The National Defense Authorization Act (NDAA) for Fiscal Year 2022 and 2023 permanently authorized the Department of Defense (DoD) “to acquire innovative commercial products and commercial services through a competitive selection of proposals resulting from a general solicitation, known as a commercial solutions opening (CSO).” On August 17, 2023, the final rule was published in the Federal Register under DFARS Case 2022-D005 changing several parts of the DFARS – with most of the changes within DFARS part 212.
What is a Commercial Solutions Opening (CSO)?
A new subpart was added to the DFARS titled, 212.70-Defense Commercial Solutions Opening, allowing contracting officers to use CSO to:
- Acquire innovative solutions or potential capabilities; and
- Close capability gaps.
CSOs are intended to provide potential innovative technological advancements when meaningful proposals with varying technical or scientific approaches can be reasonably anticipated.
To assist contracting officers a definition of “Innovative” is provided. “Innovative means—
- Any technology, process, or method, including research and development, that is new as of the date of submission of a proposal; or
- Any application that is new as of the date of submission of a proposal of a technology, process, or method existing as of such date.”
As with many Government definitions it is as clear as mud. It is hard to think of pretty much any research and development effort that would not be considered NEW in at least some way.
Allowance for a New Contract Type
DFARS 212.7002(b) states “Notwithstanding FAR 12.207, contracting officers shall use fixed-price type contracts, including fixed-price incentive contracts, for awards resulting from a CSO. When using a fixed-price incentive contract, see FAR 12.214 and subpart 16.4 for additional requirements.” (Emphasis added)
FAR 12.214 provides that Cost Accounting Standards (CAS) does not apply to the acquisition of commercial products or commercial services under firm-fixed-price or fixed-price with economic price adjustment provided the price adjustment is not based on actual costs incurred. It then goes on to instruct the contracting officer to include the appropriate provisions and clauses of CAS when using a fixed price with economic price adjustment contract when the price adjustment is based on actual costs incurred. FAR 16.402-1 allows for incentives based on cost. We are concerned that this language is going to be read as requiring the application of CAS to CSOs when the incentive is based on cost and could result in a commercial company having to submit an annual incurred cost proposal when the incentives under a fixed price contract are based on cost.
Other Concerning Language
DFARS 212.7002(c) tells the contracting officer to “treat” the products and services acquired using a CSO as commercial products or commercial, similar to the current treatment allowed for non-traditional defense contractors. This will likely lead to a future acquisition of the same product or service not being considered commercial, as no commercial determination is required under CSO. This will result in trapping the new entrants DoD was looking for into the burdensome acquisition requirements placed on non-commercial contractors.
Even though the expectation is for competition, DFARS 212.7004(a)(3)(ii) provides that the price is to be considered “to the extent appropriate, but at a minimum to determine that the price is fair and reasonable.” As with other recent changes to DFARS we are concerned this will lead to contracting officers requesting cost data (i.e., data other than certified cost or pricing data) even when there is adequate competition.
The Government is opening yet another door inviting commercial companies to come do business with DoD – yet whether or not it is safe to go through the open door is still in question. Due to these risks, we believe contractors should be very weary when considering these new commercial fixed-price incentive contracts being offered by the Government.
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors with those extensive expectations. We would be happy to be part of your team.