On Monday, DoD issued a final rule in a continuing effort to reduce the potentially inappropriate use of commercial item contracts. DFARS: Commercial Determination Approval, 77 Fed. Reg. 14,480, (Mar. 12, 2012) (to be codified at 48 C.F.R. pt. 212). The rule, most notably, modifies DFARS subpart 212.102 to require approval at the level above the contracting officer (CO) for many commercial item purchases exceeding $1 million.
The final rule responds to the Panel on Contracting Integrity’s 2009 Report to Congress recommendation for superior compliance with commercial item documentation requirements as found in PGI 212.102, a companion resource to the DFARs. Because of limited documentation, the Panel expressed concern regarding the CO’s establishment of “fair and reasonable” pricing for “of a type” and “offered for sale” commercial items. 2009 Report to Cong., Panel on Contracting Integrity, DoD Office of the Under Sec. of Def. (AT&L), at 20-1. The Panel did not discuss commercial services.
With Monday’s final rule, however, DoD may have impacted the future purchase of commercial services in an unintended way. Targeting “of a type” and “offered for sale” commercial items (as recommended by the Panel’s 2009 Report), DoD now requires higher-level approval of commercial item determinations that rely on subsections (1)(ii), (3), (4), or (6) of the commercial item definition at FAR 2.101. DFARS pt. 212.102(a)(i)(C). Subsection (6) concerns services “of a type offered and sold competitively in substantial quantities in the commercial marketing place” that have established prices for specific tasks or outcomes and are provided under standard commercial terms and conditions. The final rule also arguably reaches “ancillary” commercial services (such as installation, maintenance, repair, and training) through subsection (4), which identifies commercial items purchased in combinations. Most “ancillary” commercial services are likely to be purchased alongside another commercial item. Requiring higher-level approval for most commercial services over $1 million is an increased burden that may cause COs to avoid identifying service contracts as commercial item contracts.
Increased rigor regarding the appropriate use of commercial item contracts for “of a type” and “offered for sale” items is not surprising – the Panel on Contracting Integrity specifically recommended targeting such items. However, increased scrutiny over most commercial services does not appear to have been a clear target of the Panel or DoD, and results in a significant change to commercial item contracting procedures without opportunity for comment. Indeed, DoD appears to have failed to recognize the potential impact on commercial services as it proceeded directly to final rulemaking, stating “this rule does not have a significant effect beyond the internal operating procedures of DoD and does not have a significant cost or administrative impact on contractors or offerors.” Whether the effect of the final rule on commercial services proves significant will be seen.