The FAR Council has recently published two changes to commercial item contracting that clarify the definition of commercial services and simplify commercial item determinations (“CIDs”) for contracting officers (“COs”). Since the 1990s, the federal government has encouraged the purchase of commercial items to ease the regulatory burden on vendors who have not previously conducted federal business, encourage innovation, and lower prices[1]. These different objectives (cost savings, broadening markets, innovation) often have corollary policies; for example, vendors who are not accustomed to the regulatory burdens of government business are encouraged to enter the market by being exempted from a slew of regulations (found in standard commercial items clause FAR 52.212-4). As a result, the regulations applicable to commercial item contracting are those required by statute and executive orders in addition to generic commercial terms that may be tailored due to potential variation in commercial terms.[2]

Commercial Products v. Commercial Services

The first change, in effect since November 2021 pursuant to the 2019 National Defense Authorization (“NDAA”), split the old definition of “commercial item” into two separate definitions: “commercial product” and “commercial service.”[3] We are now blessed with the following definitions of commercial products and services, respectively:

Commercial product means—

(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;

(2) A product that evolved from a product 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;

(3) A product that would satisfy a criterion expressed in paragraph (1) or (2) of this definition, except 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;

(4) Any combination of products meeting the requirements of paragraph (1), (2), or (3) of this definition that are of a type customarily combined and sold in combination to the general public;

(5) A product, or combination of products, referred to in paragraphs (1) through (4) of this definition, even though the product, or combination of products, is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor; or

(6) A non-developmental item, if the procuring agency determines the product was developed exclusively at private expense and sold in substantial quantities, on a competitive basis, to multiple State and local governments or to multiple foreign governments.

FAR 2.101, definition of Commercial Product.

Commercial service means—

(1) Installation services, maintenance services, repair services, training services, and other services if–

(i) Such services are procured for support of a commercial product as defined in this section, regardless of whether such services are provided by the same source or at the same time as the commercial product; 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;

(2) 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. For purposes of these services–

FAR 2.101, definition of Commercial Service. While commentators have wondered about the usefulness of a definitional change, a CO for the DoD stated that the changes have helped COs interpret the regulations.  Regulatory clarification is usually a good thing.

Contracting Officers May Now Rely on Prior Commercial Item Determinations

In addition to clarification regarding commercial services, in April 2022, the FAR Council finalized regulations requiring Department of Defense (“DoD”) COs to search the DoD Commercial Item Database for the item to see if a determination has already been made:

Pursuant to 10 U.S.C. 3703(d)(1), the contracting officer may presume that a prior commercial item determination made by a military department, a defense agency, or another component of DoD shall serve as a determination for subsequent procurements of such item.[4]

First, it is clear from the language that the universe of relevant prior CIDs is limited to defense agencies. For example, a CID made by the General Services Administration (“GSA”) could not support a Part 12 procurement of the same item by the Department of the Navy.  However, if the prior CID is from a defense agency, it may serve as the determination for the item under procurement, eliminating the need for a duplicate CID.  In addition, if the Agency wishes to deviate from a prior determination—for example, if it was not adequately supported or the commercial market is no longer available—the contracting officer is required to request a written determination from the head of the contracting authority. However, and importantly, a determination that the prior use of FAR Part 12 procedures was appropriate does not need to be documented; a written determination is only required when “the prior use of FAR part 12 procedures was improper or […] it is no longer appropriate to acquire the item using FAR part 12 procedures, with a written explanation of the basis for the determination.”[5]

