Commercial Item GSA Schedule Contracting

1
Commercial Item / GSA Schedule Contracting

• June 4, 2009
• Christopher B. Pockney
• Government Contract Services
• 202-327-5865
• chris.pockney_at_ey.com

2
Background

• The Federal Acquisition Streamlining Act of 1994
  mandated the use of commercial items
• Jump started the Acquisition Reform movement
• Significant benefits for DoDexpanded use of
  commercial products, reduced administration for
  Govt. industry, exploited use of advanced RD
  in commercial technologies
• DoD and Congress have proposed changes that alter
  many of the commercial acquisition reforms
• At DoDs request, the House and Senate proposed
  changes to commercial item procurement for FY
  2008
• DoD has published proposed FAR changes for
  additional cost data (uncertified) for commercial
  items
• DoD drafted a legislative proposal for FY 2009
  Def Auth that would revise FASA commercial item
  definitions

3
Commercial Item Procurementthe Downhill Slide

• FY 1999 National Defense Authorization Act (NDAA)
• Definition of non-governmental purposes
• Legislative erosion of commercial item provisions
• FY 2003 NDAA, SEC. 817 defined exceptional
  circumstancesalso, applied it to all CAS
  waivers
• FY 2005 NDAA, SEC. 818 required cost or pricing
  data for non-commercial mods to commercial items
  greater than 500K or 5 of total contract price
• FY 2006 NDAA, SEC. 803 requires advance
  notification to Congress for purchasing a major
  weapons system as a commercial item (e.g. C-130J)
• Recent developments regarding commercial item
  procurement
• 2007 NDAA Sec. 802- technical data rights for
  program sustainment Sec. 842- Specialty
  metals-no commercial item exception included
• DoD IG Report Sept. 29, 2006 Commercial
  contracting for the acquisition of defense
  systems
• DoD IG Report Sept. 15, 2006 Hamilton
  Sundstrands commercial contracts for
  non-competitive spare parts
• GAO Report Sept 2006 DoD contracting efforts
  needed to address AF commercial acquisition risk
• DPAP Policy Letter March 2, 2007 Must document
  better commercial item determinations May 31st
  revision to PGI 215.4

4
Getting to Services Acquisition Reform

• SARA National Defense Authorization Act for
  Fiscal Year 2004 (Public Law 108-136)

• Created definition of commercial item
• Established preference for commercial items
• Created FAR Part 12 procedures
• Changed TINA rules
• Created commercial financing

• TM Contacts

• Refined definition of commercial item
• Changed TINA rules
• CAS Exemption

SARA Section 1423 Panel (2007)
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SARA 1423 Presidential Panel

• Big disappointment to most observers.
• Recommendations are not consistent with the
  expectations of those who supported the inclusion
  of Section 1423 in SARA.
• Hope of many was that the Panels work would
  provide new emphasis and focus to the effort of
  moving the commercial practices of the federal
  government toward a more commercial-like
  acquisition process.
• Instead, most of the recommendations of the Panel
  related to commercial practices take a step
  backward, away from the reforms of the FASA and
  Clinger-Cohen Act and subsequent incremental
  reforms.

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Mr. Shay Assad, Director, Defense Procurement
and Acquisition Policy

• Balance between Partnerships and Contractor
• Maintain Arms-Length Relationships
• Dont Lose Objectivity
• At the end of the day we are held accountable to
  the war fighter and taxpayer.

7
Mr. Shay Assad, Director, Defense Procurement
and Acquisition Policy

• Cost or Pricing Data
• In the last 12 years, trend was not to get cost
  or pricing data. We need to get the data to do
  analysis and ensure fair and reasonable prices.
  Three years from now, no one will care whether a
  contract was awarded in 30 or 60 days, they will
  care whether the price you paid was reasonable.
• Price is more important than early award.

