RGCI - Subcontractors Can Request the NonTraditional Defense Contractor Exception

The Office of the Under Secretary of Defense, Defense Pricing and Contracting (DPC) issued a Memorandum dated May 5, 2024, to Agencies on the Treatment of Nontraditional Defense Contractors.

What is a Nontraditional Defense Contractor?

DFARS 202.101 defines “Nontraditional defense contractor” as an entity that is not currently performing and has not performed any contract or subcontract for DoD that is subject to full coverage under the cost accounting standards for at least the 1-year period preceding the solicitation of sources by DoD for the procurement (10 U.S.C. 3014).

What Has Changed as a Result of DPC’s Memorandum?

Prime and higher-tier subcontractors can now make a determination that a subcontractor qualifies as a nontraditional defense contractor. When the DFARS Case 2019-D029 final rule was issued on nontraditional defense contractors, the comments to the final rule stated that the treatment of a nontraditional defense contractor could only be applied at the Government prime level. DPC’s guidance reminds Contracting Officers that contractors may make a determination that their supplier/subcontractor meets the nontraditional defense contractor definition to encourage participation in innovation and the industrial base. This is a welcome change.

What’s the Catch?

The DFARS Provision 252.215-7010 Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data must be included in the solicitation. Subcontractors will need to submit a request demonstrating it meets the definition of a nontraditional defense contractor to the prime or higher-tier subcontractor to forward to the Contracting Officer for validation before the award. Upon acceptance by the Contracting Officer, the prime/higher-tier subcontractor may apply commercial procedures to the products and services provided by the nontraditional defense “sub”contractor.

Request Commercial Product or Service Determination before Nontraditional Determination

Subcontractors need to understand that the award of a nontraditional defense “sub”contract does not require a commercial determination. Commercial procedures are applied so the supplier isn’t required to submit certified cost or pricing data. Since a commercial determination is not made, the prime/higher-tier subcontractor cannot rely on previous nontraditional contracts as a basis for commerciality on future awards. The subcontractor will have to request this exception on future awards.

We recommend subcontractors use the commercial exception first by submitting commercial assertions to the prime/higher-tier subcontractor to make a commercial determination before requesting the nontraditional defense contractor exception. FAR 52.244-6 Subcontracts for Commercial Products and Services requires contractors at all tiers to incorporate, commercial products, services or non-developmental items to the maximum extent practicable.

Takeaways

Prime/Higher-tier subcontractors should make every effort to determine a subcontractor’s product/service commercial, however, the exception for a nontraditional defense contractor may be available to the subcontractor. Contractors should develop a certification template for subcontractors to certify that they meet the definition of a nontraditional defense contractor and update their policies to have a process in place to get Contracting Officer approval before award. All of this documentation needs to be maintained in the procurement files.

Redstone GCI offers comprehensive support to enhance your company's compliance and operational efficiency. Our team can assist you with developing certification templates tailored to your specific needs, drafting or reviewing written policies and procedures to ensure they meet industry standards, and providing training on commercial determinations. With our expertise, your company can achieve greater accuracy and effectiveness in its processes.


Learn More About Our Commercial Determinations Consulting Services

Written by Lynne Nalley, CPA

Lynne Nalley, CPA Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Proposal Cost Volume Development & Pricing, Contracts & Subcontracts Administration, Government Regulations, Federal Acquisition Regulation (FAR), Commercial Item Determination