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[Federal Register Volume 76, Number 75 (Tuesday, April 19, 2011)]
[Rules and Regulations]
[Pages 21810-21812]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8947]

[[Page 21810]]

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 202, 212, and 234

RIN 0750-AG23

Defense Federal Acquisition Regulation Supplement; Acquisition of 
Commercial Items (DFARS Case 2008-D011)

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

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SUMMARY: DoD is adopting as final, with minor editorial changes, an 
interim rule amending the Defense Federal Acquisition Regulation 
Supplement (DFARS) to implement sections 805 and 815 of the National 
Defense Authorization Act for Fiscal Year 2008.

DATES: Effective Date: April 19, 2011.

FOR FURTHER INFORMATION CONTACT: Mr. Manuel Quinones, telephone 703-
602-8383.

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD published an interim rule at 74 FR 34263 on July 15, 2009 to 
implement sections 805 and 815 of the National Defense Authorization 
Act (NDAA) for Fiscal Year 2008 (Pub. L. 110-181). A correction to the 
interim rule was published at 74 FR 35825 on July 21, 2009, to clarify 
the types of services to which this rule applies, consistent with 
subsections (c)(1)(A) and (c)(1)(C)(i) of section 805 of Public Law 
110-181. Section 805 specified when time-and-materials or labor-hour 
contracts may be used for commercial item acquisitions. Section 815 
provided clarification regarding situations under which a major weapon 
system, subsystems of major weapon systems, or components and spare 
parts for major weapon systems may be acquired using procedures 
established for the acquisition of commercial items. Section 815 also 
clarified that the terms ``general public'' and ``nongovernmental 
entities'', with regard to sales of commercial items, do not include 
the Federal Government or a State, local, or foreign government.

II. Discussion and Analysis

    Three respondents submitted comments on the interim rule, which are 
discussed below.

A. Contracting Officer Guidance for Drafting Solicitations

    Comment: One respondent stated that the final rule should provide 
guidance on how contracting officers can prepare solicitations that 
maximize the use of commercial items while obtaining sufficient 
information to conduct price analysis.
    DoD Response: The current provisions and clauses at DFARS 212.301 
provide appropriate guidance to the contracting officer to assist with 
the preparation of solicitations and contracts for commercial items. 
Contracting officers receive formal instruction and on-going assistance 
regarding how to conduct price analysis, to include guidance provided 
at PGI 215.404-1. Therefore, additional guidance is not required.

B. Clarify and Separate Commercial Item and Price Determinations

    Comment: One respondent stated that the rule should clarify that 
commercial item determinations are separate from pricing 
determinations.
    DoD Response: There is currently sufficient coverage in the FAR to 
assist contracting officers with making separate commercial and pricing 
determinations. Contracting officers have the appropriate tools to 
establish price reasonableness in accordance with FAR 13.106-3, FAR 
14.408-2, and FAR subpart 15.4. The FAR provides guidance to allow 
contracting officers, at their discretion, to request the offeror to 
submit prices paid for the same or similar commercial items under 
comparable terms and conditions by both Government and commercial 
customers. Additionally, to further assist the contracting officer when 
making a commercial item determination, FAR 12.209 instructs the 
contracting officer to be familiar with ``customary commercial terms 
and conditions when pricing commercial items.''

C. Submission of Pricing Information

    Comment: One respondent stated that FAR part 12 solicitations 
issued on a sole-source basis should specify that the pricing 
information is to be submitted with the proposal.
    DoD Response: It is at the discretion of the contracting officer to 
specify in the solicitation the manner in which pricing information is 
to be submitted.
    Comment: One respondent stated that it is not appropriate to issue 
a FAR part 15-type solicitation for commercial items and require the 
offeror to request an exception to the requirement to submit cost and 
pricing data.
    DoD Response: The contracting officer determines the appropriate 
process to utilize when acquiring products and services and may use FAR 
part 15-type solicitations for commercial items. However, the 
contracting officer may, at his or her discretion, use as appropriate 
the streamlined procedures at FAR subpart 12.6 to reduce the time 
required to solicit and award contracts for commercial items.

