This issue is with commerciality determinations. FAR 2.101 defines what a commercial item is, but the loose area is an item that “has been offered for sale”. Some contractors (usually sole-source) have locked onto the “has been offered for sale” description as a justification for commercial item status.
I am stuck at a stand still at the market research stage, trying to determine if the item is truly commercial or not. Our office has decided not to accept the answer that a contractor does offer it for sale, instead requiring the contractor to show proof of sales to non-government entities.

The contractors perspective is that they do offer it for sale (price list) and my office’s perspective is that merely offering an item on a price list is not enough. The contractor must prove that the item has been sold to non-government entities. When asked to provide such proof, contractors simple reply “we don’t have to according the FAR”. Bottom line, we are at a stand-still.

DFARS PGI 215.402 does state that the obtaining sufficient data is critical in sole source commercial buys, but this part of the procurement process is much further down the line than the commerciality determination portion – where I am stuck.
Looking for some view points and wisdom from the forum.

As I read it there are two requirements. One is meeting the commercial item definition; the other is the requirement that must be met in order to qualify for an exception from submitting cost or pricing data. An item can meet the commercial item definition if it only offered, but I don't think it can't meet the requirements to be exempt from cost or pricing data without demonstration of sales of the same or similar item sufficient for determining pricing reasonableness.

As an aside there is a bill – H.R. 1585 – that is currently being negotiated between the House and Senate that would eliminate the “offer for sale” wording for major systems, their components, parts or spares.

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Title 10 Section 2306a(d) Submission of Other Information:

(1) Authority to require submission — When certified cost or pricing data are not required to be submitted under this section for a contract, subcontract, or modification of a contract or subcontract, the contracting officer shall require submission of data other than certified cost or pricing data to the extent necessary to determine the reasonableness of the price of the contract, subcontract, or modification of the contract or subcontract. Except in the case of a contract or subcontract covered by the exceptions in subsection (b)(1)(A), the contracting officer shall require that the data submitted include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement.

FAR 15.403-3 Requiring Information Other Than Cost or Pricing Data:

(a) (1) … Unless an exception under 15.403-1(b)(1) or (2) applies, the contracting officer must require that the information submitted by the offeror include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold, adequate for determining the reasonableness of the price.

FAR 52-251-20/21 Requirement for Cost or Pricing Data or Information Other Than Cost or Pricing Data:

(ii) Commercial item exception. For a commercial item exception, the offeror shall submit, at a minimum, information on prices at which the same item or similar items have previously been sold in the commercial market that is adequate for evaluating the reasonableness of the price for this acquisition. Such information may include—
(A) For catalog items, a copy of or identification of the catalog and its date, or the appropriate pages for the offered items, or a statement that the catalog is on file in the buying office to which the proposal is being submitted. Provide a copy or describe current discount policies and price lists (published or unpublished), e.g., wholesale, original equipment manufacturer, or reseller. Also explain the basis of each offered price and its relationship to the established catalog price, including how the proposed price relates to the price of recent sales in quantities similar to the proposed quantities;

Post Number: 8
Registered: 09-2007

An item can meet the current commercial item definition in FAR at 2.101 without ever having been sold to a non government customer. The real issue in making award for such an item is determining the price fair and reasonable.

When the commercial item determination has been made, then the contractor qualifies for the exemption from cost or pricing data per FAR 15.4. The contracting officer still has to determine that the price is reasonable, and may do so by requiring "other than cost or pricing data" in addition to conducting a price analysis. There is a hierarchy of things that the CO can do to determine price reasonableness. The items are described on page N-2 in Appendix N to the DoD Commercial Item handbook. Also, you should look at Appendix O "Achieving Fair and Reasonable Prices for Sole-Source Items".

You can find the Commercial Item Handbook at the below URL:

http://www.acq.osd.mil/dpap/Docs/cihandbook.pdf

An item can meet the current commercial item definition in FAR at 2.101 without ever having been sold to a non government customer. The real issue in making award for such an item is determining the price fair and reasonable.

