Federal Acquisition Regulation: Definition of “Commercial Item”

Published date10 May 2019
Record Number2019-09703
SectionProposed rules
CourtDefense Department,General Services Administration,National Aeronautics And Space Administration
Federal Register, Volume 84 Issue 91 (Friday, May 10, 2019)
[Federal Register Volume 84, Number 91 (Friday, May 10, 2019)]
                [Proposed Rules]
                [Pages 20607-20609]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-09703]
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                DEPARTMENT OF DEFENSE
                GENERAL SERVICES ADMINISTRATION
                NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
                48 CFR Part 2
                [FAR Case 2018-008; Docket No. 2018-0008, Sequence No. 1]
                RIN 9000-AN68
                Federal Acquisition Regulation: Definition of ``Commercial Item''
                AGENCY: Department of Defense (DoD), General Services Administration
                (GSA), and National Aeronautics and Space Administration (NASA).
                ACTION: Proposed rule.
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                SUMMARY: DoD, GSA and NASA are proposing to amend the Federal
                Acquisition Regulation (FAR) to implement a section of the National
                Defense Authorization Act for Fiscal Year 2018 to revise the definition
                of a ``commercial item.''
                DATES: Interested parties should submit comments to the Regulatory
                Secretariat Division at one of the addresses shown below on or before
                July 9, 2019 to be considered in the formulation of a final rule.
                ADDRESSES: Submit comments in response to FAR Case 2018-008 by any of
                the following methods:
                 Regulations.gov: http://www.regulations.gov.
                 Submit comments via the Federal eRulemaking portal by entering
                ``FAR Case 2018-008'' under the heading ``Enter Keyword or ID'' and
                selecting ``Search.'' Select the link ``Comment Now'' that corresponds
                with ``FAR Case 2018-008.'' Follow the instructions provided on the
                screen. Please include your name, company name (if any), and ``FAR Case
                2018-008'' on your attached document.
                 Mail: General Services Administration, Regulatory
                Secretariat Division (MVCB), ATTN: Ms. Lois Mandell, 1800 F Street NW,
                2nd floor, Washington, DC 20405.
                 Instructions: Please submit comments only and cite ``FAR case 2018-
                008'' in all correspondence related to this case. All comments received
                will be posted without change to http://www.regulations.gov, including
                any personal and/or business confidential information provided. To
                confirm receipt of your comment(s), please check www.regulations.gov,
                approximately two to three days after submission to verify posting
                (except allow 30 days for posting of comments submitted by mail).
                FOR FURTHER INFORMATION CONTACT: For clarification of content, contact
                Ms. Zenaida Delgado, Procurement Analyst, at 202-969-7207. For
                information pertaining to status or publication schedules, contact the
                Regulatory Secretariat Division at 202-501-4755. Please cite ``FAR Case
                2018-008.''
                SUPPLEMENTARY INFORMATION:
                I. Background
                 DoD, GSA, and NASA are proposing to amend the Federal Acquisition
                Regulation (FAR) to change the definition of ``commercial item'' at FAR
                2.101, so that the regulatory definition conforms to statutory changes
                made to the definition by section 847 of the National Defense
                Authorization Act (NDAA) for Fiscal Year (FY) 2018 (Pub. L. 115-91,
                enacted December 12, 2017). The rule would broaden the definition to
                allow certain additional items developed exclusively at private expense
                to qualify for the benefits associated with being treated as a
                commercial item. Section 847 amends the definition of ``commercial
                item'' at 41 U.S.C. 103(8) to expand the universe of nondevelopmental
                items (NDIs) that qualify as commercial items to include items sold in
                substantial quantities on a competitive basis to multiple foreign
                governments.
                 The statutory and regulatory definition of ``commercial item'' is
                broad and covers a wide range of products and services. It includes:
                 Products, other than real property, that have been offered
                for sale, lease, or license to the public. Possible indications that an
                item is commercial are a commercial sales history, listing in catalogs
                or brochures, an established price, and distributors. Examples of
                commercial items bought by agencies are transport aircraft, computers,
                medicine, and fuel. The commercial market is global; commercial items
                are not limited to the domestic commercial market.
                 Products that evolved through advances in technology or
                performance and will be available in the commercial market in time to
                meet the delivery requirements of the solicitation. Examples of such
                items are product updates, model changes, and product improvements such
                as new versions of software.
                 Products that have received minor modifications to meet
                agency requirements. To be considered minor, a modification may not
                significantly alter the product's nongovernmental function or essential
                physical
                [[Page 20608]]
                characteristics. In determining whether a modification is minor,
                agencies should consider the value and size of the modification and the
                comparative value and size of the final product.
                 Products that were created by integrating commercial
                subsystems and components into a unique system. For example, a computer
                system composed of commercial subsystems would be considered a
                commercial item. Another example is industrial plant equipment that
                combines commercial components into a unique item based on customer
                needs.
                 Installation services, maintenance services, repair
                services, training services, and other services procured to support a
                commercial product. Help desks, call centers, warranty repair services,
                user training, equipment installation, and other services related to
                item support are examples.
                 Standalone services offered and sold competitively, in
                substantial quantities, in the commercial marketplace based on
                established catalog or market prices for specific tasks performed and
                under standard commercial terms and conditions. Construction, research
                and development (R&D), warehousing, garbage collection, and
                transportation of household goods are examples.
                 NDIs, if the procuring agency determines the item was
                developed exclusively at private expense and sold in substantial
                quantities, on a competitive basis, to multiple State and local
                governments. NDI is defined separately in FAR 2.101. An NDI includes an
                item of supply used exclusively for governmental purposes by a Federal
                agency, a State or local government, or a foreign government with which
                the United States has a mutual defense cooperation agreement. Examples
                include--
                 [cir] Protective vests used by police departments and rescue
                equipment used by fire and rescue units;
                 [cir] Defense products previously developed by defense agencies of
                U.S. allies and used exclusively for governmental purposes by Federal
                agencies, state or local governments, or a foreign government;
                 [cir] Items that require only minor modifications to meet the
                requirements of the procuring agency; and
                 [cir] A mechanical dereefer (mechanism for releasing parachute
                reefing lines) used with the U.S. Army's cargo parachutes that was
                developed for and first used by the Canadian Army.
                II. Discussion and Analysis
                 This proposed rule will amend the definition of commercial item in
                FAR part 2 to reflect the statutory change made by section 847.
                Specifically, the rule would add the phrase ``or to multiple foreign
                governments'' at the end of paragraph (8).
                III. Expected Impact of the Proposed Rule
                 This rule allows for more transactions to follow requirements for
                commercial items. This simplifies the transaction in terms of fewer
                Government reporting requirements and should decrease the cost per
                transaction for both the Government and the contractor. Under the
                proposed rule, for the first time, NDIs that are developed exclusively
                at private expense and sold in substantial quantities to multiple
                foreign governments may be treated as commercial items.
                 Because commercial items, which include commercially available off-
                the-shelf items, are sold to the Government in the same way as NDIs,
                the Government can take advantage of the previous testing and general
                acceptance of the product in the commercial marketplace or by a state,
                local, or foreign government.
                 To promote the Government's acquisition of commercial items, the
                law and FAR part 12 create a preference for buying commercial items and
                provide relief from certain record-keeping, reporting, and compliance
                requirements. According to an analysis published by the Section 809
                Panel in its May 2017 Interim Report, commercial item acquisitions are
                subject to up to 138 contract clauses, while acquisitions for NDIs that
                do not meet the commercial item definition as well as acquisitions for
                non-commercial items could be subject to nearly 500 clauses, depending
                on the principal type and purpose of the contract. For example, a
                commercial firm selling an NDI today to multiple foreign governments in
                substantial quantities could face compliance costs with the Truth In
                Negotiations Act (TINA), which requires implementation of government-
                specific business systems for any modifications to competitively
                awarded items. Policies governing commercial item acquisitions favor
                reliance on commercial sector business practices and use of standard
                commercial terms and conditions to the maximum extent practicable. Each
                of these dimensions of the commercial item framework contributes to
                more simplified and less costly transactions.
                 DoD, GSA, and NASA are unable to monetize the cost savings, because
                procurement data is not captured in a manner that enables a
                determination to be made regarding how many NDIs developed exclusively
                at private expense have been sold or are expected to be sold to
                multiple foreign governments in substantial quantities, that are not
                also sold in substantial quantities to multiple State and local
                governments.
                 Accordingly, DoD, GSA, and NASA welcome feedback, especially from
                respondents who would expressly benefit from this rulemaking, such as:
                (i) Identification of any transactional information (e.g., Procurement
                Instrument Identifiers (PIIDs)) associated with contracts awarded in
                the past 10 years that would have benefitted from the rule had it been
                in effect; (ii) any information that might help the regulatory drafters
                better understand--both qualitatively and quantitatively--the savings
                and/or cost avoidance that the rule will provide; and (iii) -potential
                burden reductions associated with future regulatory actions that
                facilitate broader acquisition of commercial items. In responding to
                item (ii), respondents are encouraged to discuss, to the extent
                possible, specific components of savings and cost-avoidance (e.g.,
                identify savings and/or cost-avoidance associated with specific clauses
                that would no longer be required as a result of this regulatory
                change).
