In this final session related to Commercial Item Determinations, we will look at “of a type” or “similar-to” items. These are particularly tricky to support in a commercial item determination, but with a few tips, you’ll get it right every time.

Transcript:

My name is Patrick Mathern, and I’m the president of SpendLogic. I apologize for starting late. What actually happened is I forgot to hit the Go Live button, and so I just delivered the whole thing. And I went back to check the chat, and it looks like we’ve got a lot of people saying, “Hey, what the heck’s going on? It’s not working.”

It’s Friday. Happy Friday. We’ll get through this in one piece together, I promise. For those of you that are familiar with SpendLogic, we provide tools, training, and services related to procurement compliance for defense contractors, both primes, and subs. Check us out. I would love to work with you if you’re having issues in anything related to procurement compliance.

Especially, cost and price analysis, source justifications, commercial items, or DCMA, DCAA audit assistance. So, let’s get started here. This is part three in a series of commercial item determination presentations. So, parts one and two, we’re going to review quickly here in a second.

And then we’re going to get right into, of a type, that is the topic for the day today. We’re going to talk about why it’s often problematic, some of the common mistakes, and then how to get it done correctly every time. So, to begin with a review of session one very quickly. We talked about the eight basic definitions in commercial item determinations.

You can look at FAR 2.101 and check that out. Watch that video if you haven’t already, and we’re going to focus in on one very specific piece of that here today. But then number two, on session two, we went back and we talked about documentation related to each of those definitions.

So, again, today’s going to be kinda building upon that and speaking specifically to the documentation related to the of a type commercial item claim. But check out session two if you haven’t already. So today, again, we’re going to be talking about “of a type”. What is of a type? Where does it come from? Why is it important?

For those of you that do commercial item determinations and assertions, you’re going to be very familiar with what this means. What is of a type? Well, in general, it starts out at the very beginning of the 2.101 definition in the FAR. It states, any item other than real property that is, here you go, of a type, right? And then it goes on to talk about some other things.

I’m going to make the case in a moment that the rest of it is very important, actually, more important. But these three little words, of a type, are what give everybody so much trouble, all right? So, let’s get into what that’s all about. So, where I want to start here is really, where did this come from? What’s going on?

Why is it there? What is it actually implying, right? So, the story goes something like this, the government has this stated preference for purchasing commercial items, right? The idea behind this…and it makes a lot of sense, obviously, if you’re a manufacturer or a buyer or a seller, you know, in this world, then you know that anytime you buy something special, it costs more money.

Maybe a special color or anything that’s non-standard, it’s going to cost you more. And oftentimes, the government is buying something that is pretty much the same as what’s being bought and sold in the commercial marketplace. But in some cases, those little differences increase the cost significantly. So, there’s a stated preference for buying commercial, okay?

The idea is simple enough. If it’s offered in the commercial marketplace, go ahead and buy it. The price will be based on marketplace forces, supply and demand. And therefore, you’ll be assured a reasonable price. Because of that assurance of a reasonable price, you get a “get outta jail free card” with regards to TINA, Truth and Negotiations Act.

And as we all know in this industry, that’s a big deal, all right? So, basically what it says is if anybody is transacting over the TINA threshold, currently 2 million bucks, then you have to get certified cost or pricing data, which is a whole kit and caboodle that you don’t want any part of if you don’t have to. And one of the ways, you know, to get out of it, there are many, but one of the ways is to claim commerciality.

It’s a commercial item, therefore, I don’t have to provide certified cost or pricing data. The problem with this is this little piece called, you know, known as of a type, okay? And this is often used as a loophole. Primes and the DCMA, the commercial item group and the DCMA are very leery of of a type, and for good reason.

Once a commercial item determination is set, it’s very hard to pull it back, okay? The commercial item determination will stand until, you know, somebody actively works to withdraw it, which takes a lot of work. In that time, there’s no insight into the inner workings of price. They can’t ask for it because it’s a commercial item.

So therefore, right up front, before they even issue a CID, a Commercial Item Determination, they’re very leery about it. And they go to the nth degree to make sure that it actually fits. So, I’m going to talk to you about a lot of or some of the reasons that it may not fit, and then how to get around these and make sure that your item is documented correctly. So, there’s three most common mistakes that pop up here.