G,
Great to hear about H.R. 1585, this will solve my problem when and if it passes.
As for the submission of other Information (10 USC 2306a(d), I most often have historical prices on the items and if not, the contractor is more than willing to help find their similar items to help with the pricing justification. My superiors would rather get stuck at the commerciality determination stage versus the pricing stage.

PGI 215.402(3) says "Obtaining sufficient data or information from the offeror is particularly critical in situations where an item is determined to be a commercial item in accordance with FAR 2.101 and the contract is being awarded on a sole source basis. This includes commercial sales information of items sold in similar quantities and, if such information is insufficient, cost data to support the proposed price."

The last sentence seems to offer a strong counter to the contractor's contention that he need not furnish any info to prove sales. Perhaps the contractor will yield when you cite that sentence.

Unlikely!

If the procurement is conducted under FAR 15 vice FAR 12, the contractor must furnish essentially the same info to support an assertion of commerciality, plus sign a certification of currency, accuracy and completeness of data.

If the contractor will not furnish the data and you cannot determine that the price is fair and reasonable, then follow the FAR 15-405(d): "If, however, the contractor insists on a price or demands a profit or fee that the contracting officer considers unreasonable, and the contracting officer has taken all authorized actions (including determining the feasibility of developing an alternative source) without success, the contracting officer shall refer the contract action to a level above the contracting officer. Disposition of the action should be documented."

If you do much business with the contractor, perhaps a threat to develop an alternative source will get results.

Sole sources are tough. They require a contracting officer who is skilled at both coaxing a contractor into cooperation and at justifying / rationalizing a price.

If an item is procured under a FAR 15 procurement, the contractor can still request a commercial item exception to cost or pricing data.

Say you are a subcontractor to a prime who has a TINA covered prime contract and you assert that you are supplying a commercial item during the proposal phase. If you successfully defend commerciality, you don't have to comply with the requirements of FAR Table 15.2 and the prime cannot request a Certificate of Current Cost or Pricing Data.

Go,
Yes I have referred to the ci handbook, which states the order of preference to be:
1. Price information obtained from within the government (which we usually have).
2. Price information obtained from sources other than the offeror (does not make sense with sole source buys).
When we get to the third order precedence, we are back at square one.
Appendix O has nice suggestions, but I have real world (WAR) requirements and the contractor knows we don’t currently have funding to reverse engineer and they are the only source period.

O:

You wrote: "Our office has decided not to accept the answer that a contractor does offer it for sale, instead requiring the contractor to show proof of sales to non-government entities."

And: "Our office has decided not to accept the answer that a contractor does offer it for sale, instead requiring the contractor to show proof of sales to non-government entities."

Huh? On what legal grounds has your office made those decisions? Your office cannot make up its own laws. The definition of commercial item says that an item must have been sold, leased, or licensed to the general public "OR" offered for sale, lease, or license.

G:

You wrote: "An item can meet the commercial item definition if it only offered [sic], but I don't think it can't meet the requirements to be exempt from cost or pricing data without demonstration of sales of the same or similar item sufficient for determining pricing reasonableness."

Huh? On what basis did you arrive at that conclusion? FAR 15.403-1(b)(3) says that contracting officers shall not require the submission or cost or pricing data--"When a commercial item is being acquired." FAR 15.403-1(c)(3)(i) says, in no uncertain terms: 'Any acquisition of an item that meets the commercial item definition in 2.101... is exempt from the requirement for cost or pricing data." Where do you read a requirement for sales?

Know the rules! Follow the rules!

O,

Is the item you are trying to buy "customarily used by the general public or by non-governmental entities for purposes other than governmental purposes"? If not, then I would think it has failed to meet the definition of commercial item.

If the item is customarily used by the general public, . . . etc., and your contractor has offered his item for sale, but hasn't found any buyers, doesn't it make you wonder about the quality and/or pricing of his item?

N,
Yes it is customarily used by the public.

V;
Thanks for input, there is no legal grounds used, just the tying of my hands. My second level supervisor has mandated that all commerciality determinations (that is commercial) must be approved by her, thus far, no invoices, no approvals. It's at a stand still.

