Background The Federal Acquisition Streamlining Act of 1994 established a  preference within the federal government to procure commercial items  rather than items developed exclusively for the government. Between  fiscal years 2013 and 2018, Congress passed additional legislation to  address various aspects of how DOD defines and purchases commercial  items, and how DOD makes commercial item and price reasonableness  determinations. For example, legislation passed in 2015 included a  provision stating DOD contracting officers may presume that previously  established commercial item determinations shall serve as determinations  for future procurements of an item. The law further stipulated that if a  prior determination is not used for an item previously determined to be  commercial, the contracting officer must request a review by the head of  the contracting activity to either confirm that it is still valid or issue a  revised determination. In January 2018, DOD revised its regulations and corresponding  procedures, guidance, and information related to the procurement of  commercial items to reflect recent legislative changes. The DFARS was  updated to provide guidance to contracting officers for making price  reasonableness determinations, promote consistency in making  commercial item determinations (including updating guidance regarding  the use of prior determinations), and expand opportunities for  nontraditional defense contractors to do business with DOD. The  department also updated its Guidebook for Acquiring Commercial Items,  which includes information on how to define, determine, and price  commercial items, to reflect the regulatory changes. Also in January  2018, a DOD advisory panel established to help streamline the defense  acquisition process released a report with recommendations to revise  definitions related to commercial buying and minimize government-unique  terms applicable to commercial buying. DOD Process for Making  Determinations When  Acquiring Commercial  Items During the pre-award process for commercial procurement actions over  $1 million, two distinct determinations take place:  1.  a contracting officer must determine in writing whether a product or  service being procured is commercial, and  2.  the contracting officer must determine if the offered price is fair and  reasonable. According to the DOD Guidebook for Acquiring Commercial Items, the  government’s ability to acquire affordable products and services  significantly improves when contracting officers have in-depth knowledge  of the market. The guidebook establishes that market research should be  an ongoing effort throughout the commercial item procurement process  to: (1) identify the industry and market for capabilities or technologies; (2)  identify prices at which the capabilities or technologies have been sold or  offered for sale; and, (3) continuously capture market information at  different points to ensure the best acquisition. When determining a fair  and reasonable price, market research should be conducted in order to  compare the proposed price to market pricing. Figure 1 illustrates the  process contracting officers generally follow to make commercial item and  price reasonableness determinations for more complex procurements. The contracting officer is ultimately responsible for making these  determinations, but, as appropriate, he or she may seek the assistance of  the Defense Contract Audit Agency (DCAA), military service  organizations such as the Navy Price Fighters or the Air Force Pricing  Center of Excellence, or the DCMA Commercial Item Group. The DCMA Commercial Item Group, which became operational in 2016,  provides recommendations on commercial item determinations within  DOD. It has created six Commercial Item Centers of Excellence, each of  which has its own area of market expertise, to assist contracting officers  in making timely and consistent commercial item determinations. These  centers are staffed with engineers and price/cost analysts who advise and  make recommendations on commerciality based on market analysis,  commercial item reviews and determinations, and commercial pricing  analysis. Additionally, the centers provide training and assistance to the  DOD acquisition community on various techniques and tools used to  evaluate commercial items and commercial item pricing. In order to make a commerciality determination, contracting officers may  need information specifying whether the items have been sold or offered  for sale to the general public. And, as noted above, the contracting officer  must determine that the government is getting a fair and reasonable  price. Some of this information may be acquired through market research;  however, as appropriate, the contracting officer may require or request  that the contractors submit information, such as price lists and sales  invoices, with their offers or during the evaluation. For more details on the  information and data required for commercial item and price  reasonableness determinations at different times in the procurement  process, see appendix II. Case Studies  Identified Four  Interrelated Factors  That Influenced  Commercial Item and  Price  Reasonableness  Determinations, but  Generally Did Not  Delay Awards In the case studies we examined, we found four interrelated factors that  influenced how DOD determines if an item is commercial and whether the  price is fair and reasonable, and that each factor had its own set of  challenges: Availability of marketplace information Ability to obtain contractor data Extent of modifications to an item needed to satisfy DOD Reliability of prior commercial item determinations  Despite these challenges, contract award was not typically delayed. In  other cases where