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DOD Issues Guidance Memorandum Regarding Commercial Item Determinations and the Determination of Price Reasonableness for Commercial Items

On September 2, 2016 the Department of Defense (“DoD”) issued a Guidance Memorandum entitled Commercial Item Determinations and the Determination of Price Reasonableness for Commercial Items (“Memorandum”).  The Memorandum discusses an August 11, 2016, DoD proposed rule to implement sections of the National Defense Authorization Act (“NDAA”) for FY 2013 and FY 2016. These provisions simplify determinations of commerciality and price reasonableness under Part 12 of the Federal Acquisition Regulation (“FAR”).  FAR Part 12 lays out the federal government’s preference for acquiring commercial items by setting out streamlined procurement processes which require contractors to submit less supporting documentation and cost or pricing data than proposals for negotiated procurements. 

As described in the Memorandum, DoD has taken three specific steps to decrease delays and inconsistencies in making commercial item determinations. First, DoD has established six Commercial Item Centers of Excellence (“CoEs”) corresponding to various market sectors. The CoEs “will be staffed with a cadre of engineers and price/cost analysts to advise procuring contracting officers (PCOs) in their determinations of commerciality” and to support PCOs in their pricing efforts. Second, DoD has instructed contracting officers to recognize prior commercial item determinations for subsequent procurements of the same item. Deviations from prior determinations (based on a lack of foundation or erroneous findings) are to be verified by DoD chain of command and the corresponding CoE.  Finally, DoD has committed to enter into advance agreements with interested contractors to identify specific products and services seeking “commercial item” designation. These agreements will not limit a contracting officer’s determinations. Instead, the agreements are intended to define, beforehand, the types of information contractors should provide so that a PCO may make efficient determinations on commercial items and reasonable market prices.

Please contact us if you have any questions about the impact of this latest development in commercial item acquisitions.

Related Links:

Department of Defense Memorandum:

Department of Defense Proposed Rule: