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Uncommon Sense | When proposing commercial items, price matters most

Over the past several years, Congress persistently applied pressure on the Defense Department to improve its commercial item acquisition process. This sparked a flurry of recent activity, including a long-awaited revision to the Department’s Commercial Item Acquisition Guidebook, the creation of DCMA’s Commercial Item Group and constructive recommendations from the Section 809 Panel.

Commercial item acquisition procedures have existed since the 1990s; however, the Defense Department chipped away at their usage over the years. The result was widespread use of noncommercial item contracts to acquire commercial items. This behavior limits the government’s access to new technologies, reduces competition and saddles brave (or unwary) commercial companies with unnecessary and onerous compliance requirements. Another well-meaning, but unwise example of penny-wise, pound-foolish.

Why? Based on our experience, the government’s industrial/cold war-era acquisition procedures are primarily geared toward negotiating costs and profit, rather than commercial prices. It’s human nature to stick with what you know and government acquisition personnel are no different. Plus, no contracting officer wants to be associated with a company accused of profiteering at the public purse.

Thankfully, we see the commercial item pendulum swinging back. While still new and refining its approach, DCMA’s Commercial Item Group may produce lasting, beneficial change. It professes to evaluate commercial item determinations with the latitude intended by Congress; however, don’t underestimate its vigilance over commercial item pricing. So, the fact that DoD and contractors have clear political permission to expand commercial item acquisition is good news for everyone. But ultimately, it’s a road to nowhere if companies cannot (or will not) demonstrate that its proposed prices are fair and reasonable. Indeed, telling the government “here’s my commercial price, take it or leave it” is the first step down a difficult path. 

Thankfully, we see the commercial item pendulum swinging back. While still new and refining its approach, DCMA’s Commercial Item Group may produce lasting, beneficial change. 

A contractor that takes proactive steps to teach the contracting officer about its business – and gather, analyze, organize and present pricing information – has the highest likelihood of successful commercial item contracting. It is often not easy for contractors to show that its proposed price is fair and reasonable (especially for knowledge-based services, “of a type” items, new items, etc.). However, it may be worth the effort to avoid the numerous, burdensome and continuous (until contract completion) compliance requirements (and attendant oversight) that come along with noncommercial item contracts. 

Procurement regulations require contracting officers to buy products and services at fair and reasonable prices. As taxpayers, we appreciate that. The contracting community (both contractors and government) should work together to honor it. 

For more information on this topic, or to learn how Baker Tilly Government Contractor Advisory specialists can help, contact our team.

This insight is the first installment of Uncommon Sense — a new periodic blog from Baker Tilly.

Brent Calhoon
Partner, CPA
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