                IV. Applicability To Contract At or Below the Simplified Acquisition
                Threshold and for Commercial Items, Including Commercially Available
                Off-the-Shelf Items
                 This rule proposes to amend the FAR to change the definition of
                ``commercial item''. The revision does not add any new solicitation
                provisions or clauses, or impact any existing provisions or clauses.
                V. Executive Orders 12866 and 13563
                 Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess
                all costs and benefits of available regulatory alternatives and, if
                regulation is necessary, to select regulatory approaches that maximize
                net benefits (including potential economic, environmental, public
                health and safety effects, distributive impacts, and equity). E.O.
                13563 emphasizes the importance of quantifying both costs and benefits,
                of reducing costs, of harmonizing rules, and of promoting flexibility.
                This rule is not a significant regulatory action and therefore, this
                rule was not subject to the review of the Office of Information and
                Regulatory Affairs (OIRA) under section 6(b) of E.O. 12866. This rule
                is not a major rule under 5 U.S.C. 804.
                [[Page 20609]]
                VI. Executive Order 13771
                 This proposed rule is expected to be an E.O. 13771 deregulatory
                action. Details are provided in section III of this preamble.
                VII. Regulatory Flexibility Act
                 DoD, GSA, and NASA do not expect this rule to have a significant
                economic impact on a substantial number of small entities within the
                meaning of the Regulatory Flexibility Act 5 U.S.C. 601 et seq. However,
                an Initial Regulatory Flexibility Analysis (IRFA) has been performed
                and is summarized as follows:
                 DoD, GSA, and NASA are proposing to amend the Federal
                Acquisition Regulation (FAR) to change the definition of
                ``commercial item'' so that NDIs that are developed exclusively at
                private expense and sold in substantial quantities to multiple
                foreign governments may be treated as commercial items.
                 The objective is to implement section 847 of the NDAA for FY18.
                The legal basis for this rule is 41 U.S.C. 103(8).
                 The proposed rule impacts all entities who do business with the
                Federal Government, including the over 327,458 small business
                registrants in the System for Award Management database. This
                proposed rule expands the definition of ``commercial item'' for
                nondevelopmental items (NDIs) to include those sold to multiple
                foreign governments. This change will allow more acquisitions to
                fall under the definition of commercial item procurements and use
                standard commercial terms and conditions to the maximum extent
                practicable. This will result in a reduction of statutory and
                regulatory requirements as FAR part 12 contract actions are exempt
                at the prime or subcontract level from various statutes, policies,
                and contracting requirements unique to the federal procurement
                process. Therefore, small businesses would benefit from the
                streamlined processes.
                 The proposed rule does not include additional reporting or
                record keeping requirements.
                 The rule does not duplicate, overlap, or conflict with any other
                Federal rules.
                 There are no available alternatives to the proposed rule to
                accomplish the desired objective of the statute. Small businesses
                will benefit from the streamlined commercial acquisition procedures.
                 The Regulatory Secretariat Division has submitted a copy of the
                IRFA to the Chief Counsel for Advocacy of the Small Business
                Administration. A copy of the IRFA may be obtained from the Regulatory
                Secretariat Division. DoD, GSA and NASA invite comments from small
                business concerns and other interested parties on the expected impact
                of this rule on small entities.
                 DoD, GSA, and NASA will also consider comments from small entities
                concerning the existing regulations in subparts affected by this rule
                consistent with 5 U.S.C. 610. Interested parties must submit such
                comments separately and should cite 5 U.S.C. 610 (FAR Case 2018-008) in
                correspondence.
                VIII. Paperwork Reduction Act
                 This rule does not contain any information collection requirements
                that require the approval of the Office of Management and Budget under
                the Paperwork Reduction Act (44 U.S.C. chapter 35).
                List of Subjects in 48 CFR Part 2
                 Government procurement.
                 Dated: April 22, 2019.
                William F. Clark,
                Director, Office of Government-wide Acquisition Policy, Office of
                Acquisition Policy, Office of Government-wide Policy.
                 Therefore, DoD, GSA, and NASA are proposing to amend 48 CFR part 2
                as set forth below:
                PART 2--DEFINITIONS OF WORDS AND TERMS
                0
                1. The authority citation for 48 CFR part 2 continues to read as
                follows:
                 Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51
                U.S.C. 20113.
                2.101 [Amended]
                0
                2. In paragraph (b)(2), amend paragraph (8) in the definition of
                ``Commercial item'' by removing ``local governments'' and adding in its
                place ``local governments or to multiple foreign governments''.
                [FR Doc. 2019-09703 Filed 5-9-19; 8:45 am]
                 BILLING CODE 6820-EP-P
                

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