D. Exemption for Commercially-Available Off-the-Shelf (COTS) Items

    Comment: One respondent agreed that COTS items should not be 
subject to the procedures at DFARS 234.7002(b) and (c), and recommended 
adding a more explicit statement, as paragraph (e), that ``COTS items 
are exempt from the requirements of 234.7002.''
    DoD Response: DoD maintains that the inclusion of the parenthetical 
reference to a COTS is clear to the contracting officer and no 
additional statement is needed.

E. Define Component, Spare Part, Subsystem, and No or Negligible Value

    Comment: Three respondents requested that the terms ``component'' 
and ``spare part'' be defined. Two respondents requested that the 
phrase ``no or negligible value'' be defined and clarified and one 
respondent requested that the term ``subsystem'' be defined.
    DoD Response: The term ``component'' is defined at FAR 2.101. The 
term ``spare part'' is a commonly used term understood to mean any item 
that is supplied as a replacement part of an end item. The term 
``subsystem'' is also a commonly used term throughout the FAR and DFARS 
that denotes a functional grouping of lower-tier components that 
combine to perform a major function within an end item, such as 
electrical power, altitude control, or propulsion. DoD maintains that 
the phrase ``no or negligible value'' is self-explanatory and does not 
require further clarification.

F. Emphasize the Conditions for Limited Cost Information

    Comment: Two respondents stated the rule closely mirrors the 
legislative language and recommended that the final rule be amended to 
emphasize the conditions of the request for limited cost information.
    DoD Response: The underlying basis for the rule is the legislation, 
and when it is practical to do so, the implementing regulations will 
contain language that is drawn from the legislation that does not 
conflict with existing requirements established to ensure the 
government is receiving fair and reasonable prices. The contracting 
officer must make a determination that a component or spare part has 
been appropriately identified as a commercial item. The amount of cost 
information required by the contracting officer to make an evaluation 
about the component or

[[Page 21811]]

spare part is determined by the sufficiency of the information provided 
by the prime contractor. FAR subpart 15.4 currently provides the 
contracting officer with pricing policy and guidance regarding 
obtaining pricing data. Contracting officers will ask for information 
sufficient to determine if the price is fair and reasonable. Therefore, 
additional guidance is not required.

G. Exemption From DFARS 234.7002 for Previously Acquired of Spare Parts

    Comment: Two respondents requested clarification regarding how a 
procurement of spare parts should be handled if DoD procured a 
subsystem as a commercial item [using FAR part 12] years ago. 
Additionally, clarification was requested that DFARS 234.7002 does not 
apply to components or spare parts that have been previously procured 
under FAR part 12.
    DoD Response: DoD maintains that an item that was previously 
procured as a commercial item, and defined as such, will continue to be 
identified as commercial, unless there is a written determination by 
the contracting officer that the item no longer meets the commercial 
item definition. Though commercial items may evolve through technical 
or performance advances, these items are still able to meet the 
commercial item definition.

H. Price Determination for Subcontracts

    Comment: One respondent asked who makes the pricing determination 
if DoD is procuring through the subcontract. The respondent recommended 
that language be added that ``the prime contractor is responsible for 
determining reasonableness of price for components and spare parts 
under subcontracts.''
    DoD Response: The rule does not change the pricing determination 
procedures for subcontractors used by the contracting officer. In 
accordance with DFARS 244.402, prime contractors are responsible for 
determining whether a particular subcontract item meets the definition 
of a commercial item. This does not affect the contracting officer's 
responsibilities to determine price reasonableness of prime contractors 
and subcontractors at FAR 15.404-3. However, the contracting officer 
may provide assistance to prime contractors being denied access to 
lower-tier subcontractor records.
    Comment: One respondent suggested that applying the rule at lower 
tiers would be impracticable and could cause significant delays in the 
negotiation and award of subcontracts that could adversely impact 
performance of the prime contract.
    DoD Response: The definition of commercial items is not limited 
solely to items supplied directly from prime contractors. It also 
extends to commercial items acquired by the prime contractor to be sold 
to the Government from subcontractors at all tiers, including items 
transferred from a contractor's division, affiliates, or subsidiaries. 
The prime contractor has the responsibility to determine if a 
subcontracted item meets the definition of a commercial item, as 
defined in FAR 2.101.
    Comment: One respondent stated that the rule is in potential 
conflict with DFARS part 244. The respondent stated that if the rule 
applies to subcontracts, it would conflict with the language at DFARS 
244.402(a) that requires contractors to determine if the subcontract 
item meets the definition of a commercial item.
    DoD Response: The rule aligns with DFARS 244.402(a). It further 
supports the contracting officer's responsibility to make the 
commercial item determination for items acquired and the prime to flow 
this requirement down to subcontractors.

