Federal Contract Law: FAR change could be throwback to old-style software buying

Karen Powell

Proposed changes to Federal Acquisition Regulation Part 27 covering patents, data and copyrights won't be greeted with shouts of hallelujah. Still, it's nice to see that after 15 years the FAR Council has finally gotten around to updating the standard contract clause used to acquire software.

The FAR Part 27 rewrite, published May 28 in the Federal Register, covers a lot of ground. As noted in the preamble, some substantive changes were needed to reflect the current state of the law. Most of these are in the sections dealing with copyright and patents. Not much has changed for software licensing, except the addition of a new clause for use with commercial software and a new set of definitions.

Unfortunately, it's here that the FAR Council actually takes a step backward. A little history is needed to explain.

The Federal Acquisition Streamlining Act of 1994 introduced the concept of commercial items to government contracting. This was followed by a new set of rules for commercial item acquisitions in FAR Part 12, including software sold under commercial licenses. Essentially, contracting officers were authorized to accept commercial software licenses, so long as minimal government needs to use, archive and disclose the software for government purposes were permitted.

Since then, commercial software was usually licensed using the procedures in FAR 12.212 rather than the standard data rights clause in FAR 52.227-14. This created some anomalies because the standard clause did not use the term 'commercial computer software.'

Software developed at private expense was called 'restricted rights software' and licensed with 'restricted rights.' The data rights clause is almost always included in the contract. So there was a potential for confusion when a contractor's commercial license was also incorporated.

The proposed rules address this issue by adding a new clause to FAR 52.227-19, called Commercial Computer Software License. The purpose of the clause is to make sure that the minimal rights required by the government mentioned in FAR 12.212 actually make their way into the contract. A specific legend is also provided for marking commercial software. This corrects an oversight that has bedeviled many contractors: Because the commercial item provisions contained no marking requirement, unmarked software is deemed delivered with unlimited rights.

The problem with the proposed rule is its definition of 'commercial computer software.' The FAR Council deviated from the accepted definition of a commercial item. The new definition states simply that the software must be 'sold, leased or licensed to the general public' to qualify as commercial. The definition of commercial items, however, includes developmental items based on commercially available technologies and modifications to commercial items even if the modified version is intended only for the government market. By excluding software derived from commercial products, the rewrite's definition will inhibit the government's ability to buy custom versions of existing applications to meet unique needs.

The new definition is a throwback to the days when contractors had to prove a specific level of commercial sales in order for the parties to take advantage of the relaxed buying requirements for commercial items. Let's hope the FAR Council doesn't send us back to that unhappy past when it finalizes the language.

Karen D. Powell is a lawyer with the Washington law firm of Petrillo & Powell. E-mail her at kdp@petrillopowell.com.

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