V,

You are right I worded that poorly. But I think there is a confluence between the TINA requirements and commercial items that is not often bridged. The TINA statute appears to be unambiguous on the requirement for the contracting officer to require that the data submitted include, at minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement. If the statute requires it then it can be interpreted as being a defining characteristic of a commercial item, without which an item can not be considered commercial.

So if an item is only offered for sale then there need be information on the price of which another sufficiently similar item has been sold adequate for determining price reasonableness.

O,

I think you second level supervisor has a good argument. The FAR’s and DFARS'implementation and especially the new DFARS PGIs guidance is to me confusing and even contradictory. The statutes requirement for sales data on the same or similar item sufficient for determining pricing reasonableness appears unambiguous and I think would take precedence.

ga:

Is this the statutory passage that you're talking about? 10 U.S.C. § 2304a:

"(d) Submission of other information.--

"(1) Authority to require submission.--When certified cost or pricing data are not required to be submitted under this section for a contract, subcontract, or modification of a contract or subcontract, the contracting officer shall require submission of data other than certified cost or pricing data to the extent necessary to determine the reasonableness of the price of the contract, subcontract, or modification of the contract or subcontract. Except in the case of a contract or subcontract covered by the exceptions in subsection (b)(1)(A), the contracting officer shall require that the data submitted include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement.

"(2) Limitations on authority.--The Federal Acquisition Regulation shall include the following provisions regarding the types of information that contracting officers may require under paragraph (1):

"(A) Reasonable limitations on requests for sales data relating to commercial items.

"(B) A requirement that a contracting officer limit, to the maximum extent practicable, the scope of any request for information relating to commercial items from an offeror to only that information that is in the form regularly maintained by the offeror in commercial operations.

"(C) A statement that any information received relating to commercial items that is exempt from disclosure under section 552(b) of title 5 shall not be disclosed by the Federal Government."

If so, see FAR 15.403-3(c)(2):

"Limitations relating to commercial items (10 U.S.C. 2306a(d)(2) and 41 U.S.C. 254b(d)).

"(i) The contracting officer must limit requests for sales data relating to commercial items to data for the same or similar items during a relevant time period.

"(ii) The contracting officer must, to the maximum extent practicable, limit the scope of the request for information relating to commercial items to include only information that is in the form regularly maintained by the offeror as part of its commercial operations.

"(iii) The Government must not disclose outside the Government information obtained relating to commercial items that is exempt from disclosure under 24.202(a) or the Freedom of Information Act (5 U.S.C. 552(b))."

V,

Yes. And I was focusing on the wording:

Except in the case of a contract or subcontract covered by the exceptions in subsection (b)(1)(A), the contracting officer shall require that the data submitted include, at a minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement.

ga:

Unfortunately, that language does nothing for Owen, whose contractor is saying that the item is commercial pursuant to paragraph (1)(ii) of the definition--an item "offered" for sale, and that they have not sold it. That being the case, there are no prices at which the item has previously been sold. And there is no requirement that it have been sold or that the contractor have sales data in order to qualify for the TINA exception. You can't get blood from a turnip.

Ga and V;
First - Thank you very much for your input!
Seems like you two are having the same conversation I've had with my sole source contractor over and over again. I was surprise to have never seen such a topic in the past on Wifcon (seemingly). Has there been?
My main thought is; if there isn't any creative pricing going on, why not disclose the data / pricing information to the government for sole source situations?

Commercial firms are not big on disclosing sales or pricing data to anyone. Moreover, when they do disclose such data the government negotiators begin to focus on the data, instead of the prices. They ask for explanations of the data and for more data to clarify the data that they have already been given. It is a pain to deal with such people--costly and time-consuming. The government decides that an item is sole source, not the contractor. In doing so, it creates a problem for itself, which it tries to shift to the contractor by demanding sales data. The government's demands for data are insatiable. Unwilling or unable to do their own research, the government's negotiators put the onus on the contractor.

When you buy a car, which is a significant purchase for most people, second only to their house, do you demand sales data? If you got it, would you know what to make of it? Would the sales data help you decide whether or not to pay the sticker price? Do you need sales data to decide whether or not to pay the price that Apple is asking for an iPod? Do you need sales data to decide whether or not to pay the price for a Samsung HD TV? A MacBook Pro?