DOD was not able to obtain the information or data it  needed to make a determination, the department’s options, such as not  awarding the contract or exploring other suppliers, were often not feasible  because DOD was working in a sole-source environment and not  procuring the item was not an option. Limited Market Information  Can Complicate  Contracting Officers’  Commercial Item and  Price Reasonableness  Determinations When there is a healthy marketplace of items and services that the  government wants to buy, contracting officers can more readily support  their commerciality and price reasonableness determinations. However,  in our review, we identified cases in which limited market information  made such determinations more involved. For example, the Army was  working with a contractor to acquire repair and upgrade services for  navigation systems. The contractor said the services were commercial,  but when the contracting officer conducted market research to determine  the commerciality of the services, she found no similar services available  in the commercial market. According to a contracting official, the Army’s  particular units had to be nuclear hardened to withstand an explosion and  needed some functional interfaces added, which made finding a similar  commercial service difficult. In the end, the DCMA’s Commercial Item  Group officials completed an on-site review of the manufacturing process  to gain an in-depth understanding of the services provided. Using this  additional information, the contracting officer deemed the services  commercial. In contrast, for a previous report on commercial item acquisitions, we  reviewed selected Air Force contracts for information technology services  and video teleconferencing design and installation. Because these items  and services are available in the commercial marketplace, the availability  of information helped the contracting officers efficiently determine that the  items were commercial and that the prices were fair and reasonable. Obtaining Information from  Contractors and  Subcontractors Can Be  Challenging Contracting officials from our case studies had difficulty obtaining  information from contractors after they could not find adequate  information in the marketplace. This difficulty occurred for a number of  reasons, including the contractor’s own challenges in obtaining  information from their subcontractors. While several of the contracts we  reviewed showed that either the prime contractor or subcontractor  eventually provided sufficient information, obtaining this information was  not without difficulties. For example:  In a $1.7 billion Army sole-source contract for helicopter engines, the  prime contractor asserted that two small engine parts—provided by a  subcontractor—were commercial, but did not provide any documents  to support its assertion. After several requests for information on  commercial sales data, the prime contractor provided invoices for a  commercial engine that contained similar engine parts. The prime  contractor representative told us the reason it took so long to provide  the requested information was because the subcontractor would not  provide commercial sales data. As a result, the prime contractor  needed to research commercial engines that used similar parts in  order to support the commerciality assertion. In an $873 million Air Force sole-source contract for aircraft engines,  the contracting officer had difficulty obtaining commercial sales data  through market research for engine castings. The prime contractor did  not initially provide support for its assertion that the castings were  commercial, stating that it had difficulty obtaining supporting  information from its subcontractor. Air Force officials visited the  subcontractor’s facility to determine that the item was a modified  version of a commercial item and was therefore commercial. In a $53 million Navy sole-source contract for KC-130J aircraft  propeller engineering and sustainment services, the contracting officer  told us she had difficulty determining if the proposed prices for these  commercial services were fair and reasonable because the contractor  provided invoices with the prices redacted. After several months of  back and forth, the contractor provided unredacted invoices for similar  services, which the contracting officer used to determine price  reasonableness. A contractor representative told us that the  contractor initially provided the redacted invoices in order to quickly  respond to the Navy’s request for information, but that additional time  was needed to evaluate if releasing the unredacted price information  would violate a contractual agreement the contractor had with its  suppliers. In other cases, the contractor provided information or data that the  contracting officer considered insufficient to support a commercial item or  price reasonableness determination. For example:  In an F-15 aircraft production contract, Air Force contracting officials  had difficulty determining whether the prices of oil bypass valves were  fair and reasonable due to redactions in data the subcontractor  provided. The subcontractor’s proposed price was four times more  than it had previously charged the government for the same item,  according to contracting officials. To support its prices, the  subcontractor provided a commercial price list and customer invoices  with redacted customer information, which the subcontractor  considered to be proprietary. According to contracting officials, the  redacted invoices did not provide enough detail to confirm whether  non-governmental end users were paying a price similar to the  proposed price in the Air Force contract. The subcontractor  subsequently provided a customer list associated