DEFENSE 

CONTRACTS

Improved Information 

Sharing Could Help 

DOD Determine 

Whether Items Are 

Commercial and 

Reasonably Priced

Report to the Chairman, Committee on 

Armed Services, House of 

Representatives

July 2018

GAO-18-530

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-18-530, a report to the 

Chairman, Committee on Armed Services, 

House of Representatives

July 2018

DEFENSE CONTRACTS

Improved Information Sharing Could Help DOD 

Determine Whether Items Are Commercial and 

Reasonably Priced

What GAO Found

The Department of Defense (DOD) has a process to determine if an item is 

available for purchase in the commercial marketplace at a reasonable price. 

Among selected case studies, GAO found four interrelated factors, each with its 

set of challenges that influenced how and whether DOD determines if an item is

commercial and if its price is reasonable. These factors are: 

• Availability of marketplace information: Market research is a key 

component that informs commercial item and price reasonableness 

determinations. However, GAO found that obtaining market-related 

information can be challenging because the products DOD requires may not 

be widely available in the commercial marketplace.

• Ability to obtain contractor data: When adequate market information is not 

available, DOD officials turn to the contractor for information to support the 

commercial item determination or data to make a price reasonableness 

determination. In the case studies GAO reviewed, most contractors provided 

relevant information, but not without delays and challenges. For example, 

while pricing data is key to DOD’s ability to determine price reasonableness,

several contracting officers reported that contractors were less willing to 

provide this data once an item was determined commercial.

• Extent of modifications to an item: When a commercial item must be 

modified to meet DOD’s requirements, DOD officials may have to take 

additional steps, such as completing a comparative analysis of commercial 

items to the modified item. For example, in one case, a commercial 

navigation system had to be modified to withstand an explosion. To make the 

commercial item determination DOD officials had to make an on-site visit to 

the manufacturer to gain in-depth understanding of the services provided and 

to ensure they met DOD requirements. 

• Reliability of prior commercial item determinations: Contracting officers 

may presume that an item is commercial if a DOD component had previously 

made that determination. However, GAO found that, in some cases, 

contracting officers reviewing a prior determination discovered that it was 

based on inaccurate information. 

DOD has taken steps to share more information across the department to inform 

these determinations, but efforts are in early stages of development or informal. 

No comprehensive information sharing strategy exists. In 2016, DOD established 

the Commercial Item Group within the Defense Contract Management Agency to 

provide recommendations on commercial item determinations. This group 

created a publicly available database to centralize commercial item information 

across DOD. However, this effort is incomplete. Also, according to DOD officials,

they have not yet established who is responsible for the funding and upkeep of 

the information. Additionally, GAO case studies included instances where 

informal information sharing resulted in better outcomes, such as a lower price. 

Creating more opportunities to share information internally is crucial for DOD to 

facilitate a timely and efficient process in making these determinations and 

ensuring the best financial outcome for the government. 

View GAO-18-530. For more information, 

contact William T. Woods at (202) 512-4841 or 

woodsw@gao.gov.

Why GAO Did This Study

DOD buys goods and services from 

the commercial market to take 

advantage of new innovations and 

save on acquisition costs. However, 

the department’s process for 

determining whether an item can be 

purchased commercially—and, at a fair 

and reasonable price—can be long 

and challenging in certain situations.

GAO was asked to review this process.

This report identifies (1) factors that 

influenced DOD’s commercial item and 

price reasonableness determinations, 

and (2) the extent to which DOD has 

taken steps to make information 

available to facilitate these 

determinations.

To conduct this work, GAO examined 

federal regulations and guidance and

selected case studies, which included

a non-generalizable sample of 15

contracts awarded between fiscal 

years 2010 and 2018. GAO identified 

the case studies based on input from 

multiple sources that those contracts

involved commercial item or price 

reasonableness determination 

challenges. GAO interviewed 

government and contractor officials

responsible for those contracts.

What GAO Recommends

GAO recommends 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 agreed with GAO’s 

recommendation and stated that 

actions will be taken starting in 2018 to 

address it.
Page i GAO-18-530 Defense Contracts

Letter 1

Background 3

Case Studies Identified Four Interrelated Factors That Influenced 

Commercial Item and Price Reasonableness Determinations, 

but Generally Did Not Delay Awards 8

Both Formal and Informal Information Sharing Efforts Exist, but 

With No Comprehensive Strategy 17

Conclusions 20

Recommendation for Executive Action 20

Agency Comments 21

Appendix I Objectives, Scope, and Methodology 22

Appendix II DOD General Process for Making Commercial Item and Price 

Reasonableness Determinations 24

Appendix III Comments from the Department of Defense 26

Appendix IV GAO Contact and Staff Acknowledgments 30

Table

Table 1: The Department of Defense’s (DOD) General Process 

and Selected Requirements for Making Commercial Item 

and Price Reasonableness Determinations 24

Figure

Figure 1: General Overview of the Department of Defense’s 

Process for Making Commercial Item and Price 

Reasonableness Determinations 6

Contents
Page ii GAO-18-530 Defense Contracts

Abbreviations

DCAA Defense Contract Audit Agency

DCMA Defense Contract Management Agency

DLA Defense Logistics Agency

DFARS Department of Defense Federal Acquisition

 Regulation Supplement

DOD Department of Defense

FAR Federal Acquisition Regulation

FPDS-NG Federal Procurement Data System-Next

 Generation

GPS Global Positioning System

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-18-530 Defense Contracts

441 G St. N.W.

Washington, DC 20548

July 31, 2018

The Honorable William M. “Mac” Thornberry

Chairman

Committee on Armed Services

House of Representatives

Dear Mr. Chairman:

The Department of Defense (DOD) purchases commercial items to meet 

many of its requirements in fulfilling its mission. In fiscal year 2017, the 

department spent $53 billion on commercial item contracts plus an 

unknown amount through subcontracts. Generally, items are considered 

commercial if they—or something similar—already exist in the 

marketplace or require few modifications to meet DOD’s specific needs.1

Purchasing commercial items enables DOD to take advantage of market 

innovations, increase its supplier base, and reduce acquisition costs. 

Contractors also prefer to sell products and services as commercial items 

because there are fewer government-specific contractual requirements, 

reduced costs and risks associated with government-unique 

specifications, and fewer auditing requirements than for other types of 

procurements.

