Why do contractors have to do market research? Simply put, you signed a contract with the US Government or a subcontract with a prime contractor that expects it – yes, it is contractually required. Plus, it is one of the most often reported contractor purchasing system review (CPSR) findings.
Just to be clear, market research is required:
- Throughout your purchasing process for almost all US Government contracts or subcontracts,
- Before awarding any requirement to find responsible sources to allow for competition,
- Specifically required when making a commercial determination and
- To support your sole source justifications.
What is Market Research?
FAR 2.101 defines Market research as “collecting and analyzing information about capabilities within the market to satisfy agency needs.” In this definition, we replace “agency needs” with “contractor/subcontractor requirements” when we address what is expected of you according to FAR 52.210-1 Market Research. There are many techniques for conducting market research, from internet searches to a buyer’s direct engagement with suppliers.
Market Research Before Award
Contractors are required to perform market research by FAR 52.210-1 Market Research. FAR 52.210-1 Market Research is included in all solicitations and contracts over $6M that are not for the acquisition of commercial products or commercial services. We know what you are thinking: “If I have no contracts over $6M, I can wash my hands of this resource-consuming effort?” Oh, if only that were the case. Defense Contract Management Agency (DCMA) and Defense Contract Audit Agency (DCAA) have clear expectations that even small businesses are doing market research. DCMA believes it is a key part of an adequate CPSR, and DCAA cannot see how you could have paid a fair and reasonable price without it.
While a specific flowdown requirement is not included in the text of the clause, FAR 52.210-1(b)(2) requires the contractor to ensure commercial products, commercial services, or non-developmental items are incorporated at the component level. The way we read this requirement is that you are to ensure your subcontractors delivering components that will be incorporated into what you deliver to the Government are also performing market research. After all, FAR 52.244-6 requires the use of commercial products, commercial services, or non-developmental items to the maximum extent possible. Yes, FAR 52.244-6 is included in all prime contracts and subcontracts unless a commercial product, commercial service, or non-developmental item is purchased.
FAR 52.210-1(b)(1) requires contractors to conduct market research before awarding subcontracts (at any level) over the simplified acquisition threshold to determine if commercial products or services exist or non-developmental items are available that:
- Meet the contractor’s requirements,
- Could be modified to meet the contractor’s requirements or
- Could meet the contractor’s requirements if those requirements were modified to a reasonable extent.
Before you issue that Request for Proposal (RFP) or Request for Quote (RFQ) to a supplier, you must perform market research to determine if there are any new suppliers with new commercial products or services in the market to fulfill the requirement. More often than not, we see the prime or Government request the supplier to modify their product to meet the prime/Government requirements before the prime/Government considers modifying the contract requirements. A commercial determination should be documented once you identify the commercial product or service, whether it is under or over the Truthful Cost or Pricing Data (TINA) threshold. Yes, even under the TINA threshold. See our article on commercial determination requirements.
Market Research When Making a Commercial Determination
Market research for a commercially available off-the-shelf item (COTS) is generally as easy as documenting three screenshots of the product along with a statement that the product meets the FAR 2.101 COTS definition.
Things get much more complex when you move beyond COTS. The definition of a commercial product or service is intentionally broad so that you are not limited to only COTS. Internet searches are going to get you potential competitors, but not much in the way of the detail expected to support a commerciality determination. Your buyers are going to have to get creative and much more engaged with the available suppliers. Your buyers will need to:
- Leverage the knowledge available across the company,
- Leverage prior market research,
- Request information from potential suppliers and
- Engage directly with the marketplace.
This is no easy task – your buyers need to understand this is a team sport. Get the program personnel involved.
Lack of market research to support a commercial determination is a common finding by the DCMA CPSR team.
Market Research for Pricing
The market research you perform in the requirements phase or when making a commercial determination can be used in evaluating pricing. Market research can be used to identify pricing issues, price ranges, explanation of price variations, modifications, and assist in documenting a fair and reasonable market price. More on this topic is our next article.
Takeaways
Well-documented market research will:
- Support your compliance with FAR 52.210-1, and
- Make the selection of a responsible source at a fair and reasonable price easier.
Contractors should establish a database and store market research so that it can be used in future buys of similar products or services. Market research documentation should be appropriate to the size and complexity of the acquisition.
How Can Redstone GCI Help
Redstone GCI can assist your company or organization with training buyers on market research techniques, drafting policies and procedures to support market research, reviewing commercial assertions or determinations, conducting price analysis on commercial products and services, and providing training on commercial determinations.