with the redacted  invoices. Also, while the subcontractor showed that its proposed price  was lower than its commercial price list, contracting officers did not  consider subcontractor-provided support sufficient to explain why the  proposed price was higher than what the government had previously  paid. According to contracting officials, the prime contractor absorbed  the price difference between the subcontractor’s proposed price and  what the Air Force paid for the valves. On a $2 million Army task order for navigation software upgrades on  Global Positioning System (GPS) units used in missiles, the DCMA  Commercial Item Group obtained redacted invoices and quotes from  a subcontractor to determine commerciality. But this information did  not provide enough detail to substantiate the commerciality  determination. A subcontractor representative told us that the  company provided redacted information to the government because  contractual agreements with its customers required them to not reveal  the customer name. After evaluating multiple factors, the DCMA  Commercial Item Group concluded that the GPS units did not match  the form, fit, or function of the commercial ones, and recommended  that this service and item were not commercial. Contractor representatives cited multiple reasons why they were unable  to provide data (see text box). Examples of Reasons Contractors Cited for Not Providing Data: One prime contractor told us that some subcontractors are  unwilling to provide information, such as unredacted invoices, to  them and therefore prime contractors cannot provide this  information to the government. Some subcontractors we interviewed explained that certain  information, such as customer names and prices paid in invoices,  is considered proprietary data. One subcontractor representative said that while the company  cannot provide unredacted invoices to a prime contractor, it is  willing to provide this information directly to the government, such  as the DCMA Commercial Item Group, which can verify the  content of the invoices at the contractors’ facilities. Additionally, one contractor representative told us that when a previously  determined commercial item is later determined noncommercial, specific  cost or pricing data can be difficult to gather for companies that operate  primarily in the commercial market. This is because these companies  were not previously required to collect and provide this cost or pricing  data to the government. For example, the subcontractor that produces an  item for the Army told us that this item had been previously purchased by  the government on a commercial basis under an agreement that was later  canceled in 2014. When the government later determined this item was  noncommercial, the subcontractor had difficulty providing detailed cost  data for the government’s units because they are procured on the same  manufacturing line as their commercial units. According to contractor  officials, the costs for subcomponents and labor hours for engineers that  work on these units are pooled together with cost for the commercial  business. A contracting officer’s ability to obtain data is further affected once an  item has been deemed commercial. Several contracting officers told us  that once an item is determined commercial, contractors are less willing  to provide any pricing data. While certified cost and pricing data cannot  be required, the government can request uncertified data if needed to  make a price reasonableness determination. As previously noted, we  found cases in which contractor-provided information included redacted  invoices as evidence that an item was commercial. When the government  later requested uncertified cost and pricing data to determine price  reasonableness—after exhausting government and public market  research resources—the contractors were not willing or able to provide  the data. In most cases contractors eventually provided data after  multiple requests. Modified Items Require  Additional Steps Our case studies showed that determining commerciality and price  reasonableness for items that are modified from the commercial variant  can be difficult, in part, because what can be deemed ‘a minor  modification’ is subject to interpretation. The commercial item definition  includes some types of commercial items that have minor modifications  not customarily available in the commercial marketplace, but that are  made to meet federal government requirements. For our case studies,  when prime contractors or subcontractors claimed a modified item was  commercial, contracting officers had to take extra steps to determine  whether the commerciality assertions appropriately met the commercial  item definition, such as completing a comparative analysis of commercial  items to the modified item. However, determinations in our case studies  were challenging to make because the items were generally acquired  through sole-source procurements and had no identified commercial  market. This made it more difficult for the contracting officer to make a  determination based on market research. In one of our case studies, there was a difference of opinion within  DOD as to whether a modified item was commercial. The prime  contractor for an Army sole-source contract procuring modified fuel  systems to meet military safety, crashworthiness, and ballistic  tolerance requirements for Blackhawk helicopters claimed that its  modified fuel system was a commercial item. However the contracting  officer found no commercial market existed for this item so the  contracting officer had to take additional steps. To make a  commerciality determination, the contracting officer sought assistance  from the DCMA Commercial Item Group, which recommended that  the fuel system was not commercial. The contracting officer submitted  a request to waive the requirement for certified cost or pricing data.  