Federal Acquisition Regulation: Definition of “Commercial Item”, 20607-20609 [2019-09703]

Agencies

• DEPARTMENT OF DEFENSE
• General Services Administration
• National Aeronautics and Space Administration

[Federal Register Volume 84, Number 91 (Friday, May 10, 2019)]
[Proposed Rules]
[Pages 20607-20609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09703]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Part 2

[FAR Case 2018-008; Docket No. 2018-0008, Sequence No. 1]
RIN 9000-AN68


Federal Acquisition Regulation: Definition of ``Commercial Item''

AGENCY: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: DoD, GSA and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to implement a section of the National 
Defense Authorization Act for Fiscal Year 2018 to revise the definition 
of a ``commercial item.''

DATES: Interested parties should submit comments to the Regulatory 
Secretariat Division at one of the addresses shown below on or before 
July 9, 2019 to be considered in the formulation of a final rule.

ADDRESSES: Submit comments in response to FAR Case 2018-008 by any of 
the following methods:
     Regulations.gov: https://www.regulations.gov.
    Submit comments via the Federal eRulemaking portal by entering 
``FAR Case 2018-008'' under the heading ``Enter Keyword or ID'' and 
selecting ``Search.'' Select the link ``Comment Now'' that corresponds 
with ``FAR Case 2018-008.'' Follow the instructions provided on the 
screen. Please include your name, company name (if any), and ``FAR Case 
2018-008'' on your attached document.
     Mail: General Services Administration, Regulatory 
Secretariat Division (MVCB), ATTN: Ms. Lois Mandell, 1800 F Street NW, 
2nd floor, Washington, DC 20405.
    Instructions: Please submit comments only and cite ``FAR case 2018-
008'' in all correspondence related to this case. All comments received 
will be posted without change to https://www.regulations.gov, including 
any personal and/or business confidential information provided. To 
confirm receipt of your comment(s), please check www.regulations.gov, 
approximately two to three days after submission to verify posting 
(except allow 30 days for posting of comments submitted by mail).

FOR FURTHER INFORMATION CONTACT: For clarification of content, contact 
Ms. Zenaida Delgado, Procurement Analyst, at 202-969-7207. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat Division at 202-501-4755. Please cite ``FAR Case 
2018-008.''

SUPPLEMENTARY INFORMATION: 

I. Background

    DoD, GSA, and NASA are proposing to amend the Federal Acquisition 
Regulation (FAR) to change the definition of ``commercial item'' at FAR 
2.101, so that the regulatory definition conforms to statutory changes 
made to the definition by section 847 of the National Defense 
Authorization Act (NDAA) for Fiscal Year (FY) 2018 (Pub. L. 115-91, 
enacted December 12, 2017). The rule would broaden the definition to 
allow certain additional items developed exclusively at private expense 
to qualify for the benefits associated with being treated as a 
commercial item. Section 847 amends the definition of ``commercial 
item'' at 41 U.S.C. 103(8) to expand the universe of nondevelopmental 
items (NDIs) that qualify as commercial items to include items sold in 
substantial quantities on a competitive basis to multiple foreign 
governments.
    The statutory and regulatory definition of ``commercial item'' is 
broad and covers a wide range of products and services. It includes:
     Products, other than real property, that have been offered 
for sale, lease, or license to the public. Possible indications that an 
item is commercial are a commercial sales history, listing in catalogs 
or brochures, an established price, and distributors. Examples of 
commercial items bought by agencies are transport aircraft, computers, 
medicine, and fuel. The commercial market is global; commercial items 
are not limited to the domestic commercial market.
     Products that evolved through advances in technology or 
performance and will be available in the commercial market in time to 
meet the delivery requirements of the solicitation. Examples of such 
items are product updates, model changes, and product improvements such 
as new versions of software.
     Products that have received minor modifications to meet 
agency requirements. To be considered minor, a modification may not 
significantly alter the product's nongovernmental function or essential 
physical

