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Tom Reid, JD, CPCM, Fellow Chief Problem Solver Certified Contracting Solutions, LLC

FAR Part 12 The Government Goes Commercial. Tom Reid, JD, CPCM, Fellow Chief Problem Solver Certified Contracting Solutions, LLC Thursday July, 27, 2006 1:45 to 2:45 PM. What is Commercial Contracting?. Commercial Contracting might include: Sales to Civilian Agencies

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Tom Reid, JD, CPCM, Fellow Chief Problem Solver Certified Contracting Solutions, LLC

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  1. FAR Part 12 The Government Goes Commercial Tom Reid, JD, CPCM, Fellow Chief Problem Solver Certified Contracting Solutions, LLC Thursday July, 27, 2006 1:45 to 2:45 PM

  2. What is Commercial Contracting? Commercial Contracting might include: • Sales to Civilian Agencies • Sales to State and Local Governments • Sales to Commercial Companies • Sales to Ultimate Consumers • Federal Government Purchases of items considered “commercial goods and services”

  3. What we will NOT be covering: • A-76 • FAIR Act • TINA • A discussion on “inherently governmental functions”

  4. How Long Have Commercial Items Been an Issue? “The recommendations in this part provide the means for implementing the policy of basing decisions on a consideration of total economic cost. They include: … • Establishing criteria for development of Federal specifications to achieve greater consideration of cost-benefit analysis, including state-of-the-art, in commercial product development.”

  5. Where Did This Come From? Report of the Commission on Government Procurement – Volume 3 December 1972

  6. Should The Government Buy Commercial Products? Studies and Legislation have long encouraged the acquisition of Commercial Products: • Competition in Contracting Act (1984) • Packard Commission (1986) • Defense Science Board (1989) • Section 800 Panel (1992) • Et al

  7. Then There was FASA • The Federal Acquisition Streamlining Act (FASA) (1994) (P.L. 103-355) • Forced agencies to use electronic commerce • Created a simplified acquisition threshold • All purchases from $2,500 to $100,000 were for small businesses only • Emphasized the purchase of commercial items • Changed over 225 other laws to reach its objectives

  8. Anyone Remember FACNET? • Never really took hold • Required use of an intermediary (Value Added Network or VAN) • Requirement to use was removed for DOD in 1998 • “Morphed” into Fed Biz Ops using standard commercial on-line commerce

  9. Commercial Acquisitions • Rely on the Commercial Marketplace for Solutions • Emphasize performance-based requirements • Includes provision enabling commercial practices • Excludes provision inconsistent with commercial practices • Encourage participation of commercial entities

  10. Key Point • FAR Part 12 is NOT an “acquisition method” • FAR Parts 13 (Simplified Acquisitions), 14 (Sealed Bidding), and 15 (Negotiation) are “acquisition methods” • Part 12 authorizes modification of the procedures defined in the other parts

  11. What Do Current Regulations Say? “Commercial item” means— (1) Any item, other than real property, that is of a type customarily used by the general public or by non-governmental 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; (2) Any item that evolved from an item described in paragraph (1) of this definition through advances in technology or performance and that is not yet available in the commercial marketplace, but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Government solicitation;

  12. Commercial Item Defined (con’t) (3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) of this definition, but for— (i) Modifications of a type customarily available in the commercial marketplace; or (ii) Minor modifications of a type not customarily available in the commercial marketplace made to meet Federal Government requirements. Minor modifications means modifications that do not significantly alter the nongovernmental function or essential physical characteristics of an item or component, or change the purpose of a process. Factors to be considered in determining whether a modification is minor include the value and size of the modification and the comparative value and size of the final product. Dollar values and percentages may be used as guideposts, but are not conclusive evidence that a modification is minor;

  13. Commercial Item Defined (con’t) (4) Any combination of items meeting the requirements of paragraphs (1), (2), (3), or (5) of this definition that are of a type customarily combined and sold in combination to the general public; (5) Installation services, maintenance services, repair services, training services, and other services if— (i) Such services are procured for support of an item referred to in paragraph (1), (2), (3), or (4) of this definition, regardless of whether such services are provided by the same source or at the same time as the item; and (ii) The source of such services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government;

  14. Commercial Item Defined (con’t) (6) Services of a type offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions. This does not include services that are sold based on hourly rates without an established catalog or market price for a specific service performed or a specific outcome to be achieved. For purposes of these services— (i) “Catalog price” means a price included in a catalog, price list, schedule, or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers, and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and (ii) “Market prices” means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors.

