COMMERCIAL ITEM DETERMINATION

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COMMERCIAL ITEM DETERMINATION PRICING (CIDP)
PILOT - PATH FORWARD
Presented By Cost Pricing Center Tom
Walker November 15, 2013
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GOAL

• Develop options for enhanced capability
• within DCMA to meet buying office and
• internal DCMA requests for commercial item
  determination and pricing support
• A (CIDP) Cadre

New imperative 2013 NDAA, Section 831(b)
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WHY?

• 2013 NDAA, Section 831(b)
• (b) Training and Expertise- Not later than 270
  days after the date of the enactment of this Act,
  the Under Secretary of Defense for Acquisition,
  Technology, and Logistics shall develop and begin
  implementation of a plan of action to--
• (1) train the acquisition workforce on the use of
  the authority provided by sections 2306a(d) and
  2379 of title 10, United States Code, in
  evaluating reasonableness of price in
  procurements of commercial items and
• (2) develop a cadre of experts within the
  Department of Defense to provide expert advice to
  the acquisition workforce in the use of the
  authority provided by such sections in accordance
  with the guidance issued pursuant to subsection
  (a).
• DCMA designated by Director, Defense Pricing to
  pilot this role

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Observations to Date

• Commercial Item Determinations
• More commercial of a type items are pushing the
  boundaries of the definition
• Prime contractors are prone to simply accepting
  subcontractor commerciality assertions at face
  value
• Pricing
• Subcontractors particularly true commercial
  vendors are not providing the information
  necessary to determine fair and reasonable prices
• Low quantities of commercial sales present issues
  concerning price validation
• Prices for high quantities of government
  purchases not reflective of expected volume
  discounts
• Currency of historical data is often an issue

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Commercial Definition

• Commercial item means --
• (1) Any item, other than real property, that is
  of a type customarily used by the general public
  or by non-governmental entities for purposes
  other than governmental purposes, and--
• (i) Has been sold, leased, or licensed to the
  general public or,
• (ii) Has been offered for sale, lease, or license
  to the general public
• (2) Any item that evolved from an item described
  in paragraph (1) of this definition through
  advances in technology or performance and that is
  not yet available in the commercial marketplace,
  but will be available in the commercial
  marketplace in time to satisfy the delivery
  requirements under a Government solicitation

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Commercial Definition (Cont.)

• Commercial item means --
• (3) Any item that would satisfy a criterion
  expressed in paragraphs (1) or (2) of this
  definition, but for --
• (i) Modifications of a type customarily available
  in the commercial marketplace or
• (ii) Minor modifications of a type not
  customarily available in the commercial
  marketplace made to meet Federal Government
  requirements. Minor modifications means
  modifications that do not significantly alter the
  nongovernmental function or essential physical
  characteristics of an item or component, or
  change the purpose of a process. Factors to be
  considered in determining whether a modification
  is minor include the value and size of the
  modification and the comparative value and size
  of the final product. Dollar values and
  percentages may be used as guideposts, but are
  not conclusive evidence that a modification is
  minor

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Commercial Definition (Cont.)

• Commercial item means --
• (4) Any combination of items meeting the
  requirements of paragraphs (1), (2), (3), or (5)
  of this definition that are of a type customarily
  combined and sold in combination to the general
  public
• (5) Installation services, maintenance services,
  repair services, training services, and other
  services if--
• (i) Such services are procured for support of an
  item referred to in paragraph (1), (2), (3), or
  (4) of this definition, regardless of whether
  such services are provided by the same source or
  at the same time as the item and
• (ii) The source of such services provides similar
  services contemporaneously to the general public
  under terms and conditions similar to those
  offered to the Federal Government

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Commercial Definition (Cont.)

• Commercial item means --
• (6) Services of a type offered and sold
  competitively in substantial quantities in the
  commercial marketplace based on established
  catalog or market prices for specific tasks
  performed or specific outcomes to be achieved and
  under standard commercial terms and conditions.
  For purposes of these services
• (i) Catalog price means a price included in a
  catalog, price list, schedule, or other form that
  is regularly maintained by the manufacturer or
  vendor, is either published or otherwise
  available for inspection by customers, and states
  prices at which sales are currently, or were
  last, made to a significant number of buyers
  constituting the general public and

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Commercial Definition (Cont.)

• Commercial item means --
• (ii) Market prices means current prices that
  are established in the course of ordinary trade
  between buyers and sellers free to bargain and
  that can be substantiated through competition or
  from sources independent of the offerors.
• (7) Any item, combination of items, or service
  referred to in paragraphs (1) through (6) of this
  definition, notwithstanding the fact that the
  item, combination of items, or service is
  transferred between or among separate divisions,
  subsidiaries, or affiliates of a contractor or
• (8) A nondevelopmental item, 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.

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Commercial Item Determinations

• SUBPART 212.1ACQUISITION OF COMMERCIAL ITEMS -
  GENERAL(Revised March 12, 2012)
• 212.102 Applicability.
• (a)(i) When using FAR part 12 procedures for
  acquisitions exceeding 1 million in value,
  except for acquisitions made pursuant to FAR
  12.102(f)(1), the contracting officer shall
• (A) Determine in writing that the acquisition
  meets the commercial item definition in FAR 2.101
  or meets the criteria at FAR 12.102(g)(1)
• (B) Include the written determination in the
  contract file and
• (C) Obtain approval at one level above the
  contracting officer when a commercial item
  determination relies on subsections (1)(ii), (3),
  (4), or (6) of the commercial item definition
  at FAR 2.101.
• (ii) Follow the procedures at PGI 212.102(a)
  regarding file documentation.

