COMMERCIAL ITEM
PROCUREMENT- 2008
NDIA Educational Seminar
March 31, 2008
JFS 3/31/08
BACKGROUND
• The Federal Acquisition Streamlining Act of 1994 mandated
the use of commercial items
– Jump started the Acquisition Reform movement
– Significant benefits for DoD – expanded use of commercial
products, reduced administration for Govt. & industry, exploited
use of advanced R&D in commercial technologies
• DoD and Congress have proposed changes that alter many of
the commercial acquisition reforms
– At DoD’s request, the House and Senate proposed changes to
commercial item procurement for FY 2008
– DoD has published proposed FAR changes for additional cost
data (uncertified) for commercial items
– DoD drafted a legislative proposal for FY 2009 Def Auth that
would revise FASA commercial item definitions
JFS 3/31/08
COMMERCIAL ITEM PROCUREMENT - THE DOWNHILL SLIDE
•
FY 1999 National Defense Authorization Act (NDAA)
– Definition of “non-governmental purposes”
•
Legislative erosion of commercial item provisions
– FY 2003 NDAA, SEC. 817 defined “exceptional circumstances”… also, applied it to
all CAS waivers
– FY 2005 NDAA, SEC. 818 required cost or pricing data for non-commercial mods to
commercial items greater than $500K or 5% of total contract price
– FY 2006 NDAA, SEC. 803 requires advance notification to Congress for purchasing
a major weapons system as a commercial item (e.g. C-130J)
•
Recent developments regarding commercial item procurement
– 2007 NDAA: Sec. 802- technical data rights for program sustainment; Sec. 842Specialty metals-no commercial item exception included
– DoD IG Report Sept. 29, 2006: Commercial contracting for the acquisition of
defense systems
– DoD IG Report Sept. 15, 2006: Hamilton Sundstrand’s commercial contracts for
non-competitive spare parts
– GAO Report Sept 2006: DoD contracting efforts needed to address AF commercial
acquisition risk
– DPAP Policy Letter March 2, 2007: Must document better commercial item
determinations; May 31st revision to PGI 215.4
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Mr. Shay Assad
Director, Defense Procurement and Acquisition Policy
Balance between Partnerships and Contractor
Maintain Arms-Length Relationships
Don’t Lose Objectivity
“At the end of the day we are held accountable
to the warfighter and taxpayer.”
JFS 3/31/08
Mr. Shay Assad
Director, Defense Procurement and Acquisition Policy
Cost or Pricing Data
In the last 12 years, trend was not to get cost or pricing
data. We need to get the data to do analysis and ensure
fair and reasonable prices. Three years from now, no one
will care whether a contract was awarded in 30 or 60 days,
they will care whether the price you paid was reasonable.
“Price is more important than early award.”
JFS 3/31/08
EVOLUTION OF COST OR PRICING DATA
FOR COMMERCIAL ITEMS
TINA
UNCERTIFIED DATA
LIMITED COST INFORMATION
‫ ٭‬SEC. 815
PRICE DATA ONLY
1996
FARA/
1994 FASA
PGI-2007
JFS 3/31/08
PROPOSED
RULE (2005-036)
REQUESTED
LEGISLATION
PGI 215.402
MAY 31, 2007
•
CO MAY REQUIRE……..”COST INFORMATION THAT WOULD
OTHERWISE BE DEFINED AS COST OR PRICING DATA IF
CERTIFIED”
•
ANNUAL REPORT TO CONGRESS OF COMMERCIAL ITEM
EXCEPTIONS FOR ACTIONS GREATER THAN $15M
•
DPAP MEMO MARCH 2, 2007; REQUIRES WRITTEN
DOCUMENTATION FOR ALL COMMERCIAL ITEM
DETERMINATIONS GREATER THAN $1M (ADDED to DFARS)
•
SUFFICIENT STEPS MUST BE TAKEN TO VERIFY THE
INTEGRITY OF SALES DATA; TO INCLUDE ASSISTANCE FROM
DCAA
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PGI 215.402
MAY 31, 2007 (Cont’d)
•
REQUIRE SUBMISSION OF DD-1921 FOR CONTRACTOR
COST DATA REPORTING IN CERTAIN CASES
•
IF PRICE ANALYSIS ALONE IS NOT SUFFICIENT TO
ESTABLISH A FAIR AND REASONABLE PRICE, COST
INFORMATION SHOULD BE OBTAINED. CO MUST
COMMUNICATE THE COST INFORMATION THAT IS NEEDED
•
CO SHOULD ACCEPT DATA THAT IS CONSISTENT WITH THE
OFFEROR’S RECORDS.
•
MUST “ALWAYS” CONSIDER THE NEED FOR DCAA
SUPPORT
JFS 3/31/08
Issues with Proposed Rule
FAR Case 2005-036
Definition of Cost or Pricing Data
•
BLURS DIFFERENTIATION BETWEEN CERTIFIED AND UNCERTIFIED COST OR
PRICING DATA. CURRENT DEFINITIONS OF CERTIFIED DATA AND INFORMATION
OTHER THAN COST OR PRICING DATA ARE WELL UNDERSTOOD.