The process to purchase commercial items can be relatively 

straightforward when the item or service procured is clearly commercial 

and a robust market of competitors exists, such as when buying a 

computer. However, some commercial item procurements can be more 

involved, such as buying a computer that has a case ruggedized for use 

in harsh conditions. This report focuses on these more complex 

procurements, and the issues that arise with them. Contractors and DOD 

have noted that in some cases, for instance when the item must be 

modified for DOD’s use and is not competitively procured, the acquisition 

process has presented challenges. As we found in July 2017, companies 

that have not traditionally done business with DOD view DOD’s workforce 

as inexperienced in making commercial item and price reasonableness 

 1

The commercial item definition includes items customarily used by and sold (or offered 

for sale) to the general public, including products with minor modifications. For a complete 

definition of commercial item, see FAR § 2.101.

Letter
Page 2 GAO-18-530 Defense Contracts

determinations and view this as a challenge to entering the DOD arena.2

The DOD Office of Inspector General has reviewed the process of 

determining a fair and reasonable price on selected sole-source 

commercial spare parts contracts and found that on these contracts 

contracting officers accepted the contractors’ pricing without performing a 

sufficient price analysis.3

You asked us to review DOD’s process for acquiring commercial items. In 

this report we (1) identify factors that influenced DOD’s process for 

making commercial item and price reasonableness determinations, and 

(2) assess the extent to which DOD has taken steps to make information 

available to help make these determinations.

To identify factors that influenced DOD’s process for acquiring 

commercial items and to assess what DOD has done to make information 

available, we examined the Federal Acquisition Regulation (FAR), the 

Department of Defense Federal Acquisition Regulation Supplement 

(DFARS), and associated DOD guidance. We also reviewed a 

nongeneralizable sample of 15 contracts awarded between fiscal years 

2010 and 2018, and interviewed government officials involved with these 

contracts at the Air Force, Army, Navy, and the Defense Logistics Agency 

(DLA) as well as contractors. These contracts represent both products 

and services, and were selected because they had been previously 

identified as contracts that involved difficulties in making commercial item 

determinations by one or more of the following entities: the military 

services, the Defense Contract Management Agency (DCMA), 

contractors, or through previous GAO work. We selected these contracts 

to gain insight into why these difficulties occurred. We interviewed officials 

from the DCMA Commercial Item Group and reviewed the group’s 

publicly available database that centralizes commercial item information. 

 2

GAO, Military Acquisitions: DOD Is Taking Steps to Address Challenges Faced by 

Certain Companies, GAO-17-644 (Washington, D.C.: July 20, 2017)

3

Department of Defense, Office of Inspector General, Defense Logistics Agency Did Not 

Appropriately Determine Fair and Reasonable Prices for F108 Engine Sole-Source 

Commercial Parts, DODIG-2016-047 (Alexandria, Va: Feb. 16, 2016); Defense Logistics 

Agency Did Not Obtain Fair and Reasonable Prices From Meggitt Aircraft Braking 

Systems for Sole-Source Commercial Spare Parts, DODIG-2015-120 (Alexandria, Va: 

May 8, 2015); and Defense Logistics Agency Aviation Potentially Overpaid Bell Helicopter 

for Sole-Source Commercial Spare Parts, DODIG-2014-088 (Alexandria, Va: July 3, 

2014). The Defense Logistics Agency did not agree with all of the findings and noted that 

its contracting officers followed the price analysis steps in the Federal Acquisition 

Regulation (FAR) to determine a fair and reasonable price.
Page 3 GAO-18-530 Defense Contracts

Additionally, we discussed the management and funding of the database 

with the Office of Defense Procurement and Acquisition Policy. See 

appendix I for more details on our objectives, scope, and methodology.

We conducted this performance audit from July 2017 to July 2018 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The Federal Acquisition Streamlining Act of 1994 established a 

preference within the federal government to procure commercial items 

rather than items developed exclusively for the government.4 Between 

fiscal years 2013 and 2018, Congress passed additional legislation to 

address various aspects of how DOD defines and purchases commercial 

items, and how DOD makes commercial item and price reasonableness 

determinations.5 For example, legislation passed in 2015 included a 

provision stating DOD contracting officers may presume that previously 

established commercial item determinations shall serve as determinations 

for future procurements of an item.6 The law further stipulated that if a 

 4

Federal Acquisition Streamlining Act of 1994, Pub. L. No. 103-355, § 8104 (Oct. 13, 

1994). See 10 U.S.C. § 2377. This legislation is reflected in FAR Part 12—Acquisition of 

Commercial Items—which implements the Federal Government’s preference for the 

acquisition of commercial items and prescribes the policies that apply to commercial item 

acquisitions. For example, contracting officers can use streamlined solicitation 

procedures, which can reduce the time needed to solicit offers. See FAR § 12.603.

5

See, for example, GAO, Defense Contracts: Recent Legislation and DOD Actions 

Related to Commercial Item Acquisitions, GAO-17-645 (Washington, D.C.: July 17, 2017). 

This report summarizes the legislative changes through fiscal year 2017. As of July 2018, 

not all of these legislative changes had been implemented in regulation. In 2018, DOD 

issued a final rule amending the DFARS to implement sections of the National Defense 

Authorization Acts for fiscal years 2013, 2016, and 2018 relating to commercial item 

acquisitions. See 83 FR 4431 (Jan. 31, 2018). See also National Defense Authorization 

Act for Fiscal Year 2013, Pub. L. No. 112-239, § 831 (Jan. 2, 2013); National Defense 

Authorization Act for Fiscal Year 2016, Pub. L. No. 114-92, §§ 851-853, 855-857 (Nov. 25, 

2015); National Defense Authorization Act for Fiscal Year 2018, Pub. L. No.115-91, § 848

(Dec. 12, 2017).

6

See Pub. L. No. 114-92 § 851(b). See also DFARS § 212.102. The presumption applies 

to commercial item determinations made by a military department, a Defense Agency, or 

another DOD component.

Background
Page 4 GAO-18-530 Defense Contracts

prior determination is not used for an item previously determined to be 

commercial, the contracting officer must request a review by the head of 

the contracting activity to either confirm that it is still valid or issue a 

revised determination.

In January 2018, DOD revised its regulations and corresponding 

procedures, guidance, and information related to the procurement of 

commercial items to reflect recent legislative changes.7 The DFARS was 

updated to provide guidance to contracting officers for making price 

reasonableness determinations, promote consistency in making 

commercial item determinations (including updating guidance regarding 

the use of prior determinations), and expand opportunities for 

nontraditional defense contractors to do business with DOD. The 

department also updated its Guidebook for Acquiring Commercial Items, 

which includes information on how to define, determine, and price 

commercial items, to reflect the regulatory changes.8 Also in January 

2018, a DOD advisory panel established to help streamline the defense 

acquisition process released a report with recommendations to revise 

definitions related to commercial buying and minimize government-unique 

terms applicable to commercial buying.9

During the pre-award process for commercial procurement actions over 

$1 million, two distinct determinations take place:

1. a contracting officer must determine in writing whether a product or 

service being procured is commercial, and

2. the contracting officer must determine if the offered price is fair and 

reasonable.