The commercial item rules were enacted by Congress in order to encourage commercial firms to do business with the government. But the government is not ready to do business with commercial firms, so its representatives continue to demand data that most of them do not understand and that makes for yet more work to do, hoping that they will discover that one more piece of paper that will tell them that its okay to pay the price, storing up a CYA nest egg.

The government might as well just resurrect the old Standard Form 1412.

Here's an interesting news story that may have a bearing on our discussion. http://www.govexec.com/story_page.cfm?articleid=38514&dcn=e_gvet

V:

I would argue that the TINA statute does require sales information for commercial items. And if one reads the commercial item definition and in light of the TINA requirements I think it help clarify some of the vagueness in the definition.

The commercial item definition starts off with: “Any item other than real property, this is of a type customarily used by the general public …” For it to be customarily used by the general public it seems to me there would have to be sales to the general public; sales of either of the item itself or sales “of a type” of the item.

The struggle has always been what constitutes “of a type.” I would submit that the TINA language operationalizes that for us. TINA requiring that data “submitted include, at minimum, appropriate information on the prices at which the same item or similar items have previously been sold that is adequate for evaluating the reasonableness of the price for the procurement.” So the ‘of a type” needs to be sufficiently similar to determine price reasonableness.

With the commercial item definition in essence saying that either the item itself or the type of item must have been sold; and TINA saying the sales information on the item itself or a sufficiently similar item must be obtained. I think a good argument could be made that sales data is required – excluding any non-sales data required to support minor modifications.

O:

My experience supports the article Vern provided; and I think this topic is starting to receive increased focus because the Government is paying greater attention to the data the contracting community is providing – or not providing - in support of the price reasonableness. I think the pendulum is starting to swing back the direction of the old SF 1412 and away from the free thinking FASA days of the 1990s.

V:

Thanks for the news story. Good example.

ga:

Before I say anything else, let me ask you: Is it your position that an item that has been offered for sale, but that has not actually been sold to anyone, cannot be a commercial item? Yes or no?

V,

I am arguing that either the item itself or an item “of a type” has to have been sold. And that to qualify for an “item of a type” then the sales of the “item of a type” have to be sufficiently similar to determine price reasonableness.

This excludes modifications, which I would argue if it is a modification that is customarily available in the market place there should be sales to support that, and if it is a minor modification over the thresholds – 5% or $500,000 – cost or pricing data are required.

I realize this is not the current industry interpretation and the DFARS PGI could be read to contradict this position; but if one focuses on the TINA statute and the commercial item definition, I think it is a reasonable reading and consistent with the underlying philosophy – or what used to be the underlying philosophy – of commerciality. That being market forces drive the price of commercial items, therefore cost or pricing data are not required. Defining something as commercial without market forces setting the price is to me nonsensical.

ga:

I take that as a no. So the item to be bought need not have been actually sold. Must the seller of the item have sold items of the type, or can the type have been sold by anyone?

And what do you mean when you say that the sales of the type must be "similar"? Similar to what? If the item to be bought has not been sold, then the similarity cannot be to nonexistent sales. So to what must the sales be similar, and in what way similar?

Ga and V:
I am getting a good feel for this topic just from reading your comments back to each other. I do like in particular Garth's point on the first part of the definition of commercial item - use by the public, if the public is using it, it must have been bought sometime, somewhere, right?

O:

I'm glad that you're enjoying, but pay closer attention. The fact that the public is using a thing of that "type" does not mean that anyone has bought the particular thing that you want to buy. A new-to-the-market pocket-sized mp3 player is a commercial item, even though no one has bought it, and even though the manufacturer has not sold mp3 players of any kind before, because plenty of people have bought pocket-sized mp3 players. (I have four.)

V:
Thanks, I see your point.

V and Ga:
As you can see, I am still stuck at the commerciality determination. Any suggestions for me to move my many buys along?

