Commercial Items and Pricing

The Federal Acquisition Streamlining Act of 1994 (FASA) installed a preference and streamlined procedures to acquire commercial items and services. Commercial items are purposely not limited to commercially available off-the-shelf (COTS) items that are sold in the commercial marketplace and offered to the government without modification. They also include, so-called “of a type” or newly offered for sale commercial items. The use of streamlined commercial item acquisition procedures that are contained in Federal Acquisition Regulation Part 12 is contingent on a commercial item determination. From there, the government must determine if it a fair and reasonable price, using market-based pricing or other procedures.


In recent years, much focus has been given to the most challenging and contentious issue herein, of how to determine a fair and reasonable price for commercial items, especially when they are acquired sole source, or when market-based pricing does not exist. Section 831 of the Fiscal Year (FY) 2013 National Defense Authorization Act (NDAA) sought to mitigate this challenge by requiring the Department of Defense (DoD) to develop guidance to its contracting officers (COs) on existing authorities to determine price reasonableness. However, in 2015, DoD issued a memorandum and later a proposed rule, that subverted previous congressional intent and DoD’s own innovation initiatives by incorporating the determination of price reasonableness into commercial item determinations by installing a percentage-based litmus test, among other things.


Final provisions in the FY 2016 NDAA provide clarity to the acquisition workforce on expectations for market research, the process for determining price reasonableness, and creating a database of commercial item determinations. Further, efforts by DoD to create a commercial pricing “cadre of experts” to provide commercial pricing support and establish advance agreements with individual companies to support determination and pricing are significant positive steps. Moving forward, the “of a type” commercial item definition should be clearly reinforced, and DoD should avoid litmus tests DoD to determine commerciality.