This post is for anyone in federal contracting who may deal with the purchase or sale of commercial items and services. Logic dictates that the pricing of commercial items/services would be much simpler than for non-commercial items. However, due to dwindling budgets, the push for purchasing more commercial items and services, and the general unfamiliarity in most government contracting offices of commercial practices, new guidance has been released that makes documenting commercial price fair and reasonableness more difficult.
At the inception of FAR Part 12, Acquisition of Commercial Items, in the mid-90s, many contracting officers (COs) who were working in federal contracting offices that purchased commercial items/services (I was one of them) were excited to be able to purchase them using “common sense” approaches. By definition, a commercial item or service (reference FAR 2.1) is sold in sufficient quantities to the general public at competitive prices. As a result, commercial item/service purchases were exempt from the Truth in Negotiation Act (TINA) requirement to provide a Certificate of Current Cost and Pricing Data at the conclusion of negotiations (reference FAR 15.504-03).
And this made sense. Commercial items and services were sold based on catalog or market pricing identical to or better than that being paid by John Q. Public. The market determined the pricing structure. So why go to great lengths to document pricing determinations when that was the case? And since these items/services were readily available, they could be competed among many vendors. Therefore, adequate price competition, which determines price fair and reasonableness, is also exempt from TINA.
The FY 2013 National Defense Authorization Act (NDAA) requires the issuance of formal guidance to determine when additional cost information is needed to determine price fair and reasonableness for commercial items. On 4 Feb 15, the Director of Defense Procurement and Acquisition Policy & Strategic Sourcing issued a Memo on Commercial Items and Determining Fair and Reasonableness. Until the DFARS can be updated, the memo will serve as a guide to the COs on commercial pricing.
Normally the CO uses market-based pricing. However, if that is not available, the CO has the latitude to use cost-based analysis. Remember the CO is not required to use cost-based analysis, but they can.
The FAR allows the CO to request “other than certified cost and pricing data”. You may ask yourself what the difference really is and the answer is simple. One is certified to by the contractor and the other is not. Therefore, the content of the cost and pricing data can be the same in both cases.
The use of “other than certified cost and pricing data” may be needed to justify price fair and reasonableness. So while the CO may use market research and other means to attempt to justify price fair and reasonableness, the reality is that the contractor may be in the best position to provide data in the form of “other than certified cost and pricing data”. The contractor knows what the parts and assembly cost.
So if you are a CO who purchases commercial items and services, be aware that this memo provides some additional guidance on determining price fair and reasonableness on commercial items/services.
If you are a contractor that does business with the government and sells commercial items/services, be prepared to receive requests for “other than cost and pricing data” if the price for what you sell cannot easily be determined using market research or published price lists.
The inability to determine price fair and reasonable on commercial items may be due to CO inexperience, comments from price analysts unfamiliar with commercial pricing, or higher level review expecting mountains of documentation to justify the price paid (as they would for a non-commercial item).