The DOD official reviewing the waiver request discovered that the fuel  system had previously been determined commercial for another  helicopter program and the Director of Defense Pricing concurred with  that commerciality determination. Contracting Officers Found  Prior Commercial Item  Determinations Not  Always Accurate Some of our case studies exhibited challenges related to prior  commercial item determinations: The Navy contracted for a radio used in a variety of aircraft throughout  DOD. The contracting officer stated that the radio had been  considered commercial for 20 years. However, for the most recent  follow-on contract the contracting officer, who was new to the  program, reviewed the prior determination and found it to be in error.  In the prior determination the radio was compared to another radio  considered noncommercial. As part of his review for the new  determination, the contracting officer consulted with Air Force officials  because they procure the same radio for some of their aircraft  programs. The contracting officer ultimately determined that the radio  was, in fact, commercial by comparing it—at the suggestion of the Air  Force—to a different radio with similar features that is sold  commercially to the public. According to the contracting officer, the  Navy also benefited because the radio they had purchased for 20  years was also cheaper and more capable than the one that was sold  commercially, to which it was compared. For a $2.5 billion Air Force sole-source contract, the prime contractor  asserted that a cargo part, called a winch—which had previously been  sold to the government as a commercial item—was commercial. However the contracting officer reviewed the support for the prior  commercial item determination and found it was based on sales to a  holding company for a foreign government. Additional information  requested and received included catalog prices and the invoice to the  foreign holding company. The contracting officer determined this  support was not sufficient for determining commerciality because  sales to foreign governments were not considered commercial sales.  Additionally, market research did not yield any commercial sales or  evidence that the part was sold in the commercial marketplace. The  part was determined noncommercial. The National Defense Authorization Act for Fiscal Year 2016 states  contracting officers may presume a prior commercial item determination  made by a DOD component shall serve as a determination for  subsequent procurements of an item. In fact, if a previous determination  is not used, a contracting officer must request that the head of the  contracting activity review the prior determination and either confirm its  validity or issue a revised determination. Most contracting officers with  whom we spoke indicated that prior determinations should be reviewed to  determine if they were made under similar terms and conditions and  whether circumstances have changed since the determinations were  made. We found diverse opinions among contracting officers on whether  they would elevate concerns about a previous determination to the head  of the contracting activity. Some contracting officers said they would  elevate the determination if they had supporting data while others would  be hesitant under most circumstances due to the extensive process  involved. Challenges in Making  Commercial Item and  Price Reasonableness  Determinations Did Not  Typically Delay Contract  Award Despite the different factors involved, for most of our case studies,  challenges in making the commercial item and price reasonableness  determinations did not ultimately affect the government’s ability to award  the contract as planned. The time it took for the contractor to provide  information to the government and the government to make a  determination ranged from a few days to over a year. In most of our case  studies, contracting officials said that this time did not solely affect the  contract award because other factors, such as staff changes or awarding  multiple contracts at the same time, also delayed the process. However, in two of our 15 cases, contracting officers told us they were  delayed in awarding contracts when the contractor did not provide the  requested information in the anticipated timeframe. In one example, an  Army contracting official told us that a contract award was delayed when  a subcontractor did not provide information to the contractor to support its  commerciality assertion. The contracting officer noted that this delay also  placed the program at risk of a funding loss because the service  reallocated funding to another program that it viewed as less risky. Finally, contractors told us that they have taken steps to improve how  they assert the commerciality of their items. For example, several  contractors now use standardized forms to make commercial item  assertions and keep prior assertions in a centralized place. Several  contractor representatives we spoke with also told us that they have an  internal panel of experts review commercial item and price  reasonableness assertions to ensure consistency and that the assertions  meet federal regulations. The contractors’ hope is that these forms and  processes will help reduce the back and forth in requesting information  among the government, prime contractor, and subcontractors. In addition,  some contractor representatives told us that they work with the DCMA  Commercial Item Group to better understand what information contracting  officers are requesting and to obtain assistance with subcontractors that  are