Does My Product Have to Be Sold to Commercial Companies to Be Commercial?

This is a myth. Let’s review the commercial definition:

FAR 2.101 Commercial Product definition Paragraph 1 states:

(1)  A product, other than real property, that is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes, and–

(i) Has been sold, leased, or licensed to the general public; or

(ii) Has been offered for sale, lease, or license to the general public;

This is the most common definition used by government contractors when submitting a commercial assertion or making a commercial determination. It states that the proposed product must be “of a type” that is used, sold, or offered for sale in the commercial market. It does not say you must sell your version of the “of a type” product to the general public.

Most products that a contractor sells to the government are ruggedized or have significant improvements in the type of material or capabilities over a similar (i.e., of a type) commercial product. When asserting commerciality, contractors need to identify a similar product in the commercial market that has similar functionality. If the process worked the way the FAR envisioned, the market research performed by the government (i.e., required by FAR part 10) should have identified a similar product as well.

While form, fit, and function of a commercial product need to be considered in making a determination, form and fit aren’t as critical as the functionality of the product.

Where is This Explained?

The Department of Defense Commercial Item Handbook (July 2019) on page 21 includes a flowchart to assist government representatives in applying Product Definition 1, “of a type.” One of the questions in the flowchart states:

“Has the proposed item been: (i) Sold, leased, or licensed to the general public; OR (ii) Offered for sale, lease, or license to the general public? If no - Not commercial under paragraph (1)”

The flowchart indicates that the proposed item has to be sold or offered for sale, or it does not meet the “of a type” definition. This is entirely incorrect and has led to issues in government commerciality determinations. The Handbook goes on to clearly contradict the flowchart. On the same page, under the flowchart, it states the exact opposite as follows:

“When deciding if a proposed item satisfies the definition to be deemed a commercial item, an evaluation of a similar (i.e., of a type) item is permitted. The definition does not require that the exact proposed item must be sold or offered for sale to non-Government customers.” (emphasis added)

The Handbook continues that the “of a type” definition was broadened to allow Contracting Officers to compare proposed products to similar products in the commercial market. The Handbook even provides an example of an antenna on a military helicopter compared to similar antennas in the commercial marketplace, which was determined to be commercial even though the proposed antenna is not sold in the commercial marketplace. The Handbook provides another example of a commercial product not sold in the commercial marketplace: a computer with a ruggedized case designed for use in the field.

According to the examples in the DoD Commercial Item Handbook, the proposed product does not need to be sold in the commercial market. However, you must identify a similar product that is customarily used in the commercial market.

Sounds Easy, Right?

Wrong. We have had prime contractors, Contracting Officers, and especially the Defense Contract Management Agency (DCMA) Commercial Item Group (CIG) push back on determining a proposed product is commercial because the specific product hasn’t been sold to the general public. In fact, most of the prime contractors seem to be passing the buck on making a commercial determination. They are requesting that the Government engage the Commercial Item Group to review and make a commercial determination. We are surprised that the CIG is rejecting products as commercial if the specific product is not sold in the commercial market, especially since they were involved in developing the DoD guidance in the Handbook.

Key Takeaways

Review the products that you sell to the Government. The majority of products on military aircraft or vehicles are similar to products on a commercial aircraft or vehicle. The product you are proposing does not need to be sold to commercial end-users, but you do have to identify similar products in the commercial marketplace with similar functionality. The first time you submit a product as commercial, you may receive pushback, but continue to push forward, as it seems a lot of contractors and the government are unclear on the DoD guidance. Once a product is determined to be commercial, it results in fewer requirements, including: no certified cost or pricing data, fewer flowdowns, and no cost analysis unless the price is not determined to be reasonable. Plus, the government and you are meeting the requirement to use commercial products to the maximum extent practicable.

Support for Commercial Determinations and Compliance

Redstone GCI helps government contractors navigate the complexities of commercial product determinations by guiding teams through the Federal Acquisition Regulation (FAR) commercial definitions, drafting or reviewing commercial assertions, and providing practical training tailored to your staff on-site or virtually. Our consultants also assess compliance with FAR 52.244-6 to confirm requirements are being met and to identify areas where documentation or processes may need adjustment. In addition, we support contractors by reviewing procurement files, advising on the preparation of supporting evidence for commercial determinations, and assisting with responses to government or prime contractor questions. With this comprehensive approach, Redstone GCI provides contractors with clarity and assurance in addressing commerciality requirements while reducing the risk of noncompliance.