Presented By: Cost & Pricing CenterTom Walker

November 15, 2013

COMMERCIAL ITEM DETERMINATION & PRICING (CID&P) PILOT - PATH FORWARD

GOAL

Develop options for enhanced capability

within DCMA to meet buying office and

internal DCMA requests for commercial item

determination and pricing support;

A (CID&P) “Cadre”

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New imperative: 2013 NDAA, Section 831(b)

WHY?

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• 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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Observations to Date

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;6

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 212.1—ACQUISITION 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 ITEMS—

GENERAL• 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 15.411

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

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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

• 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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Assumptions/Caveats

Management Analyst

CID&P Structure – Next Step

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Commercial Pricing Hub Site

Lead (Supervisor)

1102 CID&P Analysts

NavyPrice

Fighters

-Analysts-Engineers

- 6 C/P Analysts

Dedicated Organizational Structure Within Cost & Pricing CenterCadre of experts = Commercial Pricing Hub Site (8 FTEs)*

DCMAEngineering

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

• 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

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Pros/Cons

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

Summary

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• 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!

Backup Slides

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