MISGUIDED "COMMERCIAL ITEM" CONTRACTING

One of the government contracting reform measures of the 1990's was to try to make government contracting more like commercial buying.  Members of Congress were impressed with the argument that more firms would compete and costs to the government would be lower if the government bought more like private companies buy in the strictly commercial world.  As it turned out, Congress did not make government contracting in the image of commercial contracting and may have introduced more problems than it set out to solve.

As a matter of fact, much of what is purchased by the government under commercial contracts is not really commercial at all.  The Defense Science Board (DSB), a DOD advisory group, has long questioned just what type of modifications are permitted before a product, or service for that matter, no longer even resembles the commercial product or service.  We might add that in our experience, we have not really seen many services that could really qualify as commercial.  The DSB has noted "commercial" buying involves products ranging from "as is" with modifications going from minor to something the government wants but does not even yet exist.

Changes to the definitions of commercial items are afoot.  But not for the reasons we will suggest.  Congress currently is considering narrowing the expanded definition so as to require contractors to submit cost or pricing data (which is not required if the item is commercial -- and is also not required if there is adequate price competition).

We think commercial buying -- true commercial buying -- is a good idea.  But we would limit its application to buying commercial products "as is" and with minor modifications.  (We're not sure commercial buying really has real application to services in the public sector.)  And, we would afford commercial item contractors the full panoply of rights and remedies available under the Uniform Commercial Code (UCC).

One of the most, if not the most egregious errors in the legal world of public contracting is the termination for convenience clause in federal commercial contracts.  Under the UCC, termination would be a breach that entitles the contractor to recover all of its reasonable costs associated with the termination plus its lost anticipated profit.  Instead, we have a poorly and narrowly written clause with an even narrower interpretation from the Armed Services Board of Contract Appeals (ASBCA) in Red River which denied the contractor recovery of preparatory costs incurred before termination and which can be read to deny costs continuing after termination.  The case has been reversed and remanded but the rules on cost recovery in termination for convenience of commercial item contracts is far from certain since the reversal has no binding effect in other cases.

It just makes no sense that a commercial item supplier will recover less in a termination for convenience that its regular contractor counterpart will recover in a noncommercial setting.  And, it certainly makes little sense to us to deny the contractor its UCC-type remedies.

So this is our call to redraw the commercial buying landscape.  The definition of commercial item buying must be limited to "as is" and minor modification items.  Whether services should be covered at all should be carefully reviewed.  Finally, the termination for convenience error must be corrected.  Contractors must have at least the same rights as noncommercial contractors.  


However, we would like to see the principles in FAR Parts 12 and 13 and in the UCC applied to a broader range of federal procurements especially with regard to small business set asides.


bill@spriggslawgroup.com; bill@spriggsconsultingservices.com