And I’m going to walk through each of these one by one in the slides that follow, but at a real high level. Number one, citing of a type and ignoring the rest of the sentence, big mistake, very common. Number two, failing to connect the exact item to this, you know, “Family of items.” This broader set of items that you’re claiming is commercial. And then number three, neglecting to provide support that shows a commercial marketplace, okay?

Again, the whole idea behind commercial items and giving them this exception to TINA is this idea that market forces are at play with regard to price. You can go back and look at, you know, where the truth and negotiation act comes from and how it was devised.

But the basic idea is the government was getting ripped off, okay? They didn’t know how much they needed to pay for something because nobody else was buying it. And as a result, prices went up and up and up, and they just found tons of cases where they were getting ripped off. So, if commercial items are supposed to still guard against that, then there has to be a commercial marketplace.

I’m getting off on a tangent, I’m very passionate about that point. I’m going to explain it more in a couple of slides. But let’s start with number one. All right, what a lot of our clients have done, what we’ve seen people do is they cite of a type, okay? And they say, “This is of a type that is commercial.” And they ignore the rest of the sentence. The rest of the sentence carries far more weight in the approval of your commercial item assertion than stating of a type.

Stating of a type is basically just waving a flag that says, “Hey, look at me, you’re going to really need to pay attention to how I do this, okay?” So, everything that comes after it, that’s the important stuff. That’s where you got to focus your time and attention in your documentation. So, let’s keep reading. In the definition after of a type, it states customarily used, and I’m paraphrasing here, customarily used by non-governmental agencies or entities for non-governmental purposes, okay?

So, what’s going on there? Why is that stuff there? If you think about it, you know, while there is a separation between price analysis and commercial item determinations, as there should be, they have different purposes, but there is a very distinct tie when you look at this particular piece, right?

If you think a couple of moves down the line, it’s customarily used by non-governmental agencies for non-governmental purposes. The only way that you can abide by that, you know, or abide by that piece of the definition is if it’s an item.

And I know this sounds elementary, but it’s an item that is used by non-government entities, not, you know, companies in private industry for purposes that have nothing to do with government. So what that typically means, and I’m sure there’s exceptions to this, but what that means is that there are market forces at play that maintain the price based on supply and demand.

If you can’t cross this hurdle, or if you don’t document how you abide by this very fundamental piece of the definition, the CID will fail every time, okay? At the prime or at the commercial item group, the DCMA, your commercial item assertion will fail. So you really have to focus on this piece of it after of a type, don’t stop at of a type, you will fail.

Focus on the rest of it. Number two, failure to connect the exact item to the general category. So, this looks something like this, okay? Here’s an example for you. If widgets are considered commercial, you’ve got this family of items called widgets, it’s out there, and I sell doesits, okay?

A doesit is a widget, it’s considered a type of widget. Then since widgets are commercial, my doesit must be commercial. Okay, maybe, right? From the government’s perspective, they’re not going to out of hand just say, “No, it’s not.” They’re going to say, “Well, wait a minute, how do I know that your doesit is comparable to these commercial widgets? What have you done to show me and to explain to me that these two are actually connected in the way that you’re claiming they are?”

And number two, you know, as I look in the proposal, this is the government speaking right now, and something that we see quite often, if your doesit is truly commercial, then why is my thing 5X the price of all the widgets out there? If it’s part of this family, then why aren’t the prices more comfortable? What’s going on here?

Very common mistakes, you’ve really got to show the tie, okay, between your specific item and the family. It’s typically a two-part process. You’ve got to set forth that it is truly a commercial item, that these families of these things are a commercial item. And then you have to show that this widget or this doesit, if you will, is a member of this family. And you’ve got to be very specific in how you show that.

Show form, fit, and function. Show a side by side comparison to show…and by the way, explain price. Make sure that you show that the price is comparable in some way to, you know, what the commercial item looks like in the commercial marketplace. Three, last but not least here, a lot of clients neglect to show that commercial market. And I know I harp on this constantly, but really in talking with the DCMA and talking with the commercial item group, this is the key to all of their reviews, okay?

If they can’t connect it to the commercial marketplace, then they are unable to provide an approval. Now, there are cases where I’m sure that they can make an exception and the case can be made, but it is absolutely an uphill battle if you can’t show a connection to a commercial marketplace. So it goes something like this, all right, we’ve said that my doesit is a type of widget.