 7

See 83 FR 4431 (Jan. 31, 2018) describing the regulatory implementation of sections of 

the National Defense Authorization Acts for fiscal years 2013, 2016, and 2018.

8

See Department of Defense, Office of the Secretary of Defense Acquisition, Technology, 

and Logistics, Department of Defense Guidebook for Acquiring Commercial Items, Part A: 

Commercial Item Determination (January 2018). 

9

Section 809 Panel, Report of the Advisory Panel on Streamlining and Codifying 

Acquisition Regulations Volume 1, (Arlington, Va: Jan. 31, 2018).

DOD Process for Making 

Determinations When 

Acquiring Commercial 

Items
Page 5 GAO-18-530 Defense Contracts

According to the DOD Guidebook for Acquiring Commercial Items, the 

government’s ability to acquire affordable products and services 

significantly improves when contracting officers have in-depth knowledge 

of the market. The guidebook establishes that market research should be 

an ongoing effort throughout the commercial item procurement process 

to: (1) identify the industry and market for capabilities or technologies; (2) 

identify prices at which the capabilities or technologies have been sold or 

offered for sale; and, (3) continuously capture market information at 

different points to ensure the best acquisition. When determining a fair 

and reasonable price, market research should be conducted in order to 

compare the proposed price to market pricing. Figure 1 illustrates the 

process contracting officers generally follow to make commercial item and 

price reasonableness determinations for more complex procurements.
Page 6 GAO-18-530 Defense Contracts

Figure 1: General Overview of the Department of Defense’s Process for Making 

Commercial Item and Price Reasonableness Determinations for More Complex 

Procurements

The contracting officer is ultimately responsible for making these 

determinations, but, as appropriate, he or she may seek the assistance of 

the Defense Contract Audit Agency (DCAA), military service 
Page 7 GAO-18-530 Defense Contracts

organizations such as the Navy Price Fighters or the Air Force Pricing 

Center of Excellence, or the DCMA Commercial Item Group.10

The DCMA Commercial Item Group, which became operational in 2016, 

provides recommendations on commercial item determinations within 

DOD. It has created six Commercial Item Centers of Excellence, each of 

which has its own area of market expertise, to assist contracting officers 

in making timely and consistent commercial item determinations. These 

centers are staffed with engineers and price/cost analysts who advise and 

make recommendations on commerciality based on market analysis, 

commercial item reviews and determinations, and commercial pricing 

analysis. Additionally, the centers provide training and assistance to the 

DOD acquisition community on various techniques and tools used to 

evaluate commercial items and commercial item pricing.

In order to make a commerciality determination, contracting officers may 

need information specifying whether the items have been sold or offered 

for sale to the general public. And, as noted above, the contracting officer 

must determine that the government is getting a fair and reasonable 

price. Some of this information may be acquired through market research; 

however, as appropriate, the contracting officer may require or request 

that the contractors submit information, such as price lists and sales 

invoices, with their offers or during the evaluation. For more details on the 

information and data required for commercial item and price 

reasonableness determinations at different times in the procurement 

process, see appendix II.

 10Separately, contractors assert the commerciality and price reasonableness for 

subcontractor items. Although the contractor’s assertion is labeled as a “determination”

under the applicable regulations, for the purposes of this report, we refer to it as an 

“assertion” in order to distinguish these actions from the contracting officer’s 

determination. See DFARS §§ 244.303(a), 244.402(a). Contractors may reach out to the 

contracting officer for assistance if they have difficulty obtaining subcontractor data.
Page 8 GAO-18-530 Defense Contracts

In the case studies we examined, we found four interrelated factors that 

influenced how DOD determines if an item is commercial and whether the 

price is fair and reasonable, and that each factor had its own set of 

challenges:

• Availability of marketplace information

• Ability to obtain contractor data

• Extent of modifications to an item needed to satisfy DOD 

requirements

• Reliability of prior commercial item determinations

Despite these challenges, contract award was not typically delayed. In 

other cases where DOD was not able to obtain the information or data it 

needed to make a determination, the department’s options, such as not 

awarding the contract or exploring other suppliers, were often not feasible 

because DOD was working in a sole-source environment and not 

procuring the item was not an option.

When there is a healthy marketplace of items and services that the 

government wants to buy, contracting officers can more readily support 

their commerciality and price reasonableness determinations. However, 

in our review, we identified cases in which limited market information 

made such determinations more involved. For example, the Army was 

working with a contractor to acquire repair and upgrade services for 

navigation systems. The contractor said the services were commercial, 

but when the contracting officer conducted market research to determine 

the commerciality of the services, she found no similar services available 

in the commercial market. According to a contracting official, the Army’s 

particular units had to be nuclear hardened to withstand an explosion and 

needed some functional interfaces added, which made finding a similar 

commercial service difficult. In the end, the DCMA’s Commercial Item 

Group officials completed an on-site review of the manufacturing process 

to gain an in-depth understanding of the services provided. Using this 

additional information, the contracting officer deemed the services 

commercial.

In contrast, for a previous report on commercial item acquisitions, we 

reviewed selected Air Force contracts for information technology services 

Case Studies 

Identified Four 

Interrelated Factors 

That Influenced 

Commercial Item and

Price 

Reasonableness 

Determinations, but 

Generally Did Not 

Delay Awards

Limited Market Information 

Can Complicate 

Contracting Officers’

Commercial Item and 

Price Reasonableness 

Determinations
Page 9 GAO-18-530 Defense Contracts

and video teleconferencing design and installation.11 Because these items 

and services are available in the commercial marketplace, the availability 

of information helped the contracting officers efficiently determine that the 

items were commercial and that the prices were fair and reasonable.

Contracting officials from our case studies had difficulty obtaining 

information from contractors after they could not find adequate 

information in the marketplace. This difficulty occurred for a number of 

reasons, including the contractor’s own challenges in obtaining 

information from their subcontractors. While several of the contracts we 

reviewed showed that either the prime contractor or subcontractor 

eventually provided sufficient information, obtaining this information was 

not without difficulties. For example:

• In a $1.7 billion Army sole-source contract for helicopter engines, the 

prime contractor asserted that two small engine parts—provided by a 

subcontractor—were commercial, but did not provide any documents 

to support its assertion. After several requests for information on 

commercial sales data, the prime contractor provided invoices for a 

commercial engine that contained similar engine parts. The prime 

contractor representative told us the reason it took so long to provide 

the requested information was because the subcontractor would not 

provide commercial sales data. As a result, the prime contractor 

needed to research commercial engines that used similar parts in 

order to support the commerciality assertion.