[[Page 20608]]

characteristics. In determining whether a modification is minor, 
agencies should consider the value and size of the modification and the 
comparative value and size of the final product.
     Products that were created by integrating commercial 
subsystems and components into a unique system. For example, a computer 
system composed of commercial subsystems would be considered a 
commercial item. Another example is industrial plant equipment that 
combines commercial components into a unique item based on customer 
needs.
     Installation services, maintenance services, repair 
services, training services, and other services procured to support a 
commercial product. Help desks, call centers, warranty repair services, 
user training, equipment installation, and other services related to 
item support are examples.
     Standalone services offered and sold competitively, in 
substantial quantities, in the commercial marketplace based on 
established catalog or market prices for specific tasks performed and 
under standard commercial terms and conditions. Construction, research 
and development (R&D), warehousing, garbage collection, and 
transportation of household goods are examples.
     NDIs, 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. NDI is defined separately in FAR 2.101. An NDI includes an 
item of supply used exclusively for governmental purposes by a Federal 
agency, a State or local government, or a foreign government with which 
the United States has a mutual defense cooperation agreement. Examples 
include--
    [cir] Protective vests used by police departments and rescue 
equipment used by fire and rescue units;
    [cir] Defense products previously developed by defense agencies of 
U.S. allies and used exclusively for governmental purposes by Federal 
agencies, state or local governments, or a foreign government;
    [cir] Items that require only minor modifications to meet the 
requirements of the procuring agency; and
    [cir] A mechanical dereefer (mechanism for releasing parachute 
reefing lines) used with the U.S. Army's cargo parachutes that was 
developed for and first used by the Canadian Army.

II. Discussion and Analysis

    This proposed rule will amend the definition of commercial item in 
FAR part 2 to reflect the statutory change made by section 847. 
Specifically, the rule would add the phrase ``or to multiple foreign 
governments'' at the end of paragraph (8).

III. Expected Impact of the Proposed Rule

    This rule allows for more transactions to follow requirements for 
commercial items. This simplifies the transaction in terms of fewer 
Government reporting requirements and should decrease the cost per 
transaction for both the Government and the contractor. Under the 
proposed rule, for the first time, NDIs that are developed exclusively 
at private expense and sold in substantial quantities to multiple 
foreign governments may be treated as commercial items.
    Because commercial items, which include commercially available off-
the-shelf items, are sold to the Government in the same way as NDIs, 
the Government can take advantage of the previous testing and general 
acceptance of the product in the commercial marketplace or by a state, 
local, or foreign government.
    To promote the Government's acquisition of commercial items, the 
law and FAR part 12 create a preference for buying commercial items and 
provide relief from certain record-keeping, reporting, and compliance 
requirements. According to an analysis published by the Section 809 
Panel in its May 2017 Interim Report, commercial item acquisitions are 
subject to up to 138 contract clauses, while acquisitions for NDIs that 
do not meet the commercial item definition as well as acquisitions for 
non-commercial items could be subject to nearly 500 clauses, depending 
on the principal type and purpose of the contract. For example, a 
commercial firm selling an NDI today to multiple foreign governments in 
substantial quantities could face compliance costs with the Truth In 
Negotiations Act (TINA), which requires implementation of government-
specific business systems for any modifications to competitively 
awarded items. Policies governing commercial item acquisitions favor 
reliance on commercial sector business practices and use of standard 
commercial terms and conditions to the maximum extent practicable. Each 
of these dimensions of the commercial item framework contributes to 
more simplified and less costly transactions.
    DoD, GSA, and NASA are unable to monetize the cost savings, because 
procurement data is not captured in a manner that enables a 
determination to be made regarding how many NDIs developed exclusively 
at private expense have been sold or are expected to be sold to 
multiple foreign governments in substantial quantities, that are not 
also sold in substantial quantities to multiple State and local 
governments.
    Accordingly, DoD, GSA, and NASA welcome feedback, especially from 
respondents who would expressly benefit from this rulemaking, such as: 
(i) Identification of any transactional information (e.g., Procurement 
Instrument Identifiers (PIIDs)) associated with contracts awarded in 
the past 10 years that would have benefitted from the rule had it been 
in effect; (ii) any information that might help the regulatory drafters 
better understand--both qualitatively and quantitatively--the savings 
and/or cost avoidance that the rule will provide; and (iii) -potential 
burden reductions associated with future regulatory actions that 
facilitate broader acquisition of commercial items. In responding to 
item (ii), respondents are encouraged to discuss, to the extent 
possible, specific components of savings and cost-avoidance (e.g., 
identify savings and/or cost-avoidance associated with specific clauses 
that would no longer be required as a result of this regulatory 
change).