unwilling to provide information to the prime contractor. When Information Needed  to Make Commercial Item  and Price  Reasonableness  Determinations Is Not  Readily Available,  Contracting Officers’  Options Are Limited Some contracting officials told us that they have few options at their  disposal when they have difficulty obtaining information from the  contractor to make a commercial item or price reasonableness  determination in a sole-source environment. For example: For a $2 million Army task order for engineering services to upgrade  navigation software and several GPS units with these upgrades, the  contracting officer stated that procuring from an alternative source  was not an option because this GPS was unique to the program and  qualifying a different GPS would cost an estimated $50 million. In a nearly $2 million sole-source delivery order for Blackhawk  helicopter fuel tanks, the Army contracting official told us that the  program needed this fuel tank because the tank’s configuration was  specific to the helicopter. As a result, the contracting official said they  could not walk away from the contractor. The contracting official  further noted that certifying an item from a second source would be  cost and time prohibitive for the government. Although in most of our sole-source case studies other options (e.g.,  contracting with a different vendor) were not viewed as being feasible, we  did have one case where DOD made the choice to not award a contract,  when the government and contractor could not agree on a reasonable  price. DLA wanted to negotiate a long-term contract for night vision  goggles, but after the contracting officer made repeated attempts to  obtain data from the contractor, they could not agree on a fair and  reasonable price. The prices were over 45 percent higher than prices that  DLA had previously paid for the same item. As a result, the acquisition  was canceled, and according to the contracting officer, the government  plans to buy quantities as needed through an existing vehicle. Another option is to elevate issues to DOD management, which can make  a determination on whether an item is commercial and is being offered at  a fair and reasonable price. One example from our case studies includes a $1.7 billion Army sole  source contract for helicopter engines. The contractor asserted  commerciality for the engines, which had historically been procured as  a noncommercial item. After extensive market research, the  contracting officer asked for information from the contractor to support  its commerciality assertion, but had difficulty obtaining it. According to  the contracting officer, the Army discussed the possibility of not  awarding this contract, but this was not considered feasible since the  engine is used in multiple aircraft. After months of back and forth  between the contracting officer and contractor, this commerciality  issue was elevated to the Director of Defense Pricing, who agreed  with the contracting officer’s assessment that the engines were not  commercial and procured them on that basis. Both Formal and  Informal Information  Sharing Efforts Exist,  but With No  Comprehensive  Strategy DOD has taken steps to share more information across the department to  inform commercial item and price reasonableness determinations, but  efforts to date are in early stages of development or happening informally  across the department. Despite these efforts, contracting officers still face  challenges in obtaining adequate information to make informed  commercial item and price reasonableness determinations, in part  because no comprehensive information sharing strategy exists to outline  responsibilities and funding of these efforts. DOD officials told us they  plan to explore other options for the sharing of commercial item  information, such as communities of practice, but have not made any  formal plans. One information sharing effort still in its early stages is the DCMA  Commercial Item Group’s publicly available database, created in 2017 to  centralize commercial item information across DOD. The database,  however, has not been fully established as an effective tool. In its current  form it consists of a spreadsheet primarily listing items that contracting  officers have determined to be commercial. According to DCMA  Commercial Item Group officials, the database contains fewer items than  expected because not all DOD contracting officers have submitted their  commercial item determinations. The Office of Defense Procurement and  Acquisition Policy updated its Guidebook for Acquiring Commercial Items  in January 2018 to state that a commercial item determination is not  complete until the contracting officer submits it to the DCMA Commercial  Item Group along with a summary of pricing information. These  submissions are meant to improve consistency and efficiency in making  commercial item determinations. On February 22, 2018, the Air Force  Deputy Assistant Secretary for Contracting issued a memorandum that  reminded its contracting officers of this responsibility. We found that the database has limitations. For example, it includes only  a list of items evaluated and not the results of recommendations made on  commerciality by the DCMA Commercial Item Group. These  recommendations can be obtained by contacting the office directly.  