• In an $873 million Air Force sole-source contract for aircraft engines, 

the contracting officer had difficulty obtaining commercial sales data 

through market research for engine castings. The prime contractor did 

not initially provide support for its assertion that the castings were 

commercial, stating that it had difficulty obtaining supporting 

information from its subcontractor. Air Force officials visited the 

subcontractor’s facility to determine that the item was a modified 

version of a commercial item and was therefore commercial.

• In a $53 million Navy sole-source contract for KC-130J aircraft 

propeller engineering and sustainment services, the contracting officer 

told us she had difficulty determining if the proposed prices for these 

commercial services were fair and reasonable because the contractor 

provided invoices with the prices redacted. After several months of 

 11 GAO-17-645.

Obtaining Information from 

Contractors and 

Subcontractors Can Be 

Challenging
Page 10 GAO-18-530 Defense Contracts

back and forth, the contractor provided unredacted invoices for similar 

services, which the contracting officer used to determine price 

reasonableness. A contractor representative told us that the 

contractor initially provided the redacted invoices in order to quickly 

respond to the Navy’s request for information, but that additional time 

was needed to evaluate if releasing the unredacted price information 

would violate a contractual agreement the contractor had with its 

suppliers.

In other cases, the contractor provided information or data that the 

contracting officer considered insufficient to support a commercial item or 

price reasonableness determination.12 For example:

• In an F-15 aircraft production contract, Air Force contracting officials 

had difficulty determining whether the prices of oil bypass valves were 

fair and reasonable due to redactions in data the subcontractor 

provided. The subcontractor’s proposed price was four times more 

than it had previously charged the government for the same item, 

according to contracting officials. To support its prices, the 

subcontractor provided a commercial price list and customer invoices 

with redacted customer information, which the subcontractor 

considered to be proprietary. According to contracting officials, the 

redacted invoices did not provide enough detail to confirm whether 

non-governmental end users were paying a price similar to the 

proposed price in the Air Force contract. The subcontractor 

subsequently provided a customer list associated with the redacted 

invoices. Also, while the subcontractor showed that its proposed price 

was lower than its commercial price list, contracting officers did not 

consider subcontractor-provided support sufficient to explain why the 

proposed price was higher than what the government had previously 

paid. According to contracting officials, the prime contractor absorbed 

the price difference between the subcontractor’s proposed price and 

what the Air Force paid for the valves.

• On a $2 million Army task order for navigation software upgrades on 

Global Positioning System (GPS) units used in missiles, the DCMA 

Commercial Item Group obtained redacted invoices and quotes from 

a subcontractor to determine commerciality. But this information did 

not provide enough detail to substantiate the commerciality 

determination. A subcontractor representative told us that the 

company provided redacted information to the government because 

 12Ultimately, the contracting officer was able to make commercial item and price 

reasonableness determinations in these cases. 
Page 11 GAO-18-530 Defense Contracts

contractual agreements with its customers required them to not reveal 

the customer name. After evaluating multiple factors, the DCMA 

Commercial Item Group concluded that the GPS units did not match 

the form, fit, or function of the commercial ones, and recommended 

that this service and item were not commercial.

Contractor representatives cited multiple reasons why they were unable 

to provide data (see text box).

Examples of Reasons Contractors Cited for Not Providing Data:

• One prime contractor told us that some subcontractors are 

unwilling to provide information, such as unredacted invoices, to 

them and therefore prime contractors cannot provide this 

information to the government.

• Some subcontractors we interviewed explained that certain 

information, such as customer names and prices paid in invoices, 

is considered proprietary data.

• One subcontractor representative said that while the company 

cannot provide unredacted invoices to a prime contractor, it is 

willing to provide this information directly to the government, such 

as the DCMA Commercial Item Group, which can verify the 

content of the invoices at the contractors’ facilities.

Source: GAO-18-530

Additionally, one contractor representative told us that when a previously 

determined commercial item is later determined noncommercial, specific 

cost or pricing data can be difficult to gather for companies that operate 

primarily in the commercial market. This is because these companies 

were not previously required to collect and provide this cost or pricing

data to the government. For example, the subcontractor that produces an 

item for the Army told us that this item had been previously purchased by 

the government on a commercial basis under an agreement that was later 

canceled in 2014. When the government later determined this item was 

noncommercial, the subcontractor had difficulty providing detailed cost 

data for the government’s units because they are procured on the same 

manufacturing line as their commercial units. According to contractor 

officials, the costs for subcomponents and labor hours for engineers that 

work on these units are pooled together with cost for the commercial 

business.
Page 12 GAO-18-530 Defense Contracts

A contracting officer’s ability to obtain data is further affected once an 

item has been deemed commercial. Several contracting officers told us 

that once an item is determined commercial, contractors are less willing 

to provide any pricing data. While certified cost and pricing data cannot 

be required, the government can request uncertified data if needed to 

make a price reasonableness determination. As previously noted, we 

found cases in which contractor-provided information included redacted 

invoices as evidence that an item was commercial. When the government 

later requested uncertified cost and pricing data to determine price 

reasonableness—after exhausting government and public market 

research resources—the contractors were not willing or able to provide 

the data.

13 In most cases contractors eventually provided data after 

multiple requests.

Our case studies showed that determining commerciality and price 

reasonableness for items that are modified from the commercial variant

can be difficult, in part, because what can be deemed ‘a minor 

modification’ is subject to interpretation.14 The commercial item definition 

includes some types of commercial items that have minor modifications 

not customarily available in the commercial marketplace, but that are 

made to meet federal government requirements. For our case studies, 

when prime contractors or subcontractors claimed a modified item was 

commercial, contracting officers had to take extra steps to determine 

whether the commerciality assertions appropriately met the commercial 

item definition, such as completing a comparative analysis of commercial 

items to the modified item.15 However, determinations in our case studies 

were challenging to make because the items were generally acquired 

 13We found similar instances of subcontractors not providing requested information to 

prime contractors to make both commercial item determinations and price reasonableness 

determinations.

14FAR § 2.101. The definition of “commercial item” in the FAR defines “minor 

modifications” as those that do not significantly alter the nongovernmental function or 

essential physical characteristics of an item or component, or change the purpose of a 

process. In determining whether a modification is minor, contracting officers should 

consider the value and size of the modification in comparison to the final product. Further, 

the FAR allows contracting officers to use dollar values and percentages as guideposts, 

but not as conclusive evidence that a modification is minor.

15Prime contractors make a commercial item assertion on whether subcontractor 

commerciality claims meet the commercial item definition, but this does not affect the 

contracting officers’ responsibilities or determinations made under FAR § 15.403-1(c) (3). 

See DFARS § 244.402(a). 

