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2 Click to edit Master title style Commercial Item Acquisitions: 20 Years After FASA Breakout Session #G01 Mark Blando, JD, Partner, Eckland & Blando LLP Date: Wednesday, July 29, 2015 Time: 9:45am - 11:00am 1

3 Click to edit Master title style Overview Historical Background What is a Commercial Item? Contracting process What contract clauses apply? Subcontracts for Commercial Items Other commercial practices 2

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5 Click Call for to Reform edit Master title style The much ridiculed Mil-Spec for oatmeal cookies and chocolate covered brownies (26 pages) included requirements such as: Shelled walnut pieces shall be of the small piece size classification, shall be of Fourth a light level color.... A minimum of 90 percent, by weight, of the» Fifth pieces level shall pass through a 4/16-inch diameter round hole screen and not more than 1 percent, by weight, shall pass through a 2/16-inch diameter round hole screen. The interior of the coated oatmeal cookie shall be crisp and have the characteristic flavor of oatmeal. If necessary, each ingredient shall be examined organoleptically 4

6 Click Call for to Reform edit Master title style Click to edit Master text styles Embarrassing stories revealed the high price of ordering to spec: $544.09» Fifth spark level plugs (that turned out to be commercially available for $10.77) $600 hammer 5

7 Click Call for to Reform edit Master title style Click to edit Master text styles Government concerns: Second level Paying premium to acquire items that meet stated requirements Missing» out Fifth on level the benefits of the marketplace (pricing, contract terms) Lack of access to new technologies Less than Full and Open Competition 6

8 Click Call for to Reform edit Master title style Disincentives to doing business Click to edit Master text styles with the government: Second level Government specifications and standards Government terms and conditions Statutes and regulations Audit and accounting requirements Certifications False Claims Technical data rights 7

9 Click History edit Master title style Post-Cold War: Defense budget shrank Military sought ways to reduce acquisition spending Second level Late 1980s and early 1990s: Rapid technological advances Realization that milspecs could not keep pace with commercial technological developments 1991: Congress directs DoD to review its acquisition methods and make recommendations for reform. DoD produces the Section 800 report 8

10 Click History edit Master title style 1993: Al Gore smashes ashtray on late night TV 10-page spec for an ash Second receiver, level tobacco, desk Third type level A minimum of four cigarette rests, spaced equidistant» Fifth around level the periphery" Testing spec: hit with a steel punch "point ground to a 60% included angle" and a hammer; "The specimen should break into a small number of irregularly shaped pieces, no greater than 35. 9

11 Click History edit Master title style 1994: Federal Acquisition Streamlining Click Act (FASA) to edit Master text styles Implemented Second level recommendations of Section 800 Third Report level Encouraged agencies to buy commercial when possible Standards and procedures for purchasing CIs 1996: Federal Acquisition Reform Act (FARA) Further simplified procurement of CIs and services 10

12 Click to edit Master title style Commercial Item Regime 11

13 Current Click to Scheme edit Master for title style Commercial Item Acquisitions Click to edit Master text styles Federal Acquisition Regulations (FAR) Part 2: Definitions Part 12: CI Rules Part 52: Contract Clauses Department of Defense FAR Supplement (DFARS) GSA and other agency supplements 12

14 Preference Click to edit for Master Commercial title style Items (FAR ) Agencies shall: Conduct market research to determine whether Second CIs level or nondevelopmetal items are available that could meet the agency s requirements; Acquire CIs» Fifth or level nondevelopmental items when they are available to meet the needs of the agency; and Require prime contractors and subcontractors at all tiers to incorporate, to the maximum extent practicable, CIs or nondevelopmental items as components of items supplied to the agency. 13