DCMA officials stated results of their recommendations are specifically  not included in the public database because of concerns that a prime  contractor may prefer a subcontractor with a commercial item  determination over another without one. Most commercial item determinations included in the database go back  only to 2016, since this is when the DCMA Commercial Item Group began  collecting them. Additionally, DCMA Commercial Item Group officials said  they have no funding to support the database. Officials plan to meet with  DOD’s Office of Defense Procurement and Acquisition Policy to discuss  funding and other potential systems to maintain the information as well as  provide DOD officials with direct access to copies of previous  determinations and related information. Defense Procurement and  Acquisition Policy and DCMA officials acknowledged that DOD has not  yet determined who is responsible for the funding and upkeep of this  information. Internal control standards promote assigning responsibility  and delegating authority to key roles to achieve an organization’s  objectives. Without appropriate funding and clearly defined roles and  responsibilities for management and upkeep of the database, its  effectiveness as a tool to provide contracting officers with information to  help make commercial item determinations will continue to be limited. While the database serves as a means to formally share information to  help contracting officers make commercial item and price reasonableness  determinations, contracting officers in our case studies noted instances  where informal sharing of information between programs and services led  to improved outcomes, such as a lower price. For example,  In a $257 million sole source MQ-9 aircraft contract, the Air Force  contracting team questioned whether a modified commercial engine  being provided by a subcontractor was offered at a fair and  reasonable price. While the Air Force contracting team relied on  uncertified cost and pricing data provided by the subcontractor, a  contracting official told us that the team also relied on information  shared by Air Force officials in other programs that were procuring  similar commercial items at the same time. The contracting team  discovered that another contracting official obtained a lower price for a  similar commercial item, and as a result, used this information to  negotiate a lower price. In the procurement for radios used in a variety of aircraft, as  discussed earlier, Navy contracting officials used informal information  sharing to make a commercial item determination. The Navy obtained  information from the Air Force, which was procuring the same radio  and which had performed a review in January 2017 that it shared with  the Navy. The review noted that other similar commercial radios  existed and that a comparison of this radio to these other commercial  radios could help determine that the radio is commercial. Navy  contracting officials, using the Air Force’s review as well as their own  technical analysis, determined the radios were a modified commercial  item. Despite the creation of the database and the informal information sharing  that occurs, contracting officers still face challenges in obtaining adequate  information to make informed commercial item and price reasonableness  determinations. Specifically, DOD lacks a strategy for improving the  sharing of commercial item and price reasonableness information across  the department, such as efforts like the DCMA Commercial Item Group’s  database. Internal control standards promote effective sharing of  information to ensure managers have the information they need to make  informed decisions. In addition, internal control standards state that  management should communicate information internally and assign  responsibilities for key roles while also considering the cost necessary to  communicate the information. In an environment where information is  difficult to obtain from the contractor, as we have outlined in this report,  the ability for contracting officers to have easy access to all necessary  commerciality and pricing information within DOD is critical. If DOD does  not have such information easily available, contracting officers will  continue to struggle with obtaining all the information they need to make  informed and efficient commercial item and price reasonableness  determinations. Conclusions When dealing with a limited marketplace and price data, determining  commerciality and price reasonableness can be challenging for DOD’s  contracting staff. Ultimately, the effectiveness of determining  commerciality and fair and reasonable prices will depend on what  meaningful information the government successfully obtains to conduct its  analysis. Therefore, information sharing within the department is critical in  helping DOD’s contracting officers determine commerciality and  reasonable prices on DOD’s acquisitions. As our findings show, DOD has  made some efforts to facilitate the sharing of information, such as  establishing the DCMA Commercial Item Group. This group, in turn, set  up a database to increase the accessibility and utility of commercial and  pricing data. But the database is not yet robust enough to eliminate the  need for more sharing of information—formal or informal—across the  department. Enhancing information sharing efforts could address some of  the challenges we identified. Further, clearly defining the roles and  responsibilities for management of the database and identifying viable  funding sources to support the upkeep of the database will help ensure it  becomes a useful resource for contracting officials. Recommendation for  Executive Action We are making the following recommendation to DOD:  The Director of Defense Procurement and Acquisition Policy should work  with the Defense Contract Management Agency to develop a strategy for  sharing information related to commerciality and price reasonableness  determinations across DOD, including a plan to increase the information available in the Commercial Item alternative mechanisms to share information, either formal or informal;  and assignments of roles and