I. Procedures for Applying the Rule

    Comment: One respondent recommended that there be specific 
procedures for applying the rule.
    DoD Response: DoD maintains that the rule is clear in its 
implementation of the statute. It informs the prime contractor and the 
contracting officer of the procedures to be followed.
    Comment: One respondent recommended that the solicitation and 
contract clauses inform the contractor that the rule applies for 
procurements constituting a major weapon system.
    DoD Response: The rule at DFARS 234.7002(a) instructs the 
contracting officer that the acquisition of a major weapon system may 
be treated as a commercial item. The conditions required to make this 
determination are outlined in the DFARS for the contracting officer. 
Therefore, additional guidance is not required.
    Comment: One respondent requested that the contracting officer be 
prohibited from changing the determination unless there is a 
substantial change in the nature of the work performed by the 
subcontractor, if the item no longer meets the definition of commercial 
items.
    DoD Response: Contracting officers are required to fully and 
adequately document the contract file regarding the market research 
performed by the contracting officer as required by FAR 10.002(e). The 
contracting officer is required to provide the rationale supporting his 
or her determination that the commercial item definition at FAR 2.101 
was satisfied. Therefore, the contracting officer must follow the 
instructions regarding defining a commercial item from subcontractors. 
The contracting officer must document any changes that warrant the non-
applicability of the definition of commercial items.

J. Reference Procedures in FAR 15.4 and DFARS 215.4

    Comment: One respondent recommended that references to the 
procedures in FAR part 15.4 and DFARS 215.4 be included.
    DoD Response: The rule at DFARS 212.207(b)(iii)(B) refers the 
contracting officer to the procedures at FAR 15.4 if the services to be 
acquired are subject to FAR 15.4.

K. Contracting Officers Make Prompt Commercial Item Determination

    Comment: One respondent recommended that contracting officers be 
instructed to respond promptly to requests for determination if a 
proposed item is a commercial item, and to provide the reason if it is 
determined that the item is not commercial, to assist the contractor to 
resolve the matter. Another respondent recommended encouraging 
contracting officers and contractors to address requirements of the 
rule prior to award of the prime contract.
    DoD Response: FAR 2.101 defines a commercial item and provides the 
contracting officer instructions regarding how to determine whether or 
not an item is commercial. The commercial determination is made before 
contract award. This determination is based on market research, an 
analysis of the marketplace, and the Government's requirement. FAR part 
12 provides the contracting officer specific guidance, policies, and 
procedures regarding the acquisition of commercial items. The 
contracting officer works within the timeframe required to procure the 
item based upon the Government's need for the requirement.

III. Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety

[[Page 21812]]

effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. 
This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD certifies that this rule will not have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because the rule 
reinforces existing requirements for the appropriate use of commercial 
acquisition procedures and for ensuring that contract prices are fair 
and reasonable.

V. Paperwork Reduction Act

    The rule does not impose any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Parts 202, 212, and 234

    Government procurement.

Mary Overstreet,
Editor, Defense Acquisition Regulations System.

    Therefore, the Defense Acquisition Regulations System confirms as 
final the interim rule published at 74 FR 34263 on July 15, 2009, with 
the following changes:

0
1. The authority citation for 48 CFR parts 202, 212, and 234 continues 
to read as follows:

    Authority:  41 U.S.C. 1303 and CFR chapter 1.

PART 202--DEFINITIONS OF WORDS AND TERMS

Sec.  202.101  [Amended]

0
2. Section 202.101 is amended in the definition for General public and 
non-governmental entities by removing ``Section'' and adding in its 
place ``section''.

PART 212--ACQUISITION OF COMMERCIAL ITEMS

Sec.  212.207  [Amended]

0
3. Section 212.207 paragraph (b) introductory text is amended by 
removing ``Section'' and adding in its place ``section''.

[FR Doc. 2011-8947 Filed 4-18-11; 8:45 am]
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