Highlights of a Portion of the Minutillo 2018 Presentation to the University of Texas School of Law

New rules regarding sales of supplies and services to the US Government (Government) were implemented in 2018 to reduce procurement barriers and procedures to induce more companies to offer supplies and services to the US Government resulting in more market competition, lower prices, and better products procured by the Government.

1. New Final Rule was issued by the Department of Defense (DOD) effective January 31, 2018, to benefit “non-traditional defense contractors” as defined in 10 USC 2302(9). Subsequent to the issuance of this new rule, non-traditional defense contractors are to be treated like commercial contractors selling commercial products and services to the Government. See also 10 USC 2380(a) and DFARS 252.215-7013 implemented in DFARS 215.408(7) and 83 FR 4447 (1/18).

2. A non-traditional defense contractor is defined as an entity that is not currently performing and has not performed any contract or subcontract for the DOD that is subject to full CAS coverage for one year preceding the solicitation to which the contractor is responding. See also DFARS 212.001. So, if no CAS covered contracts now or one year prior, an entity could qualify as a non-traditional defense contractor.

3. Supplies and services sold to the US Government by non-traditional defense contractors can be treated as commercial items even though the items sold may, technically, not qualify as commercial items under the acquisition regulations. No commercial item determination is required by the procuring agency. See DFARS 212.102(a)(iii) and 10 USC 2380(a).

4. A pure defense company can spin off a business segment or unit and that segment or unit can be considered a nontraditional defense contractor for procurement purposes even though it is affiliated with the parent, the traditional defense contractor.

CONTRACTING OFFICER (CO) DISCRETION

1. What is the effect of this rule change from a practical viewpoint:

1. If you qualify, as a non-traditional defense contractor:

1. Contracting officers can considering using this permissive authority to treat a procurement as a commercial one even though the product is not commercial under the regulations, thereby providing all of the benefits of FAR part 12 and DFARS part 212 (see latest version of the DOD “Guidebook for Acquiring Commercial Items”).

1. For the sale of software, FAR 12.212 and DFARS 227.7202 can be utilized to allow a contractor to use its standard commercial license agreement to protect its IP and for other purposes;

2. No requirement to provide cost or pricing data to show price reasonableness but the CO can request at a minimum information to support price reasonableness including prices at which the same item has been sold in the market place under similar circumstances (for example, using a catalog price list). However, the non-traditional prime contractor is responsible for obtaining the minimum data necessary from subcontractors to support price reasonableness;

3. New limitations on the CO and the procuring agency on converting procurements from commercial to noncommercial such as a written determination by the head of the contracting activity for the conversion indicating an error for the earlier commercial determination based on inadequate information or other viable rationale AND an indication that the DOD will realize a cost savings if the procurement is treated as a noncommercial procurement;

4. The agency can rely on a prior commercial determination to serve as a determination for subsequent commercial procurements of that item;

5. IT procurements must be commercial item acquisitions unless not available on the open market;

6. The offeror must grant the CO the right to examine books and records before award to verify any request for any commercial item exception.

Logical progression:

1. Has the CO justified treating this procurement as one to a nontraditional defense contractor based on the abovementioned criteria;

2. Does the company qualify as a non-traditional defense contractor, standalone or as an affiliate to a traditional defense contractor;

3. Is the company selling a product or service to the US Government that is not technically a commercial product or service;

4. Does the company have established catalog prices or adequate information available to justify price to the Government and documentation to back up a fair price; and

5. Is the company willing to have its books examined to justify the price offered to the Government?

If this progression is satisfied, a company which has sold defense items to the US Government in the past can sell its non-commercial products to the US Government as a non-traditional defense contractor using commercial procurement procedures and relying on commercial procurement Parts of the applicable regulations (FAR and DFARS).