responsibilities with regard to sharing  commercial item information, including how the database should be  funded, supported, and maintained. Agency Comments We provided a draft of this report to DOD for review and comment. In its  written comments, reproduced in appendix III, DOD concurred with our  recommendation, stating that it plans to issue a policy memo requiring all  commercial item determinations made after September 30, 2018 to be  included in the existing commercial item database. DOD further stated  that it will update its commercial item determination form to enhance  informal information sharing. In addition, DOD stated that the Director of  Defense Pricing within the Defense Procurement and Acquisition Policy  office and the Director of DCMA will enter into a memorandum of  agreement specifying roles and responsibilities in determining commercial  item policy and funding the commercial item database. DOD also provided technical comments, which were incorporated as  appropriate. We are sending copies of this report to the appropriate congressional  committee, the Secretary of Defense, and the Director of Defense  Procurement and Acquisition Policy. In addition, the report is available at  no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or woodsw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV. Appendix I: Objectives, Scope, and  Methodology Our objectives were to: (1) identify the factors that influenced the  Department of Defense’s (DOD) commercial item and price  reasonableness determinations and (2) assess the extent to which DOD  has taken steps to make information available to help make these  determinations. To identify factors that influence the process and what DOD has done to  address them, we reviewed relevant sections of the Federal Acquisition  Regulation (FAR); Department of Defense Federal Acquisition Regulation  Supplement; DOD memorandums; policy, guidance, and instructions  related to the acquisition of commercial items, including the Guidebook  for Acquiring Commercial Items Part A: Commercial Item Determination  and Part B: Price Reasonableness Determination; and service-specific  guidance regarding commercial items. To assess challenges in making commercial item and price  reasonableness determinations, we identified a non-generalizable sample  of contracts which were reported by DOD officials and contractors as a  contract where it was difficult to make commercial item determinations,  price reasonableness determinations, or both, from a variety of sources.  Due to limitations of the Federal Procurement Data System-Next  Generation (FPDS-NG) we could not identify all DOD commercial item  acquisitions in the data system, specifically contracts that had been  coded as having used procedures other than FAR Part 12, Acquisition of  Commercial Items. Additionally, contracts which had issues in making  commercial item or price reasonableness determinations would not be  identifiable in FPDS-NG. Due to these limitations, we requested that three  DOD services – Air Force, Army, and Navy – and the Defense Logistics  Agency (DLA) each provide us with five contracts that had points of  contention with the commercial item determination or the price  reasonableness determination, either at the prime contract or subcontract  level. We also identified contracts by asking officials at the Defense  Contract Management Agency (DCMA) Commercial Item Group and the  Navy Price Fighters for contracts as well as identified contracts through  previous GAO work. Additionally, we asked contractors to identify  contracts they believed had issues in determining commerciality and/or  price reasonableness. One contractor identified two contracts, which we  reviewed, but did not find to have any issues concerning commerciality or  price reasonableness. From these requests we collected a non- generalizable sample of 56 contracts for commercial items. From the non-generalizable sample of 56 contracts, we selected 15  contracts awarded between 2010 and 2018 that met various criteria as  case studies. We selected 4 case studies from the Air Force, 4 from the  Army, 5 from the Navy, and 2 from DLA. The 15 case studies were  selected to represent: (1) multiple services; (2) a variety of issues with  commercial item or price reasonableness determinations, (3) reoccurring  prime contractors or subcontractors, and (4) a mix of product and  services acquired. We conducted an in-depth review of these contracts  and selected related orders to assess what challenges occurred when the  contracting officer was determining whether an item was commercial and  whether the price was fair and reasonable, and why these challenges  occurred. To assess challenges in making commercial item and price  reasonableness determinations, we reviewed the contract file  documentation for the 15 case studies, and interviewed contracting and  pricing officials. We reviewed documentation including commercial item  determinations, price negotiation memorandums, market research, and  DCMA Commercial Item Group and Defense Contract Audit Agency  reports. We also interviewed contracting officials and contractors to obtain  perspectives on how an item was determined to be commercial and then  subsequently, determined to be offered at a fair and reasonable price. We  interviewed contracting officers to obtain their views on the effect the new  Guidebook for Acquiring Commercial Items and recently passed  legislation would have on these challenges, and how they might affect  contracts in the future. We interviewed officials from the DCMA  Commercial Item Group to understand how they assist contracting  officers in making determinations, and about the publicly available  database that centralizes commercial item information. We also reviewed  this database to understand what types of information it contained.  