IV. Applicability To Contract At or Below the Simplified Acquisition 
Threshold and for Commercial Items, Including Commercially Available 
Off-the-Shelf Items

    This rule proposes to amend the FAR to change the definition of 
``commercial item''. The revision does not add any new solicitation 
provisions or clauses, or impact any existing provisions or clauses.

V. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This rule is not a significant regulatory action and therefore, this 
rule was not subject to the review of the Office of Information and 
Regulatory Affairs (OIRA) under section 6(b) of E.O. 12866. This rule 
is not a major rule under 5 U.S.C. 804.

[[Page 20609]]

VI. Executive Order 13771

    This proposed rule is expected to be an E.O. 13771 deregulatory 
action. Details are provided in section III of this preamble.

VII. Regulatory Flexibility Act

    DoD, GSA, and NASA do not expect this rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act 5 U.S.C. 601 et seq. However, 
an Initial Regulatory Flexibility Analysis (IRFA) has been performed 
and is summarized as follows:

    DoD, GSA, and NASA are proposing to amend the Federal 
Acquisition Regulation (FAR) to change the definition of 
``commercial item'' so that NDIs that are developed exclusively at 
private expense and sold in substantial quantities to multiple 
foreign governments may be treated as commercial items.
    The objective is to implement section 847 of the NDAA for FY18. 
The legal basis for this rule is 41 U.S.C. 103(8).
    The proposed rule impacts all entities who do business with the 
Federal Government, including the over 327,458 small business 
registrants in the System for Award Management database. This 
proposed rule expands the definition of ``commercial item'' for 
nondevelopmental items (NDIs) to include those sold to multiple 
foreign governments. This change will allow more acquisitions to 
fall under the definition of commercial item procurements and use 
standard commercial terms and conditions to the maximum extent 
practicable. This will result in a reduction of statutory and 
regulatory requirements as FAR part 12 contract actions are exempt 
at the prime or subcontract level from various statutes, policies, 
and contracting requirements unique to the federal procurement 
process. Therefore, small businesses would benefit from the 
streamlined processes.
    The proposed rule does not include additional reporting or 
record keeping requirements.
    The rule does not duplicate, overlap, or conflict with any other 
Federal rules.
    There are no available alternatives to the proposed rule to 
accomplish the desired objective of the statute. Small businesses 
will benefit from the streamlined commercial acquisition procedures.

    The Regulatory Secretariat Division has submitted a copy of the 
IRFA to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of the IRFA may be obtained from the Regulatory 
Secretariat Division. DoD, GSA and NASA invite comments from small 
business concerns and other interested parties on the expected impact 
of this rule on small entities.
    DoD, GSA, and NASA will also consider comments from small entities 
concerning the existing regulations in subparts affected by this rule 
consistent with 5 U.S.C. 610. Interested parties must submit such 
comments separately and should cite 5 U.S.C. 610 (FAR Case 2018-008) in 
correspondence.

VIII. Paperwork Reduction Act

    This rule does not contain any information collection requirements 
that require the approval of the Office of Management and Budget under 
the Paperwork Reduction Act (44 U.S.C. chapter 35).

List of Subjects in 48 CFR Part 2

    Government procurement.

    Dated: April 22, 2019.
William F. Clark,
Director, Office of Government-wide Acquisition Policy, Office of 
Acquisition Policy, Office of Government-wide Policy.

    Therefore, DoD, GSA, and NASA are proposing to amend 48 CFR part 2 
as set forth below:

PART 2--DEFINITIONS OF WORDS AND TERMS

0
1. The authority citation for 48 CFR part 2 continues to read as 
follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 51 
U.S.C. 20113.


2.101   [Amended]

0
2. In paragraph (b)(2), amend paragraph (8) in the definition of 
``Commercial item'' by removing ``local governments'' and adding in its 
place ``local governments or to multiple foreign governments''.

[FR Doc. 2019-09703 Filed 5-9-19; 8:45 am]
 BILLING CODE 6820-EP-P