Commercial contracting in the federal acquisition environment.
Such a relatively rapid change in direction has understandably found many procurement and contracting professionals lacking experience with the commercial acquisition environment in which they must now function. This article intends to help facilitate the transition from the structured, formal world of FAR acquisition to the rather informal commercial acquisition environment.
To accomplish this task, the best place to start would be to review the definition of "commercial item" contained in FAR 2.101. In the interest of space, the following is an extract of relevant portions:
"Commercial item" (FAR 2.101)
(a) Any item, other than real property, that is of a type customarily used for non-governmental purposes, and that
(1) has been sold, leased, or licensed to the general public; or,
(2) has been offered for sale, lease, or license to the general public;
(b) any item that evolved from an item described in paragraph (a) of this definition and.. .will be available in the commercial marketplace;
(c) any item that would satisfy the criterion in (a) or (b), but for.. .modifications;
(d) any combination of items meeting requirements of (a), (b), or (c);
(e) installation, maintenance or training services.. .procured for support of items in paragraphs (a), (b), (c), or (d).
As may be concluded, this definition is quite broad and could include almost any commercial product, evolution from, modification of, or service to, such a product which is sold or offered for sale to the public.
What is particularly relevant to the procurement and contracting professional is the significant deviation from traditional federal government policies and regulations that is authorized or mandated when acquiring "commercial items" under FAR Part 12.
Let's highlight some of the more substantive deviations of Part 12:
(1) Contracts for "commercial items" shall include only clauses:
(a) "Determined to be consistent with customary commercial practice; or
(b) Required to implement provisions of law applicable to acquisition of commercial items."
(2) Terms and conditions prescribed by Part 12 shall "seek to balance interests of both buyer and seller," and shall not be tailored inconsistent with customary commercial practices;"
(3) Contracts for commercial items "shall rely on contractor's existing commercial quality assurance system;"
(4) USG shall acquire "only technical data and data rights customarily provided to the public with commercial item(s);"
(5) Requirements of FAR Part 49 (termination) "do not apply when terminating contracts for commercial items;" and
(6) FAR cost and pricing data is not to be obtained for commercial items.
As may be concluded, the acquisition of commercial items will necessarily require familiarization with commercial practices and commercial contract law. This application of commercial law is not completely new to federal contracting. The landmark case of Prudential Insurance v. United States established the precedent to utilize the Uniform Commercial Code (UCC) in federal courts to interpret federal contracts. However, the utilization of UCC for Part 12 acquisitions is much more broad than was anticipated prior to establishment of Part 12.
There is some parallel between the deviation from traditional FAR requirements as contained in Part 12 for commercial item acquisition, and those contained in Subpart 13.5 for simplified acquisition procedures (SAP). This does result in some confusion between these two similar, but different FAR sections. Therefore, let's review some relevant portions of Subpart 13.5, to ensure an understanding of the substantive differences.
* Subpart 13.5 provides simplified procedures for acquisition of supplies and services greater than the simplified acquisition threshold (SAT) of $100,000, but not exceeding S5 million.
* The purpose of Subpart 13.5 is to vest contracting officers with "procedural discretion and flexibility" in order to reduce administrative costs, improve SDB opportunities, promote efficiency and economy, and avoid unnecessary burdens for agencies and contractors.
* Simplified acquisition procedures are not limited to acquisition of commercial items, although they could tend to favor commercial item acquisition.
* When acquiring commercial items under 13.5, compliance with FAR Part 12 also is required.
* The authority for simplified acquisition procedures expires December 2002 and is reviewed annually.
As may be noted, there is similarity between Part 12 and Part 13.5 procedures; however, they were established for different purposes and do not necessarily both apply under the same circumstances.
The interesting and challenging aspect of commercial item acquisition in the federal acquisition environment is that the contracting and procurement professional must understand and apply both Federal Acquisition Regulations and commercial contracting principles, including the Uniform Commercial Code (UCC). Therefore, it is appropriate to compare and contrast the contracting principles of these two disparate bodies of law/regulation. It should be noted that any reference to the UCC essentially refers to state commercial code versions of UCC, since every state in the U.S. has enacted the UCC in some form.