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Evolution of Cost or Pricing Data for Commercial
Items
TINA UNCERTIFIED DATA LIMITED COST
INFORMATION PRICE DATA ONLY 1996
PGI-2007 PROPOSED REQUESTED FARA/ RULE
(2005-036) LEGISLATION 1994 FASA
? SEC. 815
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Recent Commercial Item Related Policy Memoranda
from DoD

• Proper Use of TM Contracts. March 20, 2008.
• Determining Fair and Reasonable Prices. May 31,
  2007.
• Waivers under the Truth in Negotiations Act.
  March 23, 2007.
• Commercial Item Determinations. March 2, 2007.
• Plan for Restricting Government Unique Clauses on
  Commercial items. March 17, 2008.
• Annual Report to Congress for commercial item
  exemptions from the Truth in Negotiations Act and
  exceptional case waivers from TINA and CAS.
  September 10, 2007.

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TM Contracts

• TM Contracts least preferred contract type.
• Only use when not possible to award another type.
• Assessment by HCA if over 10 of obligations are
  IDIQ TM.

Source DoD Memo March 20, 2008 Proper Use of
Time-and-Material Contracts
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Fair And Reasonable Prices

• Emphasizes obtaining Cost or Pricing Data if TINA
  applies
• If not, obtaining whatever information or data
  is necessary to determine a fair and reasonable
  price.

Source DoD Memo May 31, 2007 Determining Fair
and Reasonable Prices
12
TINA Waivers

• TINA waivers must meet an extremely high
  standard
• It is DOD policy to apply this waiver authority
  only to situations where the government could not
  otherwise obtain the needed product or service
  without the waiver.
• TINA waiver should not normally be granted to
  contractor business segments that normally
  perform government contracts subject to TINA or
  simply because the waiver could allow the parties
  to execute the contract at an earlier date than
  if TINA was applied.
• Example Commercial business offers a
  non-commercial item that is essential to DoDs
  mission but is not available from other sources,
  and the company refuses to accept the TINA
  requirements

Source DoD Memo March 23, 2007 Waivers under
the Truth in Negotiations Act.
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Commercial Item Determinations

• Commercial Item Determinations
• Must be documented in writing
• Included in the contracting file
• Particular care used in documenting
• Modifications of a type
• Item only offered for sale, lease
• or license to the general public but
• not actually sold, leased or licensed.
• When price history is lacking, refer to FAR
  Subpart 15.4.

Source DoD Memo March 2, 2007 Commercial Item
Determinations
14
Proposed TINA Change

• DoD Legislative Proposal
• Change TINAs commercial item exemption
• Available, as usual, for qualifying contracts,
  subcontracts, or modifications except
• For sole source items
• When PCO determines commercial sales data
  insufficient to determine a fair and reasonable
  price and
• Contractor must submit Cost or Pricing Data if
  the business segment has submitted Cost or
  Pricing data on at least one contract award or
  modification.
• The language is not clear as to exposure to
  subcontractors that do not have a prime contract.

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Proposed FAR ChangesTINA

• Revision of the definition of cost or pricing
  data
• Change the term information other than cost or
  pricing data'' to data other than certified cost
  or pricing dataany data, including cost or
  pricing data and judgmental information necessary
  for the contracting officer to determine a fair
  and reasonable price or cost realism, where
  certification is not required.
• Add a definition of certified cost or pricing
  data'' to make the terms and definitions
  consistent with 10 U.S.C. 2306a and 41 U.S.C.
  254b and more understandable to the general
  readerthat has been required to be submitted
  and has been certified, or is required to be
  certified.
• Retain current definition of Cost or Pricing Data
• Clarify the need to obtain data other than
  certified cost or pricing data when there is no
  other means to determine fair and reasonable
  pricing during price analysis.
• Source FAR Case 2005-036 FedReg April 23, 2007
  (Volume 72, Number 77) Page 20092-20104

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Issues with Proposed Rule FAR Case 2005-036
Definition of Cost or Pricing Data

• Blurs differentiation between certified and
  uncertified cost or pricing data. Current
  definitions of certified data and information
  other than cost or pricing data are well
  understood.
• Adds audit and records requirement for data other
  than cost or pricing data.
• Incorrectly assumes commercial firms have systems
  capable of providing cost data or would be
  willing to develop such systems. No definition of
  what cost data is required in support of
  commercial items. Would result in tina-like
  audits of commercial items.
• Adding judgmental information is more than
  required by TINA
• Changing information to data conflicts with
  the intent to establish price reasonableness
  based on sales information rather than cost data.
• Expands data to cost data or any other
  information the contracting officer requires.