  15. Commercial Item Defined (con’t) (7) Any item, combination of items, or service referred to in paragraphs (1) through (6) of this definition, notwithstanding the fact that the item, combination of items, or service is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor; or (8) A nondevelopmental item, if the procuring agency determines the item was developed exclusively at private expense and sold in substantial quantities, on a competitive basis, to multiple State and local governments.

  16. What Drives Commercial Pricing? • Speed of delivery; distribution channels • Length and extent of warranty • Limitations of seller’s liability • Quantities; economic production runs • Length of performance period • Specific performance requirements • Technology advances; R&D spending

  17. What is Commercial Price Reasonableness? • The CO must establish price reasonableness in accordance with FAR Part 13, 14, or 15, as applicable. • The CO must be aware of customary commercial terms and conditions when pricing commercial items • The CO must ensure that contract terms, conditions, and prices are commensurate with the government’s needs

  18. “Other than Cost or Pricing Data” “Information other than cost or pricing data” means any type of information that is not required to be certified in accordance with 15.406-2 and is necessary to determine price reasonableness or cost realism. For example, such information may include pricing, sales, or cost information, and includes cost or pricing data for which certification is determined inapplicable after submission.

  19. Nondevelopmental Items “Nondevelopmental item” means— (1) Any previously developed item of supply used exclusively for governmental purposes by a Federal agency, a State or local government, or a foreign government with which the United States has a mutual defense cooperation agreement; (2) Any item described in paragraph (1) of this definition that requires only minor modification or modifications of a type customarily available in the commercial marketplace in order to meet the requirements of the procuring department or agency; or (3) Any item of supply being produced that does not meet the requirements of paragraphs (1) or (2) solely because the item is not yet in use.

  20. Benefits • Not optional for commercial items • Greatly simplified RFQ/RFP • Simplifies vendor response (cheaper to them) • Government market is opened to more suppliers • Commercial innovations are leveraged for use by the government

  21. Benefits • Lower total ownership costs • Design Engineering, developmental testing, and production line set-up are already completed • Products are already proven in service before program receives them – bad products and suppliers are already weeded out

  22. Downsides • Not appropriate when extensive “tailoring” is required • Less ability to demand needed changes • Less oversight of contractor • Less insight into product • Advanced payments are a SCP in some industries

  23. Critical Steps in the Process • Market Research • Using “other than cost or pricing data” • Recognizing that FAR part 12 does NOT require strict adherence to FAR Part 15 practices. • Price is not a factor in determining status as a commercial item

  24. All Other Rules Apply • See, e.g. Orion Technology, ASBCA No. 54608, March 28, 2006, 2006 WESTLAW 1064133, (Mistake in Bid) • Bona Fide Needs • Minimum Needs • Procurement Integrity • Et al

  25. MMODS Program • Government estimate per MILSPECS = $900,000 per unit • Actual cost = $55,000 per unit • Much faster delivery

  26. Army/Navy High-Speed Vessel • Speed, payload, length, and range were only truly critical specs • High-speed ferries used extensively around world, but not in US • Leasing is standard practice in commercial market • Delivered in 75 days • Introduced Australian shipyards to US government procurements

  27. Navy Recruiting & Advertising • Transformed traditional prescriptive CPFF contract to FFP, performance-based contract with incentives for achieving specific recruiting goals • Transferred more cost and performance risk to contractor, while encouraging more competition • Reduced SOW from 40 pages to 3

  28. USS Cole • PLT was 4 days from attack • Contract awarded 2 days after RFP approved • Ship lifted onto transport 18 days after attack • Ship arrived CONUS 44 days later

  29. J85 Engine Modification • FFP/ IDIQ • Sole Source to GE Electric Aircraft Engines • $601 million, 10-year contract

  30. Summary • FAR Part 12 is NOT an “acquisition method” • The government benefits tremendously when it can use commercial practices and purchase “commercial items” or services • The FAR and the UCC will never be the same

  31. Resources • DOD Commercial Item Handbook (2001) • http://www.acq.osd.mil/dpap/Docs/cihandbook.pdf

  32. Questions? Tom Reid Chief Problem Solver Certified Contracting Solutions, LLC Denver, Colorado 303-726-8740 www.certifiedKsolutions.com

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