Modified Items Require 

Additional Steps
Page 13 GAO-18-530 Defense Contracts

through sole-source procurements and had no identified commercial 

market. This made it more difficult for the contracting officer to make a 

determination based on market research.

• In one of our case studies, there was a difference of opinion within 

DOD as to whether a modified item was commercial. The prime 

contractor for an Army sole-source contract procuring modified fuel 

systems to meet military safety, crashworthiness, and ballistic 

tolerance requirements for Blackhawk helicopters claimed that its 

modified fuel system was a commercial item. However the contracting 

officer found no commercial market existed for this item so the 

contracting officer had to take additional steps. To make a 

commerciality determination, the contracting officer sought assistance 

from the DCMA Commercial Item Group, which recommended that 

the fuel system was not commercial. The contracting officer submitted 

a request to waive the requirement for certified cost or pricing data. 

The DOD official reviewing the waiver request discovered that the fuel 

system had previously been determined commercial for another 

helicopter program and the Director of Defense Pricing concurred with 

that commerciality determination.

Some of our case studies exhibited challenges related to prior 

commercial item determinations:

• The Navy contracted for a radio used in a variety of aircraft throughout 

DOD. The contracting officer stated that the radio had been 

considered commercial for 20 years. However, for the most recent 

follow-on contract the contracting officer, who was new to the 

program, reviewed the prior determination and found it to be in error. 

In the prior determination the radio was compared to another radio 

considered noncommercial. As part of his review for the new 

determination, the contracting officer consulted with Air Force officials 

because they procure the same radio for some of their aircraft 

programs. The contracting officer ultimately determined that the radio 

was, in fact, commercial by comparing it—at the suggestion of the Air 

Force—to a different radio with similar features that is sold 

commercially to the public. According to the contracting officer, the 

Navy also benefited because the radio they had purchased for 20 

years was also cheaper and more capable than the one that was sold 

commercially, to which it was compared.

• For a $2.5 billion Air Force sole-source contract, the prime contractor 

asserted that a cargo part, called a winch—which had previously been 

sold to the government as a commercial item—was commercial. 

Contracting Officers Found 

Prior Commercial Item 

Determinations Not 

Always Accurate
Page 14 GAO-18-530 Defense Contracts

However the contracting officer reviewed the support for the prior 

commercial item determination and found it was based on sales to a 

holding company for a foreign government.16 Additional information 

requested and received included catalog prices and the invoice to the 

foreign holding company. The contracting officer determined this 

support was not sufficient for determining commerciality because 

sales to foreign governments were not considered commercial sales. 

Additionally, market research did not yield any commercial sales or 

evidence that the part was sold in the commercial marketplace. The 

part was determined noncommercial.

The National Defense Authorization Act for Fiscal Year 2016 states 

contracting officers may presume a prior commercial item determination 

made by a DOD component shall serve as a determination for 

subsequent procurements of an item.17 In fact, if a previous determination 

is not used, a contracting officer must request that the head of the 

contracting activity review the prior determination and either confirm its 

validity or issue a revised determination. Most contracting officers with 

whom we spoke indicated that prior determinations should be reviewed to 

determine if they were made under similar terms and conditions and 

whether circumstances have changed since the determinations were 

made. We found diverse opinions among contracting officers on whether 

they would elevate concerns about a previous determination to the head 

of the contracting activity. Some contracting officers said they would 

elevate the determination if they had supporting data while others would 

be hesitant under most circumstances due to the extensive process 

involved.

 16At the time this Air Force contract was awarded, sales to foreign governments did not 

constitute commercial sales. Section 847 of the fiscal year 2018 NDAA modified the 

definition of “nondevelopmental item” under “commercial item” to include sales “to multiple 

foreign governments.” See Pub. L. No. 115-91, § 847; 41 U.S.C. § 103(8). As of July 

2018, this change has not been implemented in the FAR. See FAR § 2.101.

17See Pub. L. No 114-92, § 851. See also 10 U.S.C.§ 2306a(b)(4). Section 848 of the 

fiscal year 2018 NDAA further states that the DOD’s acquisition of an item through 

commercial item procedures, FAR Part 12, is required to serve as a prior commercial item 

determination unless the senior procurement executive of the military department or DOD, 

as designated, determine in writing that acquiring the item using commercial item 

acquisition procedures is no longer appropriate. See Pub. L. No.115-91, § 848; 10 U.S.C. 

§ 2380. As of July 2018, this section has not been implemented in DOD’s regulations. See 

DFARS Case No. 2018-D016.
Page 15 GAO-18-530 Defense Contracts

Despite the different factors involved, for most of our case studies, 

challenges in making the commercial item and price reasonableness 

determinations did not ultimately affect the government’s ability to award 

the contract as planned. The time it took for the contractor to provide 

information to the government and the government to make a 

determination ranged from a few days to over a year. In most of our case 

studies, contracting officials said that this time did not solely affect the 

contract award because other factors, such as staff changes or awarding 

multiple contracts at the same time, also delayed the process.

However, in two of our 15 cases, contracting officers told us they were 

delayed in awarding contracts when the contractor did not provide the 

requested information in the anticipated timeframe. In one example, an 

Army contracting official told us that a contract award was delayed when 

a subcontractor did not provide information to the contractor to support its 

commerciality assertion. The contracting officer noted that this delay also 

placed the program at risk of a funding loss because the service 

reallocated funding to another program that it viewed as less risky.

Finally, contractors told us that they have taken steps to improve how 

they assert the commerciality of their items. For example, several 

contractors now use standardized forms to make commercial item 

assertions and keep prior assertions in a centralized place. Several 

contractor representatives we spoke with also told us that they have an 

internal panel of experts review commercial item and price 

reasonableness assertions to ensure consistency and that the assertions 

meet federal regulations. The contractors’ hope is that these forms and 

processes will help reduce the back and forth in requesting information 

among the government, prime contractor, and subcontractors. In addition, 

some contractor representatives told us that they work with the DCMA 

Commercial Item Group to better understand what information contracting 

officers are requesting and to obtain assistance with subcontractors that 

are unwilling to provide information to the prime contractor.

Challenges in Making 

Commercial Item and 

Price Reasonableness 

Determinations Did Not 

Typically Delay Contract 

Award
Page 16 GAO-18-530 Defense Contracts

Some contracting officials told us that they have few options at their 

disposal when they have difficulty obtaining information from the 

contractor to make a commercial item or price reasonableness 

determination in a sole-source environment. For example:

• For a $2 million Army task order for engineering services to upgrade 

navigation software and several GPS units with these upgrades, the 

contracting officer stated that procuring from an alternative source 

was not an option because this GPS was unique to the program and 

qualifying a different GPS would cost an estimated $50 million.