Status The final rule has been approved by both
Councils and is now in legal review.
Sequentially, the rule will be forwarded to OFPP
and to OIRA for approval.
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Undoing FASA and FARA

• Alternative 1 (Feb 2007) to 52-212-4 when a TM
  contract is awarded
• Inspection and Acceptance
• Government can inspect contractors and
  subcontractors plants.
• Government will accept or reject services and
  materials at place of delivery, presumptive
  delivery is 60 days unless accepted earlier.
• NLT 6 month, Government may require replacement
  or correction of defects at hourly rate less
  profit (presumed 10).
• Failure to correct defects may result in
  Government charging increased cost to the
  contractor or termination for cause.
• Government may require remedy of correction or
  replacement without cost if the failure is due
  to Fraud, lack of good faith, or willful
  misconduct or the conduct of contractors
  employees selected or retained by managerial
  personnel who had grounds to believe the employee
  was habitually careless or unqualified.

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Section 805 2008 NDAA

• Procurement of Commercial services.
• Services that are not sold competitively in
  substantial quantities in the marketplace, but
  are of a type offered for sale and sold
  competitively and in substantial quantities in
  the commercial marketplace, may be treated as
  commercial items for purposed of TINA only if the
  contracting officer determines that the offeror
  submitted sufficient information to evaluate
  reasonableness of price.
• Information Submittedprices paid for the same or
  similar commercial items under comparable terms
  and conditions by both government and commercial
  customers.
• The contracting officer may request a contractor
  to submit information regarding the basis for
  price or cost if the information is not
  sufficient to determine price reasonableness
  including information on labor costs, material
  costs, and overhead rates.

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Section 805 2008 NDAA

• Time-and-Materials/Labor Hour Contracts for
  Commercial Services may be used only for
• Services procured for support of a commercial
  item
• Emergency repair services
• Any other commercial services only to the extent
  that the head of the agency concerned approves a
  determination in writing by the contracting
  officer that--
• The services to be acquired are commercial
  services
• The offeror of the services has submitted
  sufficient information to support the price
• Such services are commonly sold to the general
  public through use of time-and-materials or
  labor-hour contracts and
• The use of a time-and-materials or labor-hour
  contract type is in the best interest of the
  Government.
• Definition Services 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.

20
Section 815

• Clarification of rules regarding the procurement
  of commercial items 10 USC 2379 major weapon
  systems
• Adds requirement that an offeror has to submit
  sufficient information to evaluate the
  reasonableness of the price of the system.
• Contracting officer must make a determination of
  commerciality and that sufficient information on
  price reasonableness is available. Contracting
  officers may request information regarding labor
  costs, material costs and overhead costs if the
  information on prices is not sufficient to
  determine price reasonableness.
• For subsystem, components or spare parts, to be
  purchased as commercial items, contracting
  officers may require offerors to submit prices
  paid for the same of similar items under
  comparable terms and conditions by both
  government and commercial customers or
  information regarding labor costs, material costs
  and overhead costs if the information on prices
  is not sufficient to determine price
  reasonableness.

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SEC. 815 Key Provisions (cont.)

