The Department of Defense (DoD) recently issued a final rule implementing Section 828 of the NDAA for Fiscal Year (FY) 2018, requiring the treatment of the majority of contracts for items awarded using Federal Acquisition Regulation (FAR) part 12 acquisition procedures to serve as a prior commercial item determination (CID).
The CID designation was developed with the Federal Acquisition Streamlining Act in 1994, which shifted the U.S. government’s procurement processes from prioritizing items exclusively produced for government use cases to “dual use” commercial products and services. The law allowed the government to benefit from the technological innovation emerging from the private sector. CID’s are uniquely positioned in the government contracting space as they do not require a “cost build-up approach” when pricing the item, allowing the company to profit similarly to how it would with an everyday consumer.
When determining whether a contract previously awarded using FAR part 12 may serve as a CID, the government emphasizes the use of prior CID and previous acquisitions conducted using FAR part 12 commercial item acquisition procedures. The Contracting Officer (CO) may also rely on the product’s commerciality determination in the Commercial Item Database, a previous contract, or “other evidence” that identifies the item as being acquired using FAR part 12 procedures.
“Other evidence” is not clearly defined in the final rule. In response to public comment, the DoD acknowledged that while examples of “other evidence” may be helpful, it is impossible to provide an exhaustive list, and examples may even inhibit the work of contracting officers by hampering their ability to “exercise sound business judgment on a case-by-case basis.”
However, in some circumstances, using FAR part 12 procedures to acquire an item are insufficient to satisfy the CID designation. For example, contracting officers may determine that the use of FAR part 12 procedures was improper or that it is no longer acceptable to procure the item using commercial item acquisition channels, nullifying the item as a CID. Most notably, products “treated as commercial items” acquired under 41 U.S.C. 1903 (products procured using the special emergency procurement authority) and 10 U.S.C. 2380a (supplies and services provided by “nontraditional defense contractors”) cannot be identified as CIDs.
The government suggests the rule will streamline and simplify FAR part 12 and CID procedures, extending the key goals outlined in Executive Orders (E.O.s) 12866 and 13563, which direct agencies to maximize efficiencies and benefits of enacting regulatory alternatives that enhance overall benefits to public health, the environment, and economy. The new rule is expected to benefit not only the government but also contractors as it will preclude them from the administrative burden of supporting a commercial item determination.
For more information on the final rule, CIDs, or FAR part 12 procurement procedures, please contact the author at toverman@bassberry.com. The author would like to thank our law clerk Stephen Finnan for his valuable contributions to this article.