•
ADDS AUDIT AND RECORDS REQUIREMENT FOR DATA OTHER THAN COST OR
PRICING DATA.
•
INCORRECTLY ASSUMES COMMERCIAL FIRMS HAVE SYSTEMS CAPABLE OF
PROVIDING COST DATA OR WOULD BE WILLING TO DEVELOP SUCH SYSTEMS.
NO DEFINITION OF WHAT COST DATA IS REQUIRED IN SUPPORT OF
COMMERCIAL ITEMS. WOULD RESULT IN TINA-LIKE AUDITS OF COMMERCIAL
ITEMS.
•
•
ADDING JUDGMENTAL INFORMATION IS MORE THAN REQUIRED BY TINA
•
EXPANDS DATA TO “COST DATA OR ANY OTHER INFORMATION THE
CONTRACTING OFFICER REQUIRES.”
CHANGING “INFORMATION” TO “DATA” CONFLICTS WITH THE INTENT TO
ESTABLISH PRICE REASONABLENESS BASED ON SALES INFORMATION RATHER
THAN COST DATA.
JFS 3/31/08
LEGISLATIVE PROVISION APPROVED BY HOUSE
• H.R. 1585, Sec. 811; Change to the Truth in Negotiations
Act; Exception for the Acquisition of a Commercial Item:
The exception does not apply in the case of a contract,
subcontract, or modification of a contract or subcontract
that is for a commercial item to be procured using
procedures other than competitive procedures(A) if the contracting officer determines that commercial
sales data are insufficient to determine a fair and
reasonable price; and
(B) if the contractor’s business segment has submitted
certified cost or pricing data in connection with at least
one contract award or contract modification
JFS 3/31/08
LEGISLATIVE PROVISION APPROVED BY SENATE
• S.1547 Sec. 822 (1) clarify the circumstances in which a
subsystem, component, or spare part for a major weapon
system may be purchased as a commercial item; (2) clarify
that the terms `general public' and `nongovernmental entity'
do not include federal, state, local or foreign governments,
or contractors acting on behalf of such governments for the
purpose of determining whether an item qualifies as a
commercial item; and (3) require the contractor offering a
major weapon system, subsystem, component, or spare
part as a commercial item to provide information other than
certified cost or pricing data that is adequate for evaluating
the reasonableness of the proposed price.
JFS 3/31/08
LEGISLATIVE PROVISION APPROVED BY SENATE
• Subsection B revised to add subparagraph
(3) the contractor demonstrates that it has sold, leased, or licensed the
subsystem or an item that is the same as the subsystem, but for the
modifications described in subparagraphs (B) and (C) of section 4(12) of the
Office of Federal Procurement Policy Act, in significant quantifies to the
general public.”;
• Subsection C added for Components & Spare Parts
• Subparagraph (D) adds:
(d) Price Information.—In the case of any major weapon system, subsystem,
component, or spare part purchased under procedures established for the
procurement of commercial items under the authority of this section, the
contractor shall provide data other than certified cost or pricing data,
including information on prices at which the same item or similar items have
previously been sold to the general public, that is adequate for evaluating,
through price analysis, the reasonableness of the price of the contract,
subcontract, or modification of the contract or subcontract pursuant to which
such major weapon system, subsystem, component or spare part, as the case
may be, will be purchased.”
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NATIONAL DEFENSE AUTHORIZATION ACT
FOR 2008
SEC 815: CLARIFICATION OF RULES REGARDING THE
PROCUREMENT OF COMMERCIAL ITEMS
Authorize the Contracting Officer in the procurement of a major weapon
system, or subsystems, components, or spare parts for a major weapon system
to require offerors to submit sufficient information to evaluate, through price
analysis, the reasonableness of the proposed price. The information required
to be submitted may include information on prices paid for the same or similar
items under comparable terms and conditions and, if the contracting officer
determines that price information is not sufficient to determine the
reasonableness of price, other relevant information regarding the basis of price
or cost, including information on labor costs, material costs, and overhead
rates. The contracting officer’s written determination under this section will
include an explanation of the basis for the Contracting Officer’s determination
that (1) the item is a commercial item; and (2) the information provided by the
contractor is sufficient to evaluate the reasonableness of price.
JFS 3/31/08
NATIONAL DEFENSE AUTHORIZATION ACT FOR 2008
SEC 805:
PROCUREMENT OF COMMERCIAL SERVICES
Require the Administrator for Federal Procurement Policy
to modify the FAR to narrow the regulatory definition of
commercial services. Require the Secretary of Defense to
modify the regulations of the Department of Defense to (1)
authorize the contracting officer in the procurement of
certain commercial services to require offerors to submit
sufficient information to evaluate, through price analysis,
the reasonableness of the proposed price; and (2) address
the categories of services which may be purchased under
commercial T&M contracts.
