Earlier today, the FAR Council issued a final rule revising the FAR definition of “commercial item.”  The final rule effectively splits the prior definition of “commercial item” into separate definitions for “commercial product” and “commercial service,” without making substantive changes to the existing definitions.  The final rule also replaces references to “commercial items” throughout the FAR with corresponding references to “commercial products,” “commercial services,” or both, as appropriate.

The final rule adopts, with limited revision, a proposed rule from last October that implements the definitions established in Section 836 of the John S. McCain National Defense Authorization Act (“NDAA”) for Fiscal Year 2019, which adopted more uniform definitions for commercial products and commercial services throughout Titles 10 and 41 of the U.S. Code.  The changes come after the Section 809 Panel recommended in 2018 that separate definitions be adopted to reflect the substantial role that commercial and other services play in DoD’s procurement budget, to promote uniformity in light of previously varying statutory and regulatory definitions of “commercial item,” and to reduce confusion caused by the reference to “items,” which occasionally are thought to include products but not necessarily services.  While the changes are largely non-substantive, they should serve to reduce such confusion and promote uniformity in the application of commercial procedures.

The additional distinction and uniformity should aid acquisition professionals faced with determining whether an offered product or service is commercial and utilizing applicable procurement methods.  In the past, these determinations have not been made consistently, even for the same or similar products or services, resulting in much criticism from both industry and government.  While the final rule cautions that the change neither expands the universe of products and services to which the definition applies nor changes the manner in which the Government procures products and services, the practical effect is that acquisition professionals should reach more consistent determinations regarding commerciality and more consistently use commercial procedures, thus allowing the government to better leverage the flexibilities afforded for such procurements and economic advantages of commercially available offerings.  This is good news for entities providing commercial products and services, including those “of a type” offered in the commercial marketplace.

While the changes provide greater clarity, they only implement the changes in Section 836 of the 2019 NDAA, and do not resolve other issues that the Section 809 panel identified.  For example, commercially available off-the-shelf (“COTS”) products remain a subset of commercial products, with distinctions continuing to be drawn between requirements applicable to commercial products other than COTS products even when such distinctions can appear to be arbitrary.  These distinctions have in some instances hindered the Government’s ability to access the full range of commercial offerings available to it.  Additionally, the final rule does not adopt a uniform definition of “subcontract” or “subcontractor,” leaving in place dozens of varying definitions for the terms as well as widespread confusion and burden in determining whether and how to comply with the regulatory requirements that may apply to subcontracts.

In short, while the final rule provides additional clarity and is a positive step toward streamlining commercial procurements, it remains to be seen whether or how the Government will move forward with further streamlining and promoting greater clarity for entities offering commercial products and services.

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Photo of Scott A. Freling Scott A. Freling

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement…

Scott Freling represents civilian and defense contractors, at all stages of the procurement process, in their dealings with federal, state, and local government customers and with other contractors. He has a broad-based government contracts practice, which includes compliance counseling, internal investigations, strategic procurement advice, claims and other disputes, teaming and subcontracting, and mergers and acquisitions. He represents clients in federal and state court litigation and administrative proceedings, including bid protests before the Government Accountability Office and the U.S. Court of Federal Claims. He also represents clients in obtaining and maintaining SAFETY Act liability protection for anti-terrorism technologies. Mr. Freling’s experience covers a wide variety of industries, including defense and aerospace, information technology and software, government services, life sciences, renewable energy, and private equity investment in government contractors.