• In a nearly $2 million sole-source delivery order for Blackhawk

helicopter fuel tanks, the Army contracting official told us that the 

program needed this fuel tank because the tank’s configuration was 

specific to the helicopter. As a result, the contracting official said they 

could not walk away from the contractor. The contracting official 

further noted that certifying an item from a second source would be 

cost and time prohibitive for the government.18

Although in most of our sole-source case studies other options (e.g., 

contracting with a different vendor) were not viewed as being feasible, we 

did have one case where DOD made the choice to not award a contract, 

when the government and contractor could not agree on a reasonable 

price. DLA wanted to negotiate a long-term contract for night vision 

goggles, but after the contracting officer made repeated attempts to 

obtain data from the contractor, they could not agree on a fair and 

reasonable price. The prices were over 45 percent higher than prices that 

DLA had previously paid for the same item. As a result, the acquisition 

was canceled, and according to the contracting officer, the government 

plans to buy quantities as needed through an existing vehicle.

Another option is to elevate issues to DOD management, which can make 

a determination on whether an item is commercial and is being offered at 

a fair and reasonable price.19

• One example from our case studies includes a $1.7 billion Army sole 

source contract for helicopter engines. The contractor asserted 

 18Ultimately, the contracting officers in both cases were able to make commercial item and 

price reasonableness determinations and award the contracts based on additional 

information.

19In this case, DOD management refers to the Director Defense Pricing and not the head 

of the contracting activity.

When Information Needed 

to Make Commercial Item 

and Price 

Reasonableness 

Determinations Is Not 

Readily Available,

Contracting Officers’

Options Are Limited
Page 17 GAO-18-530 Defense Contracts

commerciality for the engines, which had historically been procured as 

a noncommercial item. After extensive market research, the 

contracting officer asked for information from the contractor to support 

its commerciality assertion, but had difficulty obtaining it. According to 

the contracting officer, the Army discussed the possibility of not 

awarding this contract, but this was not considered feasible since the 

engine is used in multiple aircraft. After months of back and forth 

between the contracting officer and contractor, this commerciality 

issue was elevated to the Director of Defense Pricing, who agreed 

with the contracting officer’s assessment that the engines were not 

commercial and procured them on that basis.

DOD has taken steps to share more information across the department to 

inform commercial item and price reasonableness determinations, but 

efforts to date are in early stages of development or happening informally 

across the department. Despite these efforts, contracting officers still face 

challenges in obtaining adequate information to make informed 

commercial item and price reasonableness determinations, in part 

because no comprehensive information sharing strategy exists to outline 

responsibilities and funding of these efforts. DOD officials told us they 

plan to explore other options for the sharing of commercial item 

information, such as communities of practice, but have not made any 

formal plans.

One information sharing effort still in its early stages is the DCMA 

Commercial Item Group’s publicly available database, created in 2017 to 

centralize commercial item information across DOD. The database, 

however, has not been fully established as an effective tool. In its current 

form it consists of a spreadsheet primarily listing items that contracting 

officers have determined to be commercial. According to DCMA 

Commercial Item Group officials, the database contains fewer items than 

expected because not all DOD contracting officers have submitted their 

commercial item determinations. The Office of Defense Procurement and 

Acquisition Policy updated its Guidebook for Acquiring Commercial Items 

in January 2018 to state that a commercial item determination is not 

complete until the contracting officer submits it to the DCMA Commercial 

Item Group along with a summary of pricing information. These 

submissions are meant to improve consistency and efficiency in making 

commercial item determinations. On February 22, 2018, the Air Force 

Deputy Assistant Secretary for Contracting issued a memorandum that 

reminded its contracting officers of this responsibility.

Both Formal and 

Informal Information 

Sharing Efforts Exist, 

but With No 

Comprehensive 

Strategy
Page 18 GAO-18-530 Defense Contracts

We found that the database has limitations. For example, it includes only 

a list of items evaluated and not the results of recommendations made on 

commerciality by the DCMA Commercial Item Group. These 

recommendations can be obtained by contacting the office directly.20

DCMA officials stated results of their recommendations are specifically 

not included in the public database because of concerns that a prime 

contractor may prefer a subcontractor with a commercial item 

determination over another without one.

Most commercial item determinations included in the database go back 

only to 2016, since this is when the DCMA Commercial Item Group began 

collecting them. Additionally, DCMA Commercial Item Group officials said 

they have no funding to support the database. Officials plan to meet with 

DOD’s Office of Defense Procurement and Acquisition Policy to discuss 

funding and other potential systems to maintain the information as well as 

provide DOD officials with direct access to copies of previous 

determinations and related information. Defense Procurement and 

Acquisition Policy and DCMA officials acknowledged that DOD has not 

yet determined who is responsible for the funding and upkeep of this 

information. Internal control standards promote assigning responsibility 

and delegating authority to key roles to achieve an organization’s 

objectives.21 Without appropriate funding and clearly defined roles and 

responsibilities for management and upkeep of the database, its 

effectiveness as a tool to provide contracting officers with information to 

help make commercial item determinations will continue to be limited.

While the database serves as a means to formally share information to 

help contracting officers make commercial item and price reasonableness

determinations, contracting officers in our case studies noted instances 

 20In 6 of our 15 case studies, the DCMA Commercial Item Group or DCMA provided 

recommendations regarding commerciality and/or price reasonableness. Of these cases, 

the DCMA Commercial Item Group or DCMA recommended that an item was commercial 

in three cases. Other agencies, such as DCAA, also assisted contracting officers in 

assessing whether an item was commercial and being offered at a fair and reasonable 

price. We previously reported that the DCMA Commercial Item Group recommended that 

contracting officers make a determination that an item was commercial in 94 percent of 

the cases it reviewed from June 2016 to May 2017. Thus far through February 2018, this 

group has recommended that an item be deemed commercial in 99 percent of cases it 

reviewed.

21GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014).
Page 19 GAO-18-530 Defense Contracts

where informal sharing of information between programs and services led 

to improved outcomes, such as a lower price. For example,

• In a $257 million sole source MQ-9 aircraft contract, the Air Force 

contracting team questioned whether a modified commercial engine 

being provided by a subcontractor was offered at a fair and 

reasonable price. While the Air Force contracting team relied on 

uncertified cost and pricing data provided by the subcontractor, a 

contracting official told us that the team also relied on information 

shared by Air Force officials in other programs that were procuring 

similar commercial items at the same time. The contracting team 

discovered that another contracting official obtained a lower price for a 

similar commercial item, and as a result, used this information to 

negotiate a lower price.

