Expect vendors to modify products slightly for agencies

The big winners in the latest round of procurement overhauls are surely sellers of
commercial items.


As defined by the Federal Acquisition Streamlining Act last year, such items include
commercial products modified to meet government needs and a few types of commercially
offered services. Now new provisions, enacted as part of the Defense Authorization Act of
1996, will make it easier to buy and sell such items.


The new rules grant exemptions for cost and pricing data, certain contract clauses and
the dreaded Cost Accounting Standards. Also, government agencies will have more
flexibility in buying commercial items with simplified procedures. These innovations
become effective after the Office of Federal Procurement Policy issues the implementing
regulations on or before Jan. 1.


First, purveyors of commercial items need no longer supply certified cost and pricing
data under the Truth in Negotiations Act. But they still may have to supply sufficient
information to establish reasonable pricing. Such data includes "at a minimum,
appropriate information on the prices at which the same item or similar items have
previously been sold."


Because commercial items are defined to include modifications for government use, the
costs of making such modifications also are presumably exempt from the requirement for
certified cost and pricing data. The statute specifically exempts contract modifications,
as long as they do not transform the contract so much that it is no longer for a
commercial item.


Further, the new law exempts commercial item contracts from the Cost Accounting
Standards, the guidelines promulgated for major contractors about accounting methods
required for certain costs. This exemption, however, does not include the cost principles,
which generally prescribe the development costs that can be charged to the government.
Thus, if a contract for a commercial item is modified, the changes still may have to be
priced by using government cost regulations.


To make buying commercial items easier, the new law broadens the applicability of the
so-called simplified procedures. FASA increased the limit for such buying methods on
contracts up to $100,000. The changes in the Defense Authorization Act extend the
simplified procedures, when only offers of commercial items are expected, for procurements
worth up to $5 million.


But what exactly is meant by simplified procedures? Agencies and vendors still must
await the implementing regulations. But the authorization bill did contain an outline. The
procedures must include providing a procurement notice, permitting all responsible sources
to compete, requiring written justification for sole-source contracts and maintaining some
documentation.


This procedure has been adopted as a three-year experiment. If successful, Congress
presumably will make it permanent.


The new law also includes a category of what it calls ultra-commercial items or
commercial, off-the-shelf items. These unmodified items must be offered to the government
in the pristine form in which they are sold commercially.


The Office of Federal Procurement Policy must promulgate a list of federal laws that it
will apply for the procurement of custom items. Basically, this list will include all
"government-unique policies, procedures, requirements or restrictions." Even so,
COTS buys will not be exempt from certain laws, specifically those that give criminal or
civil penalties, certain small business programs and procedures for bid protests.


Contracts for commercial items, as well as others, will shrink when OFPP exercises its
power under the new law to eliminate certifications. Unless a certification requirement is
imposed by statute or there is a written finding to support it, it must be removed.


This apparent benefit could be a trap for unwary contractors. Although the
certifications may vanish, the underlying legal requirements will remain. Vendors still
are charged with having a constructive knowledge of the law, even if they no longer have a
certification process to force them to learn the regulations or remind them to comply with
the laws.


When the new regime becomes effective, it will hardly pay any more to sell the
government customized goods and services. Instead, vendors will search to find a way to
adapt their commercial wares for the government.


Joseph J. Petrillo is an attorney with the Washington firm of Petrillo &
Associates. William E. Conner, an associate in the firm, contributed to this column.


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