JFS 3/31/08
SEC. 815 KEY PROVISIONS
•
Modifies 10 U.S.C 2379- applicable to only DoD contracts for major
weapons systems. Expanded to cover subsystems, components and spare
parts
•
Excludes COTS items; 41 U.S.C. 431(c) Sec. 35
•
May be purchased as commercial only if:
intended for a major weapons system or subsystem that is commercial, or
1) CO determines that the item meets the definition at 41 U.S.C 403 (12)
and
2) the offeror has submitted sufficient information to evaluate, through
price analysis, the reasonableness of the price
•
Applies only to prime contracts (not subcontracts) unless the prime adds no
or negligible value
•
“Information” includes both government and commercial sales history for the
same or similar items, or if sales information is insufficient, cost information
on labor, material or overhead costs.
JFS 3/31/08
SEC. 815 KEY PROVISIONS (Continued)
• “Information” is similar to existing TINA
language and FAR 15.402 pricing policy
• Technical Data Amendment- elimination of
presumption that technical data for commercial
items is developed at private expense is
modified by reinstating the presumption for
COTS items
• Terms general public and nongovernmental
entities do not include federal, state, local or
foreign governments
JFS 3/31/08
SEC. 815 VS. FASA
•
FASA describes a 3-step approach:
1. Market Research
2. Commercial item determination
3. Solicit under FAR Part 12
•
Sec. 815 combines the commerciality
determination and pricing. If price
reasonableness cannot be determined, the item
is not commercial and TINA applies
JFS 3/31/08
NATIONAL DEFENSE AUTHORIZATION ACT FOR 2008
SEC 814: CLARIFICATION OF SUBMISSION OF COST OR
PRICING DATA ON NON-COMMERCIAL
MODIFICATIONS OF COMMERCIAL ITEMS
Clarify certain thresholds in the Truth in
Negotiations Act (10 U.S.C. 2306a) for
noncommercial modifications of commercial items.
The TINA thresholds is increased from $500K to
$650K
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NATIONAL DEFENSE AUTHORIZATION ACT FOR 2008
SEC 821:
PLAN FOR RESTRICTING GOVERNMENT-UNIQUE
CONTRACT CLAUSES ON COMMERCIAL
CONTRACTS
Require the Under Secretary of Defense for
Acquisition, Technology, and Logistics to develop
and implement a plan to minimize the number of
government-unique contract clauses used in
commercial contracts
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NATIONAL DEFENSE AUTHORIZATION ACT FOR 2008
SEC 822:
EXTENSION OF AUTHORITY FOR USE OF
SIMPLIFIED ACQUISITION PROCEDURES FOR
CERTAIN COMMERCIAL ITEMS
Extend the authority of the Department of
Defense
to
use
simplified
acquisition
procedures for the acquisition of certain
commercial items. (FAR 13.5)
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NATIONAL DEFENSE AUTHORIZATION ACT FOR 2008
SEC 826:
MARKET RESEARCH
Require the Secretary of Defense to take certain
steps to ensure that the Department of Defense and
its prime contractors conduct appropriate market
research before making purchases for or on behalf
of the Department. Directs the Secretary to work to
develop market research tools to assist Contracting
Officers and prime contractors in performing market
research
JFS 3/31/08
REGULATORY ISSUES – NON COMMERCIAL ITEMS
• Award & Incentive Fees
– FY 07 NDAA Sec. 814. “Link Award and Incentive
Fees to Acquisition Outcomes”
– DPAP Policy letter April 24, 2007
– DFARS Case 2006 – D021 (Interim Rule) in process
• Fixed Price Development Programs
– FY 07 NDAA Sec. 818. “Fixed Price Development
Programs”
– DFARS Case 2006 – D053. “Determination of
Contract Type of Development Programs”
JFS 3/31/08
PENDING ISSUES
• DoD would like to change the commercial item definition to
remove “of a type” and “offered for sale” to “has been sold”
- drafted legislation for 2009
- Panel on Contracting Integrity recommendation
• Assistant Secretary of the Air Force for acquisition is questioning
commerciality of items that are no longer in production:
If no relevant sales history, provide cost support (not cost or
pricing data) as to how the proposed price was developed
• FAR Case 2005-036 is still alive. CODSIA letter 3/25/08
recommended a new rule based on Sec. 815
• ARWG recommendation for no legislative changes this year
JFS 3/31/08
NEXT STEPS
• Industry continue to advocate against changes to
the commercial item definition
• What does an acceptable submittal of sales history
look like? Good topic for DoD Procurement
Conference
• How can we ensure that the benefit of acquiring
commercial items for the warfighter is recognized?
• How can we gain better insight into DoD
acquisition policy?
JFS 3/31/08