The absence of documentation for prior Part 12 determinations may complicate non-commercial vendors’ ability to scrutinize CIDs.  For example, currently, when making a CID, a contracting officer is required to research whether the item being procured is “of a type” as others sold in the commercial marketplace.[6] When a CID is based on this “of-a-type” logic, the CO is usually required to “[o]btain approval at one level above the contracting officer.”[7] This documentation requirement does not apply to procurements where the contracting officer has found a prior CID for the item.[8]  Can contracting officers use the “of-a-type” logic when searching the Commercial Items Database for a prior commercial procurement?  Doing so seems consistent with the policy governing commercial items, and a current DoD contracting officer confirmed that she utilizes the “of-a-type” logic when relying on a prior part 12 procurement.  On the other hand, this practice seems to conflict with the documentation requirements that apply to “of-a-type” determinations of commercial products and services.  The reliance of a prior determination for an item “of a type” to a current product—without documentation—may prejudice some contractors who would be unable to scrutinize such determinations in the administrative record should they believe a pre-award protest is necessary. Therefore, contractors should review the basis of such determinations if they wish to challenge a determination and to inquire about the basis for a determination that a product is commercial.

The regulations also reduced the dollar threshold required for a commercial item determination from $1,000,000 to the simplified acquisition threshold (currently $250,000).  This change will presumably increase the number of CID’s required, since it includes smaller dollar-value requirements, but it remains to be seen if the increase will be offset by the decrease in CID’s required due to reliance on prior determinations.  During a presentation at the ABA Public Contract Section in January 2023, I asked a contracting officer at DoD if she had seen an increase or decrease in CIDs required, and she said she had not; however, the effects of regulatory changes often take time to see.

Lastly, the policy that the federal government should acquire commercial items “to the greatest extent practicable” may provide a legitimizing incentivize for agencies to not adequately scrutinize the application of a prior CID to a current procurement.  While the DoD contracting officer I spoke with assured me that the COs conduct rigorous market research, it may be wise to put the onus on agencies to document their reliance on prior determinations.

If a non-commercial vendor disagrees with a CO’s determination that a procurement should be commercial, they should consult an attorney.  Peckar & Abramson’s Government Contracts attorneys are available to review and advise clients on pre-award solicitation terms to ensure these competitions are conducted fairly and in accordance with the law.

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[1] See Federal Acquisition Streamlining Act of 1994, Pub. Law 103-355; Clinger-Cohen Act of 1996, Pub. Law 104-106; the Federal Acquisition Regulation [“FAR”], Part 12. From the DoD Guidebook on Commercial Item Determinations (2019): [Benefits to Agencies include the] creation and integration of new technology; greater product availability and reliability; reduced acquisition cycle times; lower life cycle costs; increased competition, and an expanded pool of innovative and non-traditional contractors that seek to do business with DoD.

[2] See FAR 12.212-5, FAR 12.302.

[3] Federal Acquisition Regulation: Revision of Definition of “Commercial Item,” 86 Fed. Reg. 61,017.  In the civilian context, Part 12 requires that the contracting officer draft a determination and findings (“D&F”) noting that the item in question is a commercial item that should be purchased in accordance with FAR Part 12.  For military acquisitions, a contracting officer may assign matters to the Defense Contract Management Agency Commercial Items Group.

[4] DFARS 212.102(a)(ii)(B)(2); Defense Federal Acquisition Regulation Supplement: Commercial Item Determinations, 87 Fed. Reg. 25,141 (April 28, 2022).

[5] DFARS 212.102(a)(ii)(B)(2)(ii).

[6] The topic of type-identity generally is an interesting field of philosophy, and philosophers have proposed different conceptions of type-identity for millennia; there is still debate about what constitutes type-identity, but in these circumstances, we can rely on guidance provided in the DoD Guidebook for Acquiring Commercial Items, Part A: Commercial Item Determination, p. 21 (2018).

[7] DFARS 212.102(a)(iii)(C). The DFARS urges caution when documenting commercial item determinations based on “of a type” logic:

Particular care must be taken when documenting determinations involving items that are of a type customarily used by the general public or by nongovernmental entities, “modifications of a type customarily available in the marketplace.” […] In these situations, the documentation must clearly detail the particulars of the items and modifications of a type and sales offers. When such items lack sufficient market pricing information, additional diligence must be given to determinations that prices are fair and reasonable as required by FAR subpart 15.4.

[8] DFARS 212.102(a)(iii).