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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: August 28, 2000

FROM: Barry McVay, CPCM

SUBJECT: Federal Acquisition Regulation (FAR); Acquisition of Commercial Items

SOURCE: Federal Register, August 28, 2000, Vol. 65, No. 167, page 52283

AGENCIES: Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA)

ACTION: Proposed Rule

SYNOPSIS: It is proposed that the FAR be amended to implement two statutory changes relevant to the definition of "commercial items", and to make other changes related to the acquisition of commercial items, including conforming contractor liability for property loss or damage to commercial practice.

DATES: Submit comments on or before October 27, 2000.

ADDRESSES: Submit comments to General Services Administration, FAR Secretariat (MVRS), 1800 F Street, NW, Room 4035, ATTN: Laurie Duarte, Washington, DC 20405, e-mail: farcase.2000-303@gsa.gov. Cite FAR case 2000-303 in all correspondence related to this proposed rule.

FOR FURTHER INFORMATION CONTACT: Victoria Moss, Procurement Analyst, 202-501-4764.

SUPPLEMENTAL INFORMATION: Paragraph (12)(A) of 41 U.S.C. 403 provides the following definition for "commercial item" (in part): "Any item, other than real property, that is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes, and that (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." This definition is taken verbatim from Public Law 103-355, Federal Acquisition Streamlining Act of 1994 (FASA), Title VIII, Commercial Items, Section 8001, Definitions.

Since then, there have been two statutory changes to the definition:

  1. Public Law 105-261, the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999, Section 803, Defense Commercial Pricing Management Improvement, requires that the FAR provide "specific guidance" on "the meaning and appropriate application of the term 'purposes other than governmental purposes' in section 4(12) of the Office of Federal Procurement Policy Act (41 U.S.C. 403(12))."

  2. Public Law 106-65, the National Defense Authorization Act for Fiscal Year 2000, Section 805, Clarification of Definition of Commercial Items with Respect to Associated Services, states that "installation services, maintenance services, repair services, training services, and other services" are considered commercial if "(i) the services are procured for support of a [commercial] item...regardless of whether such services are provided by the same source or at the same time as the item; and (ii) the source of the services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the federal government."

The present definition of "commercial item" in paragraph (a) of FAR 2.101, Definitions, and paragraph (c)(1) of FAR 52.202-1, Definitions, is (in part) "any item, other than real property, that is of a type customarily used for nongovernmental purposes and that (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." Also, paragraph (e) of FAR 2.101 and paragraph (c)(5) of FAR 52.202-1 provide that installation services, maintenance services, repair services, training services, and other services are considered commercial "if the source of such services (1) offers such services to the general public and the federal government contemporaneously and under similar terms and conditions; and (2) offers to use the same work force for providing the federal government with such services as the source uses for providing such services to the general public..."

To bring the "commercial item" definition into conformance with these two statutory changes:

In addition, to FAR 2.101(f) and FAR 52.202-1(c)(6) would be added definitions of "catalog price" and "market price" to further clarify the statement that "commercial services" are "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 under standard commercial terms and conditions." ("'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 (2) 'Market Prices' mean 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.")

Also, FAR 12.209, Determination of Price Reasonableness, would be revised to add the following guidance to help make contracting officers aware of customary commercial terms and conditions related to the determination of price reasonableness when pricing commercial items: "Commercial item prices are affected by factors that include, but are not limited to, speed of delivery, length and extent of warranty, limitations of seller's liability, quantities ordered, length of the performance period, and specific performance requirements. The contracting officer must ensure that contract terms, conditions and prices are commensurate with the government's need."

Finally, FAR 46.804, Items Prices At or Based on Catalog or Market Prices, which addresses contractor liability insurance for defective items, would be removed because it is at variance with paragraph (p) of FAR 52.212-4, Contract Terms and Conditions -- Commercial Items, which addresses limitation of liability for property loss or damage. The exception to FAR 52.212-4(p) ("except as otherwise provided provided by an express or implied warranty") would be revised by deleting "or implied". This change would permit contractors to take advantage of the latitude provided by the Uniform Commercial Code, which allows sellers to exclude the application of an implied warranty through the terms of an express warranty.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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