceptance of nonconforming items. This paragraph is generally appropriate when the Government is acquiring noncomplex commercial items.

14. FAR Part 12 (4 of 4) Subpart 12.402 - Acceptance (cont.)
(b) Other acceptance procedures may be more appropriate for the acquisition of complex commercial items or commercial items used in critical applications. In such cases, the contracting officer shall include alternative inspection procedure(s) in an addendum and ensure these procedures and the Postaward remedies adequately protect the interests of the Government. The contracting officer must carefully examine the terms and conditions of any express warranty with regard to the effect it may have on the Government’s available Postaward remedies.

15. FAR
FAR – Contract Terms and Conditions – Commercial Items (Jul 2013)
(a) Inspection and Acceptance
(1) The Government has the right to inspect and test all materials furnished and services performed under this contract, to the extent practicable at all places and times, including the period of performance, and in any event before acceptance. The Government may also inspect the plant or plants of the Contractor or any subcontractor engaged in contract performance. The Government will perform inspections and tests in a manner that will not unduly delay the work.

16. QAS Corrective Action Responsibilities
Lesson Topics:
Commercial items vs. COTS
QAS Corrective Action Responsibilities
QA Surveillance Responsibilities
Escalation

17. Topic 2: QAS Corrective Action Responsibilities
When a commercial item is nonconforming, corrective actions would be limited to:
“Info Only” to supplier
Repair or replace
Limited corrective action (C/A) verification
Photo by Jo Adail Stephenson, DCMA Public Affairs

18. Info only to Contractor
When a commercial item is nonconforming, corrective actions would be limited to:
“Info Only” to supplier
If the QAS has a corrective action, it is issued as “Info Only” to the supplier.
Repair or replace
Limited corrective action (C/A) verification
Photo by Jo Adail Stephenson, DCMA Public Affairs

19. Repair or Replace
When a commercial item is nonconforming, corrective actions would be limited to:
“Info Only” to supplier
Repair or replace
The supplier will either repair or replace it.
Limited corrective action (C/A) verification
Photo by Jo Adail Stephenson, DCMA Public Affairs

20. Limited C/A Verification
When a commercial item is nonconforming, corrective actions would be limited to:
Info only to supplier
Repair or replace
Limited corrective action (C/A) verification
Not involved in process review. If items are bad, supplier replaces the defective items.
Photo by Jo Adail Stephenson, DCMA Public Affairs

21. QA Surveillance Responsibilities
Lesson Topics:
Commercial items vs. COTS
QAS Corrective Action Responsibilities
QA Surveillance Responsibilities
Escalation

22. Topic 3: QA Surveillance Responsibilities
Surveillance responsibilities for commercial contracts with or without addenda.
Practical guidance
FAR Part 12
Supplemental guidance
Lesson 4: Safety Stock

23. Contracts with Addenda
Commercial contract with addenda
Follow the added customer instructions
What about risk assessment?
ADDENDA
CONTRACTS

24. Contracts without Addenda
Product examination at supplier’s final inspection
Records - if available

25. Practical Guidance
DCMA Quality Assurance Surveillance on Commercial Contracts
In response to Department of Defense (DoD) direction to make greater use of commercial specifications/standards in lieu of military specifications and standards, DoD buying activities are issuing more commercial item contracts.
Even some complex items like aircraft engines or aircraft overhauls are now being procured as commercial items.

26. Practical Guidance (cont.)
FAR Part 12 provides guidance to contracting officers (CO) on the acquisition of commercial items.
FAR , Contract quality assurance, is of particular interest.
Photo by Brian M. Hahn, DCMA-GDLS protocol officer

27. FAR
“Contracts for commercial items must rely on the contractors’ existing quality assurance systems as a substitute for Government inspection and testing before tender for acceptance unless customary market practices for the commercial item being acquired include in-process inspection. Any in-process inspection by the Government shall be conducted in a manner consistent with commercial practice.”

28. FAR Part 12
FAR Part 12 provides direction to COs and is not a contractual requirement; the intent is reflected in the following contract clause:
FAR reads, “The Government reserves the right to inspect or test supplies or services that have been tendered for acceptance.”
Photo by Patrick Tremblay, DCMA, PAO ,Fort Lee, VA

29. FAR Part 12 (cont.)
FAR (b) and (c) give the CO limited latitude to tailor portions of FAR FAR (d) reads, “tailoring shall be by addenda to the solicitation and contract.” Contract Management Office (CMO) attention to these provisions is necessary to avoid providing QA surveillance where contractually prohibited and to recognize tailoring of the FAR requirements.

30. Supplemental Guidance
CMOs may receive contracts that are ambiguous or even contradictory regarding the extent of DCMA QA surveillance permitted.
Document this situation as a contract deficiency and refer it to the Administrative Contracting Officer (ACO)/Procuring Contracting Officer (PCO) for resolution.
ACO
PCO

31. Note to the QAS
Contracting offices have struggled to adapt to the commercial contracting requirements of FAR Part 12.
Some commercial contracts are unclear making it very difficult for DCMA personnel to understand exactly what the PCO intended.
Of course, this also makes it
difficult for the QAS to develop
appropriate risk-based
surveillance plans. ?

32. Escalation Lesson Topics: Commercial items vs. COTS
QAS Corrective Action Responsibilities
QA Surveillance Responsibilities
Escalation

33. Topic 4: Escalation
The following slides introduces four situations that a QAS may encounter. How would the QAS escalate each to obtain a resolution?
Lesson 4: Safety Stock

34. Group Discussion of Escalation
Understand that the specific terms of individual contracts may warrant a different response.
Where the Government’s rights under an individual contract are unclear, seek advice from the local office of counsel.

35. Group Discussion of Escalation (cont.)
Where QAS communications with the PCO are advocated, they should always be accomplished in coordination with the ACO, if practicable.
Any problems obtaining necessary direction/clarification from a PCO should be promptly escalated up the management chain for resolution.

36. Summary Having completed this lesson, you should now be able to:
Distinguish the difference between commercial items and commercially available off-the-shelf items.
Examine FAR polices regarding commercial contracts.
Identify the responsibilities of the QAS regarding corrective actions on commercial contracts.
Determine DCMA’s QA surveillance responsibilities in regard to commercial contract.
Identify commercial contract scenarios that warrant escalation.
Lesson 4: Safety Stock

37. Questions

38. Review Question 1
Commercial contracts are commonly referred to as what kind of contracts?
FAR Part
FAR Part
FAR Part 21
FAR Part 12

39. Review Question 2
According to FAR Part Acceptance, what does the Government have a right to do with nonconforming items?
Refuse acceptance of nonconforming items
Conduct market research to determine whether commercial items are available for acceptance
Refuse acceptance of a conforming or nonconforming commercial item
Accept or reject a product based on the accuracy of a contractor’s inspection system

40. Review Question 3
A Level I corrective action request is issued as “Info Only” to the supplier to document a nonconformance in the Corrective Action Report (CAR) eTool when which of these FAR clauses is in the contract?
FAR
FAR
FAR
FAR

41. Review Question 4
On a commercial contract, when is the only time a QAS can do anything other than surveillance commonly referred to as “kind, count, and condition” at final?
An addenda is written into the contract
No addenda is written into the contract
On a commercial contract
If a QAS suspects the supplier is producing a nonconforming item