• Information is similar to existing TINA
  language and FAR 15.402 pricing policy
• Technical Data Amendment- elimination of
  presumption that technical data for commercial
  items is developed at private expense is modified
  by reinstating the presumption for COTS items
• Terms general public and nongovernmental entities
  do not include federal, state, local or foreign
  governments

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SEC. 815 vs. FASA

• FASA describes a 3-step approach
• Market Research
• Commercial item determination
• Solicit under FAR Part 12
• Sec. 815 combines the commerciality determination
  and pricing. If price reasonableness cannot be
  determined, the item is not commercial and TINA
  applies

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National Defense Authorization Act For 2008

• SEC 822 extension of authority for use of
  simplified acquisition procedures for certain
  commercial items
• Extend the authority of the Department of Defense
  to use simplified acquisition procedures for the
  acquisition of certain commercial items. (FAR
  13.5)

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National Defense Authorization Act For 2008

• SEC 826 Market Research
• Require the Secretary of Defense to take certain
  steps to ensure that the Department of Defense
  and its prime contractors conduct appropriate
  market research before making purchases for or on
  behalf of the Department. Directs the Secretary
  to work to develop market research tools to
  assist Contracting Officers and prime contractors
  in performing market research

25
2009 NDAA Procurement Policy Update

• 2009 NDAA signed October 14, 2008
• Significant Sections include
• Sec. 823 Revision to the application of Cost
  Accounting Standards
• Sec. 841 Ethics safeguards related to contractor
  conflicts of interest
• Sec. 842 Information for Dept. of Defense
  contractor employees on their whistleblower
  rights
• Sec. 844 Report on use of off-shore subsidiaries
  by defense contractors
• Sec. 845 Defense industrial security
• Sec. 863 Requirements for purchase of property
  and services pursuant to multiple award contracts
• Sec. 868 Minimizing abuse of commercial services
  item authority
• Sec. 871 Access of Government Accountability
  Office to contractor employees
• Sec. 872 Database for Federal Agency contract and
  grant officers and suspension and debarment
  officials

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Sec. 863 Requirements for purchase of property
and services pursuant to multiple award contracts

• Requires revision of the FAR to enhance the use
  of competition in the use of multiple award
  contract vehicles
• Requirements include
• Competition requirements apply to all purchases
  above the simplified acquisition threshold
• Expanded notice requirements to all offerors
  under the multiple award contract
• Limitation on purchases if notice was not given
  to all offerors, unless at least 3 offers were
  received or determination in writing that they
  were no other qualified bidders
• Disclosure on FedBizOpps of sole source orders,
  including the justification

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Sec. 868 Minimizing abuse of commercial services
item authority

• Mandates revision of the FAR within 6 months for
  procurement of commercial services
• Regulations shall ensure that
• Services not sold offered and sold competitively
  in substantial quantities in the competitive
  marketplace, but of a type that are, may be
  treated as commercial items only if the
  contracting officer determines in writing that
  the offeror has submitted sufficient information
  to evaluate the reasonableness of the offered
  price.
• If information on prices paid is insufficient to
  determine price reasonableness, the contracting
  officer may request relevant information on cost,
  including labor, material and overhead rates.
• This implications of this provision should be
  considered in the light of FAR Case 2005-036
  Definition of Cost or Pricing Data

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SEC 872 Database for Federal Agency contract and
grant officers and suspension and debarment
officials

• Requires GSA to establish a database on integrity
  and performance of contractors and grantees
  receiving any award over 500,000.
• Database to include information for the most
  recent 5 year period on
• Most Civil, criminal or administrative
  proceedings in connection with Federal awards
  that resulted in convictions, findings of fault
  or liability, or fines, penalties, damages or
  restitution
• Each contract or grant terminated for default
• Each Federal suspension or debarment, including
  the administrative agreements to resolve a
  suspension or debarment proceeding
• Non responsibility determinations by Federal
  officials
• Requires review of the database before award of a
  contract above the simplified acquisition
  threshold, documented in the contract file
• Requires timely notification of contractors when
  information is added, including the right to
  submit comments related to the information
• FAR will be amended to require contractors with
  contracts over 10 million to submit the
  information for the database and update it
  semi-annually