15 FAR 2.101, Definitions: Commercial item Click to edit Master title style (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 (i) Has been sold, leased, or licensed to the general public; or (ii) Has been offered for sale, lease, or license to the general public; (2) Any item that evolved from an item described in paragraph (1) of this definition through advances in technology or performance and that is not yet available in the commercial marketplace, Fourth level but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Government solicitation; (3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) of this definition, but for (i) Modifications of a type customarily available in the commercial marketplace; or (ii) Minor modifications of a type not customarily available in the commercial marketplace made to meet Federal Government requirements. Minor modifications means modifications that do not significantly alter the nongovernmental function or essential physical characteristics of an item or component, or change the purpose of a process. Factors to be considered in determining whether a modification is minor include the value and size of the modification and the comparative value and size of the final product. Dollar values and percentages may be used as guideposts, but are not conclusive evidence that a modification is minor; (4) Any combination of items meeting the requirements of paragraphs (1), (2), (3), or (5) of this definition that are of a type customarily combined and sold in combination to the general public; 14

16 FAR 2.101, Definitions: Commercial item Click to edit Master title style (5) Installation services, maintenance services, repair services, training services, and other services if (i) Such services are procured for support of an item referred to in paragraph Click (1), (2), (3), or to (4) of edit this definition, Master regardless text of whether styles such services are provided by the same source or at the same time as the item; and (ii) The Second source of such level services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government; (6) Services of a type offered and sold competitively in substantial quantities in the commercial marketplace Fourth based level on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and» Fifth conditions. level For purposes of these services (i) Catalog price means a price included in a catalog, price list, schedule, or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers, and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and (ii) Market prices means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors. (7) Any item, combination of items, or service referred to in paragraphs (1) through (6) of this definition, notwithstanding the fact that the item, combination of items, or service is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor; or (8) A nondevelopmental 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. 15

17 Commercial Item Click to edit Master title style Item (subpart 1) customarily used by the general public or by non-governmental entities, for purposes other than governmental purposes, and has been Fourth sold level or offered for sale to the general» public Fifth level Item Evolved from an Item (subpart 2) through advances in technology or performance but not yet available in the commercial marketplace will be available in commercial marketplace by time for delivery under a government solicitation 16

18 Commercial Item Click to edit Master title style Modified Item or Evolved Item (subpart 3) An item or evolved item with modification of a type customarily available in the commercial marketplace; or Second minor modifications level not customary in the Third commercial level marketplace to meet government requirements Minor modifications do not significantly alter the nongovernmental function consider value and size of the modification and the comparative value and size of the final product Dollar values are instructive but not conclusive evidence of a minor modification Combination of items (subpart 4) If sold in combination to general public 17

19 Commercial Item Click to edit Master title style Services (Subparts 5 and 6) Procured in support of a CI and provided to the general public, or Sold in substantial quantities in commercial marketplace at established catalogue or market prices for Second specific tasks level Examples Janitorial - Aircraft Maintenance Storage - Distribution Construction* Not: Professional Services Radioactive waste disposal is not a CI: There is no established market or catalogue price There is no competitive market Envirocare of Utah, Inc. v. U.S., 44 Fed.Cl. 474, 484 (1999) 18

20 Click Construction to edit Master Services title style Part 12, as currently promulgated should rarely, if ever, be used for new construction acquisitions or non-routine alteration and repair services.... Part 36 incorporates provisions and clauses that are generally Click consistent to edit with Master customary commercial text styles practices in the construction industry. Part 12 could be used in limited circumstances involving Second construction level contracting -- primarily for routine alteration and repair Third services level as well as for acquisitions of commercial construction materials and associated ancillary services. - OFFP Memo. for Agency Senior Procurement Execs. (July 3, 2003) Part 12 - Routine Painting or Carpeting - Drywall Hanging - Everyday Electrical or Plumbing Work - Noncomplex Services - Purchases of Construction Material - Purchase of services ancillary to construction Part 36 - New Construction Projects - Complex Alteration or Repair - High Degree of Variability: - Site requirements - Weather conditions - Physical conditions - Labor availability - Schedules 19