• In the procurement for radios used in a variety of aircraft, as

discussed earlier, Navy contracting officials used informal information 

sharing to make a commercial item determination. The Navy obtained 

information from the Air Force, which was procuring the same radio 

and which had performed a review in January 2017 that it shared with 

the Navy. The review noted that other similar commercial radios 

existed and that a comparison of this radio to these other commercial 

radios could help determine that the radio is commercial. Navy 

contracting officials, using the Air Force’s review as well as their own 

technical analysis, determined the radios were a modified commercial 

item.

Despite the creation of the database and the informal information sharing 

that occurs, contracting officers still face challenges in obtaining adequate 

information to make informed commercial item and price reasonableness 

determinations. Specifically, DOD lacks a strategy for improving the 

sharing of commercial item and price reasonableness information across 

the department, such as efforts like the DCMA Commercial Item Group’s 

database. Internal control standards promote effective sharing of 

information to ensure managers have the information they need to make 

informed decisions.22 In addition, internal control standards state that 

management should communicate information internally and assign 

responsibilities for key roles while also considering the cost necessary to 

communicate the information. In an environment where information is 

 22GAO-14-704G. 
Page 20 GAO-18-530 Defense Contracts

difficult to obtain from the contractor, as we have outlined in this report, 

the ability for contracting officers to have easy access to all necessary 

commerciality and pricing information within DOD is critical. If DOD does 

not have such information easily available, contracting officers will 

continue to struggle with obtaining all the information they need to make 

informed and efficient commercial item and price reasonableness 

determinations.

When dealing with a limited marketplace and price data, determining 

commerciality and price reasonableness can be challenging for DOD’s 

contracting staff. Ultimately, the effectiveness of determining 

commerciality and fair and reasonable prices will depend on what 

meaningful information the government successfully obtains to conduct its 

analysis. Therefore, information sharing within the department is critical in 

helping DOD’s contracting officers determine commerciality and 

reasonable prices on DOD’s acquisitions. As our findings show, DOD has 

made some efforts to facilitate the sharing of information, such as 

establishing the DCMA Commercial Item Group. This group, in turn, set 

up a database to increase the accessibility and utility of commercial and 

pricing data. But the database is not yet robust enough to eliminate the 

need for more sharing of information—formal or informal—across the 

department. Enhancing information sharing efforts could address some of 

the challenges we identified. Further, clearly defining the roles and 

responsibilities for management of the database and identifying viable 

funding sources to support the upkeep of the database will help ensure it 

becomes a useful resource for contracting officials.

We are making the following recommendation to DOD:

The Director of Defense Procurement and Acquisition Policy should work 

with the Defense Contract Management Agency to develop a strategy for 

sharing information related to commerciality and price reasonableness 

determinations across DOD, including

• a plan to increase the information available in the Commercial Item 

Group database;

• alternative mechanisms to share information, either formal or informal; 

and

Conclusions

Recommendation for 

Executive Action
Page 21 GAO-18-530 Defense Contracts

• assignments of roles and responsibilities with regard to sharing 

commercial item information, including how the database should be 

funded, supported, and maintained.

We provided a draft of this report to DOD for review and comment. In its 

written comments, reproduced in appendix III, DOD concurred with our 

recommendation, stating that it plans to issue a policy memo requiring all 

commercial item determinations made after September 30, 2018 to be 

included in the existing commercial item database. DOD further stated 

that it will update its commercial item determination form to enhance 

informal information sharing. In addition, DOD stated that the Director of 

Defense Pricing within the Defense Procurement and Acquisition Policy 

office and the Director of DCMA will enter into a memorandum of 

agreement specifying roles and responsibilities in determining commercial 

item policy and funding the commercial item database. 

DOD also provided technical comments, which were incorporated as 

appropriate.

We are sending copies of this report to the appropriate congressional 

committee, the Secretary of Defense, and the Director of Defense 

Procurement and Acquisition Policy. In addition, the report is available at 

no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-4841 or woodsw@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix IV.

Sincerely yours,

William T. Woods

Director, Contracting and National Security Acquisitions

Agency Comments
Appendix I: Objectives, Scope, and 

Methodology

Page 22 GAO-18-530 Defense Contracts

Our objectives were to: (1) identify the factors that influenced the 

Department of Defense’s (DOD) commercial item and price 

reasonableness determinations and (2) assess the extent to which DOD 

has taken steps to make information available to help make these 

determinations.

To identify factors that influence the process and what DOD has done to 

address them, we reviewed relevant sections of the Federal Acquisition 

Regulation (FAR); Department of Defense Federal Acquisition Regulation 

Supplement; DOD memorandums; policy, guidance, and instructions 

related to the acquisition of commercial items, including the Guidebook 

for Acquiring Commercial Items Part A: Commercial Item Determination 

and Part B: Price Reasonableness Determination; and service-specific 

guidance regarding commercial items.

To assess challenges in making commercial item and price 

reasonableness determinations, we identified a non-generalizable sample 

of contracts which were reported by DOD officials and contractors as a 

contract where it was difficult to make commercial item determinations, 

price reasonableness determinations, or both, from a variety of sources. 

Due to limitations of the Federal Procurement Data System-Next 

Generation (FPDS-NG) we could not identify all DOD commercial item 

acquisitions in the data system, specifically contracts that had been 

coded as having used procedures other than FAR Part 12, Acquisition of 

Commercial Items. Additionally, contracts which had issues in making 

commercial item or price reasonableness determinations would not be 

identifiable in FPDS-NG. Due to these limitations, we requested that three 

DOD services – Air Force, Army, and Navy – and the Defense Logistics 

Agency (DLA) each provide us with five contracts that had points of 

contention with the commercial item determination or the price 

reasonableness determination, either at the prime contract or subcontract 

level. We also identified contracts by asking officials at the Defense 

Contract Management Agency (DCMA) Commercial Item Group and the

Navy Price Fighters for contracts as well as identified contracts through 

previous GAO work. Additionally, we asked contractors to identify 

contracts they believed had issues in determining commerciality and/or 

price reasonableness. One contractor identified two contracts, which we 

reviewed, but did not find to have any issues concerning commerciality or 

price reasonableness. From these requests we collected a nongeneralizable sample of 56 contracts for commercial items.

From the non-generalizable sample of 56 contracts, we selected 15 

contracts awarded between 2010 and 2018 that met various criteria as 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 23 GAO-18-530 Defense Contracts

case studies. We selected 4 case studies from the Air Force, 4 from the 

Army, 5 from the Navy, and 2 from DLA. The 15 case studies were 

selected to represent: (1) multiple services; (2) a variety of issues with 

commercial item or price reasonableness determinations, (3) reoccurring 

prime contractors or subcontractors, and (4) a mix of product and 

services acquired. We conducted an in-depth review of these contracts 

and selected related orders to assess what challenges occurred when the 

contracting officer was determining whether an item was commercial and 

whether the price was fair and reasonable, and why these challenges 

occurred.