Additionally, we discussed the management and funding of the database  with the Office of Defense Procurement and Acquisition Policy. We  interviewed contractors to discuss commercial item and price  reasonableness issues on the selected contracts, discuss general areas  of concern with regard to commercial item and price reasonableness  determinations, and identify other contentious contracts. We conducted this performance audit from July 2017 to July 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on audit objectives. Appendix II: DOD General Process for  Making Commercial Item and Price  Reasonableness Determinations Appendix II: DOD General Process for Making  Commercial Item and Price Reasonableness  Determinations applicable to most of the contracts in our case studies because all but one of the contracts were  awarded before the DFARS changes were implemented. Furthermore, where the Federal Acquisition  Regulation (FAR) and DFARS differed in terminology (e.g., the FAR noted a requirement for “data” to  determine price reasonableness but the DFARS noted a requirement for “information”), the table and  report use the DFARS terminology. Appendix III: Comments from the  Department of Defense Appendix IV: GAO Contact and Staff  Acknowledgments GAO Contact Staff  Acknowledgments In addition to the contact named above, Tatiana Winger (Assistant  Director), Emily Bond, Jared Dmello, Lorraine Ettaro, Julie Hadley, Julia  Kennon, Timothy Moss, Miranda Riemer, Raffaele (Ralph) Roffo, and  Carmen Yeung made key contributions to this report.
DOD buys goods and services from the commercial market to take advantage of new innovations and save on acquisition costs. However, the department's process for determining whether an item can be purchased commercially—and, at a fair and reasonable price—can be long and challenging in certain situations. GAO was asked to review this process. This report identifies (1) factors that influenced DOD's commercial item and price reasonableness determinations, and (2) the extent to which DOD has taken steps to make information available to facilitate these determinations. To conduct this work, GAO examined federal regulations and guidance and selected case studies, which included a non-generalizable sample of 15 contracts awarded between fiscal years 2010 and 2018. GAO identified the case studies based on input from multiple sources that those contracts involved commercial item or price reasonableness determination challenges. GAO interviewed government and contractor officials responsible for those contracts. The Department of Defense (DOD) has a process to determine if an item is available for purchase in the commercial marketplace at a reasonable price. Among selected case studies, GAO found four interrelated factors, each with its set of challenges that influenced how and whether DOD determines if an item is commercial and if its price is reasonable. These factors are: Availability of marketplace information : Market research is a key component that informs commercial item and price reasonableness determinations. However, GAO found that obtaining market-related information can be challenging because the products DOD requires may not be widely available in the commercial marketplace. Ability to obtain contractor data : When adequate market information is not available, DOD officials turn to the contractor for information to support the commercial item determination or data to make a price reasonableness determination. In the case studies GAO reviewed, most contractors provided relevant information, but not without delays and challenges. For example, while pricing data is key to DOD's ability to determine price reasonableness, several contracting officers reported that contractors were less willing to provide this data once an item was determined commercial. Extent of modifications to an item : When a commercial item must be modified to meet DOD's requirements, DOD officials may have to take additional steps, such as completing a comparative analysis of commercial items to the modified item. For example, in one case, a commercial navigation system had to be modified to withstand an explosion. To make the commercial item determination DOD officials had to make an on-site visit to the manufacturer to gain in-depth understanding of the services provided and to ensure they met DOD requirements. Reliability of prior commercial item determinations : Contracting officers may presume that an item is commercial if a DOD component had previously made that determination. However, GAO found that, in some cases, contracting officers reviewing a prior determination discovered that it was based on inaccurate information. DOD has taken steps to share more information across the department to inform these determinations, but efforts are in early stages of development or informal. No comprehensive information sharing strategy exists. In 2016, DOD established the Commercial Item Group within the Defense Contract Management Agency to provide recommendations on commercial item determinations. This group created a publicly available database to centralize commercial item information across DOD. However, this effort is incomplete. Also, according to DOD officials, they have not yet established who is responsible for the funding and upkeep of the information. Additionally, GAO case studies included instances where informal information sharing resulted in better outcomes, such as a lower price. Creating more opportunities to share information internally is crucial for DOD to facilitate a timely and efficient process in making these determinations and ensuring the best financial outcome for the government.