21 Commercial Item Click to edit Master title style Intra-company transfers of item, or of Click combination to edit of Master items text or services styles (subpart 7) Sufficient to show commerciality Nondevelopmental Items (NDIs) (subpart 8) Privately funded Sold to federal / state / local governments Preference for NDIs where CIs not available Examples: Radar Systems Apache helicopter components 20

22 Commercial Item Click to edit Master title style Precision Lift v. US (GAO June 2008; CFC Sept. 2008) Actual sale of item to the general public not required. An item is a CI if it is in common use, even if the contractor Fourth offering level the item has not made that type of item before. The definition [of CI] is broad, unclear, and will be interpreted as setting the commercial item standard very low. Discretion given to CO to determe whether item is CI. See also Matter of: Freedom Scientific, Inc., B , 2010 CPD 111 (Comp. Gen. 2010) 21

23 Click Of A to Type edit Master title style Any item... that is of a type customarily used by the general public.... These items may be subject to modification Third of level a type customarily available Fourth level in the commercial marketplace, or [m]inor modifications of a type not customarily available in the commercial marketplace made to meet Federal Government Requirements. 22

24 Click Of A to Type edit Master title style The Air Force bought the C-130J as a commercial item needing minor modification, but in the 8 years since the Air Force began contracting for the C-130J, Second Lockheed level Martin has been unable to design, develop, Third level or produce a C-130J aircraft that meets the government s needs. (OIG Report) 23

25 Click Of A to Type edit Master title style 2012 Legislative Efforts: DOD Click sought to to edit amend Master the 2013 text Defense styles Authorization Act to eliminate the of a type language Failed: Fourth Too Intrusive level Compromise: DOD directed acquisition officials to demand more information justifying proposed prices for commercial acquisition. DCMA Pricing Experts 24

26 Click Solicitation to edit Process Master title style Click FARA to streamlined edit Master process text styles for solicitation, evaluation, and award Shorter time frames Less than» Fifth 30 level days from receipt of offers Use Standard Form 1449: Solicitation / Contract / Order for CIs 25

27 Click Evaluation to edit & Master Award title style Usually based on three factors: Click (1) Technical to edit capability Master text styles (2) Price (3) Second Past performance level Third Should level be an important element of every evaluation and award for CIs COs to» Fifth consider level data from wide variety of sources Contract Types: Fixed Price Fixed Price with Economic Price Adjustment Indefinite-delivery: where prices are based on firm fixed priced All other contract types generally prohibited 26

28 Click Pricing to Commercial edit Master title Items style CO must determine Price Click to edit Master text styles Reasonableness (FAR ) Reasonableness can be determined by Adequate Price Competition Established catalogue or market prices But cannot be determined by: Cost Accounting Standards (CAS) Truthful Cost or Pricing Data (formerly TINA) 27

29 Click Contract to edit Terms Master FAR title style FAR , Offeror Representations and Certifications Commercial Items; FAR Third , level Contract Terms and Conditions Commercial Items; and FAR , Contract Terms and Conditions Required to Implement Statutes or Executive orders Commercial Items 28

30 Click Contract to edit Terms Master Required title style Typical commercial contract terms Click Termination to edit for Convenience Master text styles Government right to inspect for acceptance Buy American Act Combating trafficking in persons Compliance with laws unique to government contracts Further terms and conditions as required by CO: Equal Employment Opportunity / Affirmative Action Subcontracting limitations Use of small business concerns Small business subcontracting plans 29

31 Click Contract to edit Terms Master Not title Required style (FAR ) Click Exempt to from edit TCPD Master (formerly text styles TINA) and CAS, generally Audit rights limited Technical Fourth data level rights limited Inspection» Fifth and level testing requirements relaxed Walsh-Healey Act Drug-Free Workplace Act Use contractor s standard warranties and/or UCC implied warranties 30

