Department of Defense Rescinds 2015 Commercial Items Guidance

On September 2, 2016, the Department of Defense (the “DoD”) issued a memorandum entitled “Guidance on Commercial Item Determinations and the Determination of Price Reasonableness for Commercial Items.”  This new guidance effectively rescinds prior guidance issued by the DoD in February 2015 regarding commercial item determinations, and to preview guidance required by Section 831 of the FY 2013 National Defense Authorization Act (“NDAA”).  The latest memorandum provides DoD’s guidance while awaiting the finalization of a proposed rule on commercial items (81 Federal Register 53101) implementing Sections 851-853 and 855-857 of FY 2016 NDAA and Section 831 of the FY 2013 NDAA.

DoD’s recently released guidance aims to highlight the underlying tenets of the FY 2016 NDAA legislation to improve the consistency and timeliness of commercial item determinations, and the price reasonableness determination for those items.

The Key Take-Away for Contractors

The new memorandum puts the spotlight on the NDAA legislation for contracting officers before new DoD implementing regulations. This direction from DoD comes amid the background of contracting officer’s ever increasing scrutiny of commercial item determinations and price reasonableness of commercial items. Contractors should expect increased scrutiny and therefore be familiar with the September 2016 guidance.

One of the issues companies face is the lack of the government specifically defined interpretations concerning commercial item acquisitions that can be applied consistently by contracting officers. To this end, the DoD’s guidance points out that engineering and pricing analyst resources are being hired by the Department to aid contracting officers. Importantly, DoD advises that contracting officers should adopt the practice of recognizing prior commercial item determinations.

The following tenets to improve consistency and timeliness are addressed:

  • The Defense Contract Management Agency (DCMA) has stood up six Commercial Item Centers of Excellence (CoEs) to support contracting officer commercial determination and pricing efforts;
  • Contracting officers should adopt the practice of recognizing prior determinations;
  • If a contracting officer believes a prior commerciality determination was without foundation, or was made in error, she should engage both the chain of command and the DCMA Commercial Item CoE before making a determination that deviates from prior decisions;
  • The Director, Defense Pricing and the DCMA’s Cost & Pricing Center Director are working with interested companies to define, through the use of advance agreements, the types of information needed to support commercial item determinations and associated pricing determination;
  • Section 855 of the FY 2016 NDAA law reinforces that, by default, information technology (IT) products and services in excess of the simplified acquisition threshold should be commercial; and
  • The memorandum indicated separate DoD guidance on IT products to implement Section 855 of the FY 2016 NDAA would be issued.

Although the final rule has not made its way through the public comment process, contractors should be aware of the new DoD guidance and prepare for contracting officers to use the guidance in scrutinizing commercial item determinations and pricing.

Image courtesy of Flickr (licensed) by US Air Force.