Figure 1 (see left) provides a comparison of substantive portions of both the FAR and UCC. This comparison illustrates the significant differences which exist between these two sets of regulation and guideline codes. These differences are important for the contracting and procurement professional to understand in view of cases such as Prudential Insurance v. US. Figure 2 (see p. 19) provides a comparison of FAR Part 12 to the general FAR principles cited in Figure 1. As may be noted, there is more parallel between Part 12 and UCC; however, there are also still substantive differences.
Both of these comparisons clearly reflect that FAR is much more structured and formal than UCC. They also reflect that Part 12 is less formal and incorporates many UCC principles for commercial item acquisitions-- although Part 12 is still substantially different than UCC.
As may be concluded, contracting for acquisition of commercial items under FAR Part 12 is significantly different than procurement under other provisions of the FAR. These differences will necessitate the training of government and contractor personnel in commercial law and commercial contracting practices. It also may require cultural changes to accommodate utilization of less structured commercial acquisition procedures and practices in the federal acquisition environment.
It is appropriate, therefore, for contracting and procurement professionals to seek training that will enable them to successfully transition into the commercial environment. This can be an exciting and enlightening time for those professionals who embrace the changes necessary to excel in the changing federal acquisition environment. CM
Figure 1 Comparison of FAR and UCC FAR/Government UCC/Commercial * Actual contracting authority * Apparent authority is required sufficient * Formal T&C and mandated * Informal and many implied clauses * "Offer" and "acceptance" * Equivocal and/or contrary unequivocal terms * Specific ethics/standards * Good faith/company policy of conduct only * Warranties only as expressed. * Implied and express warranties * Specific inspection/acceptance * Implied and statutory terms for criteria inspection/acceptance/rejection * Damages for contractor default * UCC provides for excess costs, limited plus incidental and consequential damages * Unilateral convenience * No collateral rights termination right * Unilateral changes clause * No unilateral rights * Cost data required over $ * No cost/pricing data rights threshold * Disputes resolution procedure/ * Numerous alternatives limits available * Formal competition required * No such requirement * Authority to audit seller's books * Not generally available Figure 2 Comparison of FAR Part 12 to general FAR principles FAR (Generally) FAR (Part 12) * Actual contracting authority * Unchanged (understandably) required * Formal T&C and mandated * Formality remains; however, clauses commercial clauses and practices generally utilized * "Offer" and "acceptance" * Unchanged in Part 12 unequivocal * Specific ethics/standards * Unchanged; Procurement Integrity of conduct Act not cited, but also not excluded * Warranties only as required * 52.212-4 provides UCC-type and expressed language for warranties of merchantability and fitness for particular purpose * Specific inspection/ * 52.212-4 parallels UCC provisions, acceptance criteria including limitations on right to reject "within a reasonable time" * Damages for contractor * Excludes consequential damages, default limited but is silent on incidental damages (available under UCC?) * Unilateral convenience * 52.212-4 provides abbreviated termination right version of T for C clause-- limited language included on price paid to contractor * Changes clause (unilateral) * No more unilateral rights under Part 12--requires "written agreement of parties" * Cost data required over $ * CAS not applicable; no indication threshold of when cost/pricing data required * Disputes resolution * CDA encourages ADR; CO "decision" procedures/limits still required, however * Formal competition required * Defers to Part 13 requirements, which provides exclusions for "simplified acquisitions" under 13.5 * Authority to audit seller's * 52.212.5 provides audit rights books if over SAP limits and other than a sealed bid procurement
About the Author
ERNEST G. GABBARD, JD, CPCM, CPM, is director of corporate procurement and contracting for Allegheny Technologies, Inc. He is an NCMA Fellow and a member of the Greater Pittsburgh Chapter of NCMA, Send comments on this article to firstname.lastname@example.org.
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|Author:||Gabbard, Ernest G.|
|Article Type:||Brief Article|
|Date:||Sep 1, 2002|
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