CHAPTER 3
Protest Grounds Challenging the Government’s Exercise of Discretion or the Government’s Conduct of the Competition

1. AGENCY’S COMMERCIAL ITEM DETERMINATION

Overview of This Protest Ground: The Federal Acquisition Streamlining Act of 1994 (FASA), Public Law 103-355, sets out a preference for the government to acquire “commercial items” to the extent possible. Essentially this requirement is designed to ensure that the government harnesses the power and efficiencies of the commercial marketplace to minimize the perceived need for expensive and time-consuming RDT&E (research, development, test, and evaluation) efforts. The goal of the legislation was to satisfy the government’s requirements faster, cheaper, and more reliably. Under FAR Part 12, Acquisition of Commercial Items, agencies are required to perform market research (discussed in FAR Part 10) to determine whether a commercial item can satisfy the government’s requirements. The definition of “commercial item,” which is set out at FAR § 2.101, is critical in protests related to the agency’s commercial item description.

Most of the protests in this area argue that the awardee’s offered product does not meet the definition of a commercial item for some reason. This is an attractive protest ground because if the protester can persuade the GAO or the COFC that its competitor’s product does not meet the definition, the protester can knock the competitor out of the competition. In reality, however, the COFC and the GAO have recognized that the definition of a commercial item is very broad and they therefore afford the contracting agency significant discretion.

Occasionally an offeror will file a pre-award protest arguing that the solicitation either should or should not be solicited as a commercial item under FAR Part 12. In these situations, the GAO defers substantially to the agency’s decision making; the GAO will review the agency’s decision only to assess whether it was reasonable. Overall, this has not proven to be a successful protest ground.

COFC’s Key Language

To satisfy this portion of the “commercial item” definition then, the question must weigh on whether [the awardee’s products] were “offered for sale” as the FAR requires. It appears obvious that [the awardee] has certainly offered their platforms for sale to the general public. The Administrative Record details various advertising and marketing efforts, and even the original [awardee’s] proposal included standard product brochures. Therefore the Court holds that [the awardee’s products] satisfied the FAR definition of “commercial items.” However, this is not to say that the statute is clear. The definition is broad, unclear, and will be interpreted as setting the “commercial item” standard very low. If the Federal Acquisition Regulations are intended to use the term in a very limiting way, its plain language does not communicate that intent.

Precision Lift, Inc. v. United States, 83 Fed. Cl. 661 (2008).

GAO’s Key Language

Determining whether a product or service is a commercial item is largely within the discretion of the contracting agency, and such a determination will not be disturbed by our Office unless it has been shown to be unreasonable

FAR Part 12 prescribes policies and procedures unique to the acquisition of commercial items and implements the preference established by, and the specific requirements in FASA for the acquisition of commercial items that meet the needs of an agency. FAR Part 12 was intended to establish acquisition policies more closely resembling those of the commercial marketplace as well as other considerations necessary for proper acquisition planning, solicitation, evaluation, and award of contracts for commercial items. FAR Part 12 specifies the solicitation provisions and clauses to be used when acquiring commercial items.

Agencies are required to conduct market research pursuant to FAR Part 10 to determine whether commercial items are available that could meet the agency’s requirements. FAR § 12.101. If market research establishes that the government’s needs can be met by the type of item (including services) customarily available in the commercial marketplace that would meet the definition of a commercial item at FAR § 2.101, the contracting officer is required to solicit and award any resulting contract using the policies and procedures in FAR Part 12. FAR §§ 10.002(d)(1), 12.102(a). One of the techniques for conducting market research is to contact knowledgeable individuals in government and industry regarding market capability to meet the requirements. FAR § 10.002(b)(2)(i).

Crescent Helicopters, B-284706 et al., May 30, 2000.

FAR Crosswalk: FAR § 2.101, Definitions—Commercial Items; FAR Part 10, Market Research; and FAR Part 12, Acquisition of Commercial Items.

Other Relevant Cases: See page 294 in the Index of Representative Cases.

Commentary: As the reported cases indicate, it is critical to examine the definition of “commercial item” as set forth in FAR § 2.101. In this protest ground, sharp focus is on the terms of that definition. The full text of the FAR definition is as follows:

“Commercial item” means—

(1) Any item, other than real property, that is of a type customarily used by the general public or by non-governmental entities for purposes other than governmental purposes, and—

(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;

(2) Any item that evolved from an item described in paragraph (1) of this definition through advances in technology or performance and that is not yet available in the commercial marketplace, but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Government solicitation;

(3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) of this definition, but for—

(i) Modifications of a type customarily available in the commercial marketplace; or

(ii) Minor modifications of a type not customarily available in the commercial marketplace made to meet Federal Government requirements. Minor modifications means modifications that do not significantly alter the nongovernmental function or essential physical characteristics of an item or component, or change the purpose of a process. Factors to be considered in determining whether a modification is minor include the value and size of the modification and the comparative value and size of the final product. Dollar values and percentages may be used as guideposts, but are not conclusive evidence that a modification is minor;

(4) Any combination of items meeting the requirements of paragraphs (1), (2), (3), or (5) of this definition that are of a type customarily combined and sold in combination to the general public;

(5) Installation services, maintenance services, repair services, training services, and other services if—

(i) Such services are procured for support of an item referred to in paragraph (1), (2), (3), or (4) of this definition, regardless of whether such services are provided by the same source or at the same time as the item; and

(ii) The source of such services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government;

(6) 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 or specific outcomes to be achieved and under standard commercial terms and conditions. For purposes of these services—

(i) “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

(ii) “Market prices” means 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.

(7) Any item, combination of items, or service referred to in paragraphs (1) through (6) of this definition, notwithstanding the fact that the item, combination of items, or service is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor; or

(8) A nondevelopmental item, 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.

The definition of “commercial item” should be monitored for potential changes. In recent years, DOD has expressed the opinion that the definition is too broad and has suggested legislative language to narrow its scope. Currently, the definition of commercial item remains quite broad.