Redstone Government Consulting Blog | Contractor Purchasing System Review (CPSR) (4)

In 2020 Congress directed through the National Defense Authorization Act (NDAA) that contracting officers be prohibited from determining that the price of a contract or subcontract is fair and reasonable based solely on historical prices paid by the Government. Congress goes on to provide that if the contractor fails to provide data supporting the proposed price, the contractor is ineligible for award, unless the head of the contracting activity (HCA) determines that it is in the best interest of the Government to make the award. Let’s face it they are saying contracting officer should be asking for “cost data.”

The Finding of Concern –

While the decision in the case (ASBCA, 21-1 BCA ¶37,823 Hollymatic Corporation, Armed Services Board of Contract Appeals, (Mar. 22, 2021)) did not specifically rest on this finding; the board stated:

“Our reading of the solicitation is also supported by the fact this was a commercial acquisition pursuant to FAR Part 12 and the definition of a commercial item (product) in FAR 2.101, paragraph 1, requires the item to have been “sold, leased, or licensed to the general public; or has been offered for sale, lease, or license to the general public” (i.e., to presently exist in the market) (finding 2)”

A selective review and reference to this case by DCAA or DCMA could lead to the impression that for a product (i.e., item) to meet the FAR 2.101 definition of a commercial item the product must be completely developed and currently offered for sale in the commercial marketplace.

A commercial item determination should define the item or service, document market research, identify the FAR 2.101 Commercial Item definition, and include a “determination” that the item is commercial. Sounds easy right!

Whistleblower claims are on the rise with alleged violations of health and safety laws as well as fraud and abuse under the CARES Act due to the pandemic. Employers need to ensure they are familiar with the whistleblower laws and their responsibilities under government contracts.

What is FAR 52.204-10 – Reporting Executive Compensation and First-Tier Subcontract Awards?

FAR 52.204-10 requires the contractor to report executive compensation of first-tier subcontracts with a value of $30,000 unless an exemption applies. Contracting Officers are required to include the FAR clause 52.204-10, Reporting Executive Compensation and First-Tier Subcontract Awards, in all solicitations and contracts of $30,000 or more. A first-tier subcontract is a subcontract awarded directly by the contractor for the purpose of acquiring supplies or services for performance of a prime contract. This does not include long term arrangements between the prime and first-tier subcontractors for material or supplies that benefit multiple contracts.

DCAA/DCMA Viewpoint

If you look through the DCAA audit guidance and the DCMA Contractor Purchasing System Review guidance, you would think that the Government is only concerned with a Commercial Item Determination when the purchase value exceeds $2M. This is all based on commerciality being an exception to the requirement for certified cost or pricing data at FAR 15.403-1(b)(3) & (c)(3).

Prime contractors must award contracts to responsible subcontractors. One of the required flowdowns from a prime to a subcontract is FAR 52.209-6, Protecting the Government's Interest When Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment. This flowdown is required when the solicitation or contract exceeds $35,000 but is not required when purchasing commercially available off the shelf (COTS) items. The purpose of the clause is to protect the government. A contractor that is debarred or suspended is referred to as an excluded contractor.

What’s New in this Long-Standing Area?

The FAR Council at long last issues final rule to implement the Trump Executive Order 13881, Maximizing Use of American-Made Goods, Products, and Materials. Only a few days later a Biden Executive Order 14005, Ensuring Future of America is Made in America by all of America’s Workers, hit the streets.

Here are the Details

DoD issued DFARs Final Rule D2019-D029 – Treatment of Commingled Items Under $10K, effective October 1, 2020, to implement several sections of the National Defense Authorization Act for Fiscal Year 2017 that addresses treatment of commingled items purchased by contractors and services provided by nontraditional defense contractors as commercial items. This blog only addresses the DFARS change relative to the treatment of commingled items purchased by a contractor. The final rule is applicable to all solicitations and contracts, including solicitations and contracts using FAR Part 12 procedures for the acquisition of commercial items and solicitations and contracts valued at or below the simplified acquisition threshold.

Here are the Details

DoD issued a DFARs Final Rule D2019-D029 – Services Provided by Nontraditional Defense Contractors, effective October 1, 2020, to implement several sections of the National Defense Authorization Act for Fiscal Year 2017 that addresses treatment of commingled items purchased by contractors and services provided by nontraditional defense contractors as commercial items. This blog only addresses the DFARS change related to services provided by nontraditional defense contractors as commercial items.