To assess challenges in making commercial item and price 

reasonableness determinations, we reviewed the contract file 

documentation for the 15 case studies, and interviewed contracting and 

pricing officials. We reviewed documentation including commercial item 

determinations, price negotiation memorandums, market research, and 

DCMA Commercial Item Group and Defense Contract Audit Agency 

reports. We also interviewed contracting officials and contractors to obtain 

perspectives on how an item was determined to be commercial and then 

subsequently, determined to be offered at a fair and reasonable price. We 

interviewed contracting officers to obtain their views on the effect the new 

Guidebook for Acquiring Commercial Items and recently passed 

legislation would have on these challenges, and how they might affect 

contracts in the future. We interviewed officials from the DCMA 

Commercial Item Group to understand how they assist contracting 

officers in making determinations, and about the publicly available 

database that centralizes commercial item information. We also reviewed 

this database to understand what types of information it contained. 

Additionally, we discussed the management and funding of the database 

with the Office of Defense Procurement and Acquisition Policy. We 

interviewed contractors to discuss commercial item and price 

reasonableness issues on the selected contracts, discuss general areas 

of concern with regard to commercial item and price reasonableness 

determinations, and identify other contentious contracts.

We conducted this performance audit from July 2017 to July 2018 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on audit objectives.
Appendix II: DOD General Process for Making 

Commercial Item and Price Reasonableness 

Determinations

Page 24 GAO-18-530 Defense Contracts

Table 1: The Department of Defense’s (DOD) General Process and Selected Requirements for Making Commercial Item and 

Price Reasonableness Determinations for More Complex Procurements

Time frame DOD contracting officer Offeror

Solicitation Commercial Item Determination: A contracting officer 

conducts market research, which can include 

marketplace or government sources, to determine 

whether an item is commercial.

Commercial Item Determination: The offeror has an

incentive to provide enough information to the 

contracting officer to ensure that the item meets the 

definition of a commercial item in order to be 

considered exempt from the requirement to submit 

certified cost and pricing data.

The offeror is required to exercise reasonable 

business judgment to assess whether an item 

provided by a subcontractor meets the definition of a 

commercial item. However, this does not remove the 

contracting officer’s responsibility to make a 

commercial item determination.

Price Reasonableness Determination: The 

contracting officer may conduct market research to 

assess market pricing for a commercial item.

Price reasonableness Determination: The offeror 

may be required to submit information in its initial 

offer to the government that, at a minimum, is 

adequate for determining price reasonableness, 

including prices for the same or similar items that 

have been sold in the commercial market.a As 

appropriate, this information can also include past 

DOD contracts, catalog, or commercial sales data 

among other information. 

The offeror may be required to obtain the minimum 

information necessary from any subcontractors to 

support a determination of price reasonableness. 

Evaluation of offer Commercial Item Determination: A contracting officer 

is required to determine whether an item meets the 

definition of a commercial item.

If a contracting officer does not have enough information 

to make this determination, he or she may request 

information from the offeror to support the commercial 

item determination.

Commercial Item Determination: The contractor 

may work with the contracting officer to submit 

revised support that documents its rationale for why 

the proposed item satisfies the definition of a 

commercial item.

Price Reasonableness Determination: If price 

reasonableness is based on adequate price competition, 

generally no additional data are necessary. If, even after 

obtaining information from sources other than the 

offeror, the contracting officer still cannot make the 

determination that the offeror’s price for a commercial 

item is fair and reasonable, then the contracting officer 

is required to request the offeror submit additional data 

to support further analysis.b

The contracting officer should make it clear what data is 

required and why it is needed to determine fair and 

reasonable prices, and should be flexible in requesting 

data in existing formats from the offeror.

Price Reasonableness Determination: After a 

request for more information from the contracting 

officer, the offeror is required to either provide the 

information or provide a written explanation for why it 

cannot comply with the request to the contracting 

officer. Any offeror who does not comply with the 

request would be ineligible for award unless the head 

of the contracting activity determines it is in the best 

interest of the government to make the award to that 

offeror.

Source: GAO analysis of Federal Acquisition Regulation, Defense Federal Acquisition Regulation Supplement, and the Department of Defense Guidebook for Acquiring Commercial Items. | GAO-18-530

Note: Some of the requirements listed in the table are from the updated Defense Federal Acquisition 

Regulations Supplement (DFARS) as of January 31, 2018. These DFARS changes would not be 

Appendix II: DOD General Process for 

Making Commercial Item and Price 

Reasonableness Determinations
Appendix II: DOD General Process for Making 

Commercial Item and Price Reasonableness 

Determinations

Page 25 GAO-18-530 Defense Contracts

applicable to most of the contracts in our case studies because all but one of the contracts were

awarded before the DFARS changes were implemented. Furthermore, where the Federal Acquisition 

Regulation (FAR) and DFARS differed in terminology (e.g., the FAR noted a requirement for “data” to 

determine price reasonableness but the DFARS noted a requirement for “information”), the table and 

report use the DFARS terminology.

a

See FAR § 15.404-1(b)(2)(i) (citing FAR § 15.403-1(c)(1)(i), describing adequate price competition); 

DFARS § 215.404-1(b)(i).

b

See FAR § 15.403-3(c)(1). Price analysis is the preferred way to determine fair and reasonable 

prices of commercial items. Price analysis focuses on evaluating a proposed price without 

consideration of its separate cost elements or profit. If using price analysis cannot determine a fair 

and reasonable price, a contracting officer may use cost analysis to evaluate the separate cost 

elements, or a combination of price and cost analyses. Appropriate price analysis techniques include, 

for example, comparing proposed prices in response to a competitive solicitation. See FAR § 15.404-

1(b)(2)(i). 
Appendix III: Comments from the Department 

of Defense

Page 26 GAO-18-530 Defense Contracts

Appendix III: Comments from the 

Department of Defense
Appendix III: Comments from the Department 

of Defense

Page 27 GAO-18-530 Defense Contracts
Appendix III: Comments from the Department 

of Defense

Page 28 GAO-18-530 Defense Contracts
Appendix III: Comments from the Department 

of Defense

Page 29 GAO-18-530 Defense Contracts
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 30 GAO-18-530 Defense Contracts

William T. Woods, (202) 512-4841 or woodsw@gao.gov

In addition to the contact named above, Tatiana Winger (Assistant 

Director), Emily Bond, Jared Dmello, Lorraine Ettaro, Julie Hadley, Julia 

Kennon, Timothy Moss, Miranda Riemer, Raffaele (Ralph) Roffo, and 

Carmen Yeung made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(102194)
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