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TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED MATTERS

Subtitle A — Acquisition Policy and Management

NDAA Section

House Conference Report 110-477

SEC. 805. PROCUREMENT OF COMMERCIAL SERVICES.

(a) Regulations Required- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall modify the regulations of the Department of Defense for the procurement of commercial services for or on behalf of the Department of Defense.

(b) Applicability of Commercial Procedures-

(1) SERVICES OF A TYPE SOLD IN MARKETPLACE- The regulations modified pursuant to subsection (a) shall ensure that services that are not offered and sold competitively in substantial quantities in the commercial marketplace, but are of a type offered and sold competitively in substantial quantities in the commercial marketplace, may be treated as commercial items for purposes of section 2306a of title 10, United States Code (relating to truth in negotiations), only if the contracting officer determines in writing that the offeror has submitted sufficient information to evaluate, through price analysis, the reasonableness of the price for such services.

(2) INFORMATION SUBMITTED- To the extent necessary to make a determination under paragraph (1), the contracting officer may request the offeror to submit--

(A) prices paid for the same or similar commercial items under comparable terms and conditions by both government and commercial customers; and

(B) if the contracting officer determines that the information described in subparagraph (A) is not sufficient to determine the reasonableness of price, other relevant information regarding the basis for price or cost, including information on labor costs, material costs, and overhead rates.

(c) Time-and-Materials Contracts-

(1) COMMERCIAL ITEM ACQUISITIONS- The regulations modified pursuant to subsection (a) shall ensure that procedures applicable to time-and-materials contracts and labor-hour contracts for commercial item acquisitions may be used only for the following:

(A) Services procured for support of a commercial item, as described in section 4(12)(E) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(12)(E)).

(B) Emergency repair services.

(C) Any other commercial services only to the extent that the head of the agency concerned approves a determination in writing by the contracting officer that--

(i) the services to be acquired are commercial services as defined in section 4(12)(F) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(12)(F));

(ii) if the services to be acquired are subject to subsection (b), the offeror of the services has submitted sufficient information in accordance with that subsection;

(iii) such services are commonly sold to the general public through use of time-and-materials or labor-hour contracts; and

(iv) the use of a time-and-materials or labor-hour contract type is in the best interest of the Government.

(2) NON-COMMERCIAL ITEM ACQUISITIONS- Nothing in this subsection shall be construed to preclude the use of procedures applicable to time-and-materials contracts and labor-hour contracts for non-commercial item acquisitions for the acquisition of any category of services.

The House bill contained a provision (sec. 801) that would require the Administrator for Federal Procurement Policy to modify the Federal Acquisition Regulation to narrow the regulatory definition of commercial services.

The Senate amendment contained a provision (sec. 823) that would limit the use of time and materials contracts to purchase commercial services for or on behalf of the Department of Defense.

The Senate recedes with an amendment that would require the Secretary of Defense to modify the regulations of the Department of Defense to: (1) authorize the contracting officer in the procurement of certain commercial services to require offerors to submit sufficient information to evaluate, through price analysis, the reasonableness of the proposed price; and (2) address the categories of services which may be purchased for or on behalf of the Department of Defense pursuant to commercial time and materials contracts.

House Armed Services Committee Report 110-146

SECTION 801--DEFINITION OF COMMERCIAL SERVICES

This section would require the Administrator of the Office of Federal Procurement Policy to revise the Federal Acquisition Regulation (FAR) to clarify the definition of commercial services. The revision would define commercial services in the FAR exactly as they are defined in section 4 of the Office of Federal Procurement Policy Act (41 U.S.C. 403 et. seq.). This section would also require the Administrator of the Office of Federal Procurement Policy to identify procedures for the acquisition of non-commercial services of a type similar to commercial services. The Administrator would choose procedures after determining those that are in the best interest of the U.S. Government.

The committee recommends a provision that would limit the use of time and materials contracts to purchase commercial services for or on behalf of the Department of Defense (DOD).

Time and materials contracts for commercial services are potentially subject to abuse because the limited information the Department receives under commercial contracts makes it very difficult to ensure that prices are fair and reasonable. Section 1432 of the National Defense Authorization Act for Fiscal Year 2004 (Public Law 108-136) authorized the following categories of commercial services to be purchased under time and materials contracts: (1) commercial services procured in support of a commercial item; and (2) any other category that is designated by the Administrator of the Office of Federal Procurement Policy (OFPP) based on a determination that the commercial services in such category are commonly sold to the general public through time and materials contracts and it is in the best interest of the Federal Government to use time and materials contracts for such purchases.

OFPP determined that `a few types of services are sold predominantly on a [time and materials] basis--specifically, emergency repair services.' OFPP determined that other categories of commercial services are commonly sold to the general public on a time and materials basis only `when requirements are not sufficiently well understood to complete a well-defined scope of work and risk can be managed by maintaining surveillance of costs and contractor performance.' OFPP did not determine that these circumstances commonly occur in sales to the general public. Nonetheless, a final rule was published in the December 12, 2006 Federal Register, designating `all categories of services (i.e., any service) as being available for acquisition on a [time and materials] basis.'

The committee concludes that the December 12, 2006 rule exceeds the authority provided by Congress in section 1432. Accordingly, the provision recommended by the committee would authorize the purchase of only the following categories of commercial services under time and materials contracts: (1) services procured in support of commercial items; and (2) emergency repair services. Under the provision, other categories of services may be purchased under time and materials contracts for or on behalf of the Department of Defense only if such contracts are entered in accordance with rules applicable to non-commercial items.