My company only sells to the Government so my products/services can’t be commercial. Truth or Myth. This is a myth. If you are selling products/services under FAR 15 based contracts or subcontracts, submitting certified cost and pricing data and documenting other accounting and purchasing requirements that come along with it, when the products/services technically meet the definition of commercial under the FAR – it may be time to rethink your approach.
Let’s Discuss Market Research
Most FAR based contracts contain the clause FAR 52.210-1 Market Research. This states before awarding subcontracts over the simplified acquisition threshold the contractor (that’s you) shall conduct market research to determine if commercial products or services exist to meet the agency’s needs.
While you may be performing market research to determine if there are vendors/subcontractors that sell commercial products/services, have you performed market research to see if your products/services qualify under one of the FAR 2.101 commercial product or service definitions? There are 6 commercial product definitions and 3 commercial service definitions in FAR 2.101.
What Does FAR 2.101 Commercial Products Definition Say?
The most common commercial definition is FAR 2.101 Commercial product is paragraph (1) which 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;”
The definition leads you to believe that the product that you sell to the Government has been sold or offered for sale to the general public by you. However, the DoD Guidebook for Acquiring Commercial Items, Part A: Commercial Item Determination revised July 2019 states definition 1 “does not require that the exact proposed item must be sold or offered for sale to non-Government customers.” Additionally, your competitors may focus on the commercial market, while you focus on selling the same or similar products to the military market.
In addition, one of the commercial products definitions (6) nondevelopmental item - is a product that is developed at private expense, sold in substantial quantities, on a competitive basis to multiple State and local governments or to multiple foreign governments. There is no commercial end-user required under this definition.
Selling similar products or services to both commercial and military end users better support your assertion to the government that the product is commercial, but it is not a requirement that you have to sell or offer for sale your product/service.
Let’s Take a Look at Some Products/Services
A company sells brakes to the Government on a military jet but does not sell the brakes to commercial end users. What is the form, fit, and function of the brakes? While the form and fit are important when determining if it meets a commercial definition, the functionality or purpose is very important to identifying a “similar to” or “of a type” product. Performing market research to demonstrate that commercial airplanes have brakes, and the purpose or function of the brakes is to stop the plane similar to the function of the brakes on the military jet. Now you have to do your homework and continue researching the “similar to” or “of a type” to document that the functions of the commercial brakes are similar as well as, explain the differences between the brakes (e.g., air brakes, disc brakes, rotor brakes, etc.). Even if the brakes are different between the military and commercial – air vs. disc, it doesn’t change the functionality of the product.
Maybe you only sell cabin filters to the Government on a military aircraft. The form and fit are generally different because of the platform, but the overall function/purpose of the cabin filter is to filter impurities in the air of the aircraft cabin. Generally, the government requires more ruggedized materials that will last longer or be susceptible to higher or lower temperatures or sand/dust. Having a stronger material in the filter doesn’t impact the function as compared to the similar part sold to the general public. It is important for companies to document the differences found in market research in their commercial assertion as they will impact the price of the product – a filter with an aluminum frame is going to cost more than one with a cardboard frame.
Maybe you sell Information Technology help desk services or security services only to the Government. Help desk services are common across Government and commercial companies. Just because you are providing help desk support on a military software program, doesn’t make the services noncommercial.
A common mistake companies make is identifying the end deliverable (e.g., military plane for brakes or cabin filter, military software for help desk, etc.). Contractors need to focus on the product or service that is being sold, in this case “help desk” support or “aircraft brakes.”
Whar are Some of the Benefits of Commerciality?
Commercial contracts/subcontracts are not subject to the Truthful Cost or Pricing Data Act (TINA) and therefore do not require submission of certified cost or pricing data. The prime/government will perform a price analysis on the product/service but may ask for uncertified cost data if they can’t determine the price is reasonable. The payment structure is generally milestones, deliveries or sometimes an advance payment, similar to the terms and conditions on other commercial contracts. There is less monitoring by the prime/government, which is a benefit to you, and less flow down clauses to comply with although it is steadily increasing with cyber security and restricted technology requirements.
Does the Price to the Government Have to be the Lowest Price?
NO – Once a product or service has been determined commercial, the pricing needs to be analyzed. If the Government is buying a better quality than most customers in the commercial market – the Government should not be getting the lowest price. Companies also need to consider the increasing requirements such as supply chain and cyber security that are being added to even commercial-off-the-shelf (COTS) products. These requirements are not free of cost and if and when the contracting officers ask for uncertified cost data, the cost of these increasing requirements, not part of other commercial agreements, should be presented.
Takeaway
Do you have commercial products/services that you sell to the Government and also sell similar products/services to the general public. If so, Redstone GCI recommends you determine if your product/service that you sell to the Government meets one of the definitions in FAR 2.101 as compared to your similar commercial product/service. If you only sell to the Government, Redstone GCI recommends you perform market research and identify competitors that sell similar products/services to the Government and the general public. We recommend you then develop a commercial assertion that your product/service meets the commercial definition and submit it with your quote in response to a prime/Government solicitation, in place of submitting certified cost or pricing data.
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations. This includes assisting with contractors with performing market research, drafting commercial assertions or commercial determinations, policies and procedures or training. We would be happy to be part of your team.
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