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CIDs (Cont.)

• PGI 212.1--ACQUISITION OF COMMERCIAL
  ITEMSGENERAL
• PGI 212.102 Applicability.
• (a) Contracting officers shall ensure that
  contract files fully and adequately document the
  market research and rationale supporting a
  conclusion that the commercial item definition in
  FAR 2.101 has been satisfied. Particular care
  must be taken to document determinations
  involving modifications of a type customarily
  available in the marketplace, and items only
  offered for sale, lease, or license to the
  general public, but not yet actually sold,
  leased, or licensed. In these situations, the
  documentation must clearly detail the particulars
  of the modifications and sales offers. When such
  items lack sufficient market pricing histories,
  additional diligence must be given to
  determinations that prices are fair and
  reasonable as required by FAR Subpart 15.4

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Commercial Pricing

• 15.403-1 -- Prohibition on Obtaining Certified
  Cost or Pricing Data (10 U.S.C. 2306a and 41
  U.S.C. 254b).
• (3) Commercial items. is exempt from the
  requirement for certified cost or pricing data.
• modifications of a commercial item are not
  exempt from the requirement for submission of
  certified cost or pricing data on the basis of
  the exemption provided for at FAR 15.403-1(c)(3)
  if the total price of all such modifications
  under a particular contract action exceeds the
  greater of the threshold for obtaining certified
  cost or pricing data in 15.403-4 or 5 percent of
  the total price of the contract at the time of
  contract award.

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Commercial Pricing

• 252.215-7009 Proposal Adequacy Checklist.
• 19. FAR 15.408, Table 15-2, Section II Paragraph
  A - Does the proposal include a price analysis
  for all commercial items offered that are not
  available to the general public?

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Commercial Pricing

• Price Analysis
• Comparison of proposed prices (competition)
• Historical Pricing
• Parametrics
• Competitive published prices
• Comparison to IGCE
• Comparison to prices obtained through market
  research
• Data other than certified cost/price data from
  offeror

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Commercial Pricing

• Subcontract Price Analysis (15.404-3)
• CO is responsible for the determination of a fair
  and reasonable price for the prime contract,
  including subcontracting costs
• prime contractor or subcontractor shall
• Conduct appropriate cost or price analyses to
  establish the reasonableness of proposed
  subcontract prices
• Include the results of these analyses in the
  price proposal
• When required, submit subcontractor certified
  cost or pricing data as part of its own certified
  cost or pricing data.

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Major Weapon Systems

• Secretary of Defense determines
• Subsystems
• If system is commercial or
• CO determination of commercial AND sufficient
  info to determine reasonableness
• Components/Spares (other than COTS)
• System or Subsystem determined commercial or
• CO determination AND sufficient information

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Way Forward

• Not later than 270 days after the date of the
  enactment of this Act, the Under Secretary of
  Defense for Acquisition, Technology, and
  Logistics shall develop and begin implementation
  of a plan of action.
• 28 September 2013

The DCMA/Navy Pricefighter team currently working
pilot projects fulfills this mandate Results
previously briefed indicate opportunities for
improved Commercial Item Determinations and
pricing of Commercial Items across the Department
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Assumptions/Caveats

• Resources available for DoD Commercial pricing
  capability will be constrained in accordance with
  DoD POM submissions to comply with Budget Control
  Act
• Continued Navy Pricefighter Support is a priority
• Will require both additional budget and manpower
  authorizations
• DPAP funding for DCMA travel and Pricefighter
  support (labor and travel) will be available
• Commercial pricing path forward dependent upon
  policy/regulatory framework to be established

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CIDP Structure Next Step
Dedicated Organizational Structure Within Cost
Pricing Center Cadre of experts Commercial
Pricing Hub Site (8 FTEs)
Hub Site Director

• Intend to hire incrementally
• Demand/funding will drive pace
• Key unknown is the extent to which
• DoD PCOs are driven to use capability

Commercial Pricing Hub Site Lead (Supervisor)
Management Analyst
1102 CIDP Analysts
Navy Price Fighters
DCMA Engineering
- 6 C/P Analysts
-Analysts -Engineers
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Pros/Cons

• Pros
• Creates real organizational entity responsible
  for commercial pricing
• Simplifies reporting
• Eliminates competition for resources (Overhead
  Should Cost Reviews and pricing surge efforts
  currently compete for same expertise)
• Focuses functional experience/expertise
• Consistency in Commercial Item Determinations and
  Pricing across services
• Facilitates training of Commercial Pricing Cadre
• Facilitates standardized Commercial Item
  Determination/Pricing Tool development
• Cons
• Creates specialized niche in terms of Cost
  Pricing Center skillsets
• Not resource neutral

Substantial uncertainty as to demand for support.
Policy/regulatory direction as to breadth and
depth of review on proposed commercial items will
be the key determinant of resources required
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Summary

• Development of a Commercial Capability is
  required by law
• Director of Defense Pricing has identified DCMA
  to pilot this effort
• Pilot project underway to determine needs and
  structure
• Recommend a core capability to be developed
  within the DCMA Cost Pricing Center and Navy
  Pricefighters
• Initial DCMA team will stand up under an existing
  hub site
• When mature, a readily identifiable capability
  will stand up to provide
• Assistance with Commercial Item Determinations
• Price Reasonableness evaluations
• Policy framework will determine magnitude of
  effort and drive funding requirements

Pilot is Proceeding and DCMA is Ready for the
Next Step Toward a Full Commercial Pricing
Capability!
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Backup Slides