We’ve said that widgets are commercial. I’ve offered my doesit for sale, but I’ve never sold any, okay? It’s that “offered for sale” thing in the definition. So now you’ve combined it’s of a type, all right? And I’ve never sold any. So this makes it even harder, all right?

The government is going to say, “Okay, well wait a minute. If there’s no market forces at play, then…and I don’t have a commercial marketplace to look at, then I can’t possibly support that it’s ‘customarily used.’ If it’s customarily used, then there’s going to be an active marketplace, okay?” That’s where they’re coming at this from. “And number two, I can’t possibly give somebody a get out of jail free card for TINA if I can’t see that there’s an active commercial marketplace. I’m going to be locked into this agreement that it’s a commercial item and I’m not going to be able to get information on price down the road because I’ve given this commercial item determination. I’ve approved it.”

So, that’s kinda where they’re coming from there. You’ve got to show that there’s a commercial marketplace. If you don’t do that, you will fail, okay? Bar none, you will fail. So, how are we going to get this right? Here’s a couple of tips and tricks on making sure that you get it right every time. Number one, I’m not going to harp on this too much because I’ve done it so many times here.

But you’ve got to provide examples of the commercial marketplace. So, not only show the commercial marketplace, but the more examples that you can show, the better off you’re going to be. The more that you can show that it’s used for non-governmental purposes, and by the way, customarily used, not like we sell it 99% of the time to the government, but there was this one time that this guy bought it., you know, it was this rich guy and he needed, you know, some ballistic missile bodies or something and he was making a telescope.

Okay, that doesn’t count. You’ve really got to show that customarily used, right? And provide as many examples as you can. Number two, do a side by side comparison if you can to show that you’re of a type, you know, next to that broad family of items. Focus on your form, fit, and function.

Show how it’s similar and how it’s different. Don’t just show how it’s different. If you can show pictures, anything that you can show that makes it clear that this is super similar. The two of them are…you know, there may be some little change for the government, but they are highly similar. The more you can use examples to show that, the better off you’re going to be.

And within that, make sure that you talk about price, okay? Again, this is not a price analysis, but there has to be some connection to price or else it’s going to fail. And number three, make a solid case for everything after of a type, that customarily used portion of the definition.

Customarily used by non-governmental entities for non-governmental purposes, okay? Do not fall down on that. Now, I’ve had people say, “Well, I’m having trouble doing that. How can I show non-governmental purposes and non-governmental entities and customarily used? That’s too hard.” That’s the point. That’s why the government has it there. That’s why the FAR has it in place.

If you struggle with that piece of it, then it’s probably not a commercial item, okay? And that’s why it fails. That’s the whole point of the definition, all right? We’ve been successful in finding creative ways to work with clients to make the case for that. So, if you’re having trouble, be sure to reach out, [email protected], and we can work with you to set something up.

Last but not least, let me see here. Let me check the chat, which by the way, I checked last time. Looks like we got something going on there. Let me check over here. Okay. Looks like the chat mostly talks about, “Hey, where’s Patrick? Why isn’t he streaming right now?”

I apologize for the late start and the misfire there at the beginning. Still not a pro at this, still working at this every week. Thank you for your patience and for everybody that stayed in. Looks like we lost a lot of people there at the first 15 minutes. But anyways, thanks for joining us. We’re going to be doing this again every Friday, same time, actually, not at the same time as today. It will be 15 minutes sooner, 10:00 a.m.

Pacific, 1:00 p.m. Eastern Time. So check back in with us. You can go to spendlogic.com/events if you want to see what’s on tap. We’re going to be focusing on price analysis coming up and doing some price analysis of unicorns, okay? So, something that you’ve never bought or sold in the past, there’s nothing comparable. We’re going to be really focusing in on how to do an adequate price analysis of those items coming up.

Reach out to us at info at spendlogic.com if you have any questions. We work with clients every day on topics very similar to this. Whether you’re buying or you’re selling. We work with clients of all types, large, small, everything in between. So, we’d love to work with you on any of your projects as well. Click to the button to subscribe and I will see you next week.

Thanks again.

 

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