O,
For any number of reasons, your vendor can not comply with your request for sales data. Don't try to figure it out, just accept it. Likewise, for any number of reasons you are unable to do any research of your own. You and your boss are unable to make a commercial item determination. Therefore, conclude that the item is not commercial, and use non-commercial item contracting procedures.

This approach will likely necessitate cost or pricing data. The vendor, unable to provide sales data, will obviously be unable to provide cost or pricing data. Therefore, you and your boss will have to request a waiver from cost or pricing data. I think that once you and your boss try to process a waiver you will both re-think your positions and re-look at making a commercial item determination - perhaps relying on the vendor's original representation.

V,

Yes, that was a qualified no.

You ask a good question: “Must the seller of the item have sold items of the type, or can the type have been sold by anyone?” And I don’t know I have a good answer. I think anyone could have sold the “of a type” item. Anticipating your next question - if someone else sold the “of a type” item then the offeror could not provide sales information. But if commercially is based on the “of a type” item sold by another entity then I think the market would be such that sales data would be available for sources other then the offeror.

Regarding similarity, the item that is offered for sale must be similar to the ‘of a type” item that has actually sold. And similar to the degree that the supporting pricing information needs to be “…adequate for evaluating the reasonableness of the price ….” To me this is a high standard that could only be met if the “of a type” item was similar to the item offered for sale in all material aspect of which price is a function; similar in its functionality, in its construction, in price, etc. I recognize this does not provide a bright line test, but I think it is an order of magnitude above “of a type” when attempting to make a determination.


O:

If the contractor is saying that have sales data but they don’t have to provide it, I think that is inaccurate. The statute, the FAR and contractual language all require the contractor to provide sales information. I would cite the references setout in the first post to the contractor.

If contractor is saying it is only offer for sale, and they do not have any actual sales data yet, I would ask for sales data on a similar item sufficient for determining price reasonableness. If they can not provide that I would ask how they demonstrate that the type of item is customarily used by the general public. As stated in the regulations, the FAR clause and most of the Government guidance, the existence of a catalogue or price list is not necessarily sufficient in and of itself.

O,
Do not presume that a vendor has data but chooses for some reason not to provide it. Strange as it may sound, a vendor does not have perfect or complete knowledge of what happens within its business. For example, the vendor sales data may be missing several sales (perhaps sales that were made at prices much lower than your price), perhaps there is some engineering memo somewhere in the company that would contradict a “similar to” comparison. Whatever it may be, you can not force a company to make a potentially false statement or put it in a position for defective pricing. This is the commercial world.

Post Number: 109
Registered: 09-2007

I do not think it is up to the seller to prove that its item is commercial. I think it is up to the government to do whatever research is necessary to establish the commerciality or noncommerciality of an item. I frankly think that a contracting officer who cannot make that decision on his or her own, without demanding a lot of data from a seller, ought to get out of the contracting business.

If the government decides that an item is not commercial, and the seller thinks that it is, the parties can talk about what, if any, information the contracting officer needs to revisit his or her decision. It's up to the seller to decide whether or not it has the data and will provide it. If the contracting officer insists that the seller's item is noncommercial, then the seller must decide whether or not to accept the government's terms or go its own way.

The article about the vendors that are telling GSA to get lost may be indicative of what may be coming in the future. If more contractors would just walk away the government would have to change its way of doing business. I walk away whenever I don't like the buyer's terms. Business is hard enough without having to put up with a lot of data calls.

I just received via email a DPAP policy memorandum dated November 7, 2007 entitled "Access to Records with Exclusive Distributors/Dealers" that provides guidance on price reasonableness and addresses some of these issues. I can't find it on the internet, but someone in the WIFCON community may have access to it and be able to provide a link.

http://www.acq.osd.mil/dpap/policy/policyvault/2007-1399-DPAP.pdf

Spoke to soon....here it is above.

go Please fax me a coopy of the DPAP policy memorandum dated November 7,
2007 entitled "Access to Records with Exclusive Distributors/Dealers" FAX . thanks, P

I believe the memo may be found at

http://www.acq.osd.mil/dpap/policy/policyvault/2007-1399-DPAP.pdf

go / j:

Thanks. This is interesting.

All:

Great Feedback - Thanks so much!

O.