DOD Commercial Item Determinations – Challenges Exist for Effective Information Sharing

In fiscal year 2017, the Department of Defense (DOD) spent $53 billion on commercial item contracts, plus an undetermined amount through subcontracts. Given the price tag, Congress is interested in whether the DOD is effectively collecting and using information to inform their determinations of commercially available items and price reasonableness.

Congress established through the Federal Acquisition Streamlining Act of 1994 a preference within the federal government to procure commercial items rather than items developed exclusively for the government. Since then Congress has passed additional legislation to address various aspects of how DOD defines and purchases commercial items and how it makes commercial item and price reasonableness determinations.

Acting in its oversight role, the House Armed Services Committee asked the Government Accountability Office (GAO) to review DOD’s process to identify the factors that influenced DOD’s commercial item and price reasonableness determinations, and the extent to which DOD has taken steps to make information available to facilitate these determinations.

In general terms the Federal Acquisition Regulation (FAR) defines commercial items as those customarily used by and sold to the general public or require only minor modifications to meet DOD’s specific needs.

In a recently released report, Defense Contracts: Improved Information Sharing Could Help DOD Determine Whether Items Are Commercial and Reasonably Priced, GAO presented its findings and recommendations for DOD.

For the study GAO conducted case studies on a sample size of 15 contracts that were awarded between fiscal years 2010 and 2018 as well as interviewed officials from the Defense Contract Management Agency (DCMA) Commercial Item Group and reviewed the group’s publicly available database that centralizes commercial item information.

Key findings that GAO highlighted include the following:

• Required market information on specialized products may be hard to find, limiting DOD’s capacity to make informed determinations on price reasonableness.
• Contractors may be reluctant or unable to respond when DOD officials turn to them for information to aid commercial item determination and/or price determinations. Some information is considered proprietary or held by subcontractors.
• Additional effort by DOD may be needed to determine if a commercial item needs modification before it is DOD-ready. Completing a comparative analysis of commercial items to the modified item adds time, effort and cost.
• Prior commercial item determinations may not be valid and there is conflicting rules and opinions among contracting officers on how to handle such situations.

Limited DOD Strategy and Tools

While DOD has made efforts – both formal and informal – at information sharing in this area, no comprehensive information sharing strategy exists. In 2016, DOD established the Commercial Item Group (CIG) within the DCMA to provide recommendations on commercial item determinations. In 2017, the CIG created a publicly available database to centralize commercial item information across DOD. However, GAO found that this effort is still in its early stages – consisting of a spreadsheet primarily listing items that contracting officers have determined to be commercial. But not all COs have submitted their lists, so the data set is incomplete and includes only limited information. Also, DOD has not yet established who is responsible for the funding and upkeep of the information.

Recommendations

GAO recommended that DOD develop a strategy for how information related to commerciality and price reasonableness determinations should be shared across the department, including making improvements to the existing database and determining responsibilities for its funding and upkeep. DOD plans to begin acting on the recommendations within calendar 2018.

Contractor Implications

While any widespread impacts to contracting firms that sell commercial items to the DOD will lack uniformity and consistency in the absence of a formal and comprehensive DOD information sharing strategy, there are some things that firms may consider in anticipation for when that day comes.

Primes and subcontractors alike may look for ways to collect, organize and provide commercial item information in a way that protects the proprietary information of their firm and their partners. And it may not be necessary to categorize every bit of information on an invoice as proprietary. It would probably be beneficial for firms to begin thinking about how they could establish direct lines of information sharing with the DCMA’s CIG to limit risk of exposure. If the DOD were to take a new concerted action to thoroughly scrub invalid prior commercial item determinations from the books then affected firms may find it advantageous to be prepared with data in their own defense.

As the DOD and other federal agencies continue to look to commercially available items as a means to save money and increase effectiveness firms that offer these products will be well advised to monitor DOD policy and efforts in this area.