32 Click Commercially to edit Master Available title Off style The Shelf Items (COTS) Click Subcategory to edit of Master CIs text styles Definition Second (FAR level 2.101): (1) Third Means level any item of supply (including construction material) that is (i) A CI» Fifth (as defined level in paragraph (1) of the definition in this section); (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; and (2) Does not include bulk cargo, such as agricultural products and petroleum products. 31

33 Click Commercially to edit Master Available title Off style The Shelf Items (COTS) Laws not applicable to COTS (FAR 12.5): Same laws inapplicable to CIs. FAR Third level and Also, under FAR : Partial exemption from Buy American Act requirements. 41 U.S.C. 10a & 10b Certification and Estimate of Percentage of Recovered Material. 42 U.S.C. 6962(c)(3)(A), 32

34 Click Subcontracts to edit Master for title style Commercial Items Policy, FAR (b): To the maximum extent practicable, the Contractor Third shall level incorporate, and require its subcontractors at all tiers to incorporate, commercial» items Fifth level or nondevelopmental items as components of items to be supplied under this contract. Flowdowns: Mandatory Negotiable 33

35 Click Subcontracts to edit Master for title style Commercial Items Mandatory Clauses (FAR (c)(1)): Utilization of Small Business Concerns ( ) Equal Opportunity ( ) Second Equal Opportunity level for Veterans ( ) Affirmative Action for Workers with Disabilities ( ) Notification of Employee Rights Under the National labor Relations Act ( ) Preference for Privately-Owned US-Flag Commercial Vessels ( ) Contractor Code of Business Ethics and Conduct ( ) Whistleblower Protections Under the American Recovery and Reinvestment Act of 2009 ( ) Combatting Trafficking in Persons ( ) Utilization of Small Business Concerns ( ) Contractors Performing Private Security Functions Outside the U.S. ( ) 34

36 Click Other to Commercial edit Master Practices title style Past Performance Use in evaluation decisions Tracking systems Commercial Financing Advance payments Installment payments Other than new items GSA Schedule Contracting 35

37 Click to edit Master title style GSA Schedule Contracting 36

38 Click Getting to on edit Schedule Master title style Respond to a GSA Schedule solicitation Click Find to the edit right Master schedule text styles Standard Form 1449: Establish Third GSA level Pricing: Commercial Sales Practices (CSP) form Identify basis of award customer or group Certify current, accurate & complete data Negotiate Best Customer Price ( Most Favored Customer Pricing ) Contract: Five-year term with options to extend for additional five-year terms Marketing! 37

39 Click Pricing to Requirements edit Master title style Price Reductions Clause (GSAM ): (a) Before award of a contract, the Contracting Officer Third and level the Offeror will agree upon (1) the customer Fourth (or category level of customers) which will be the basis» Fifth of level award, and (2) the Government's price or discount relationship to the identified customer (or category of customers). This relationship shall be maintained throughout the contract period. Any change in the Contractor's commercial pricing or discount arrangement applicable to the identified customer (or category of customers) which disturbs this relationship shall constitute a price reduction. 38

40 Click Price to Reduction edit Master Clause title vs. style Transactional Data Reporting Proposed Click to edit Rule Master March text 4, styles Transactional Data Reporting - Third Price level Reduction Clause - Basis Fourth of level Award Customer =??? Category Management Procurement: Shift from managing individual purchases & pricing to managing entire categories of purchases nationally. 39

41 Click Remaining to edit Problems Master title style and Pitfalls Click to edit Master text styles Failure to implement requirements Remaining compliance obligations and audit and investigation rights Contracting officer discretion Is it saving money? 40

42 Click Benefits to edit of Commercial Master title style Practices Allows contractors to meet government s actual needs Attracts Third commercial level sellers Widens supplier base to further promote competition Reduces cycle time between solicitation and award Grants government the benefits of participating in the marketplace 41

43 Click to edit Master title style Questions? Mark J. Blando Eckland & Blando 800 Lumber Exchange Building 10 South Fifth Street Minneapolis, Minnesota