Fair & Reasonable Pricing in Commercial Items

Question

The prime contract is not commercial and includes terms and conditions that state specific clauses be incorporated into any lower tier subcontracts. The required flow down provisions are not  normal  FAR provisions. When entering into a commercial agreement would you say that the clauses are still mandatory or would you as the prime be exempted from flowing down the clauses because the purchase is commercial? Would you not require the flow down to protect yourself as the prime?

Also, let us say a company is claiming commerciality yet they do not have a price catalog and do not have prior sales. What basis would you use for determining commerciality and how would you determine price reasonableness?

Answer

  • According to the “Commercial Item Handbook” published by the Secretary of Defense Acquisition, Technology, and Logistics, you should be incorporating “commercial items” (as defined in FAR 2.101) to the maximum extent practicable.
  • The clauses required to be flowed down in a commercial contract are limited to those identified in FAR 12.301 and summarized as only those necessary to implement provisions of law or executive orders. That said, there may be some reporting requirements you have as a prime that require you to gather information from your subs such as those regarding counterfeit parts, conflict minerals, or industrial offsets.
  • The determination of commerciality (as defined in FAR 2.101) is based on the item itself, not the manufacturer and their catalog or lack thereof. Mere presence of a catalog does not make an item commercial, nor does lack of a catalog remove the possibility. Is the item available from other vendors.  Is a similar item “of a type” available from the same vendor or other vendors?
  • Determination of fair and reasonable pricing is made first by competitive bid. In the case of sole source or limited bids, you perform market research on the same or similar item purchased in the past or currently available from other vendors.  You may also request other than certified cost or pricing data from the supplier. While you cannot request certified data on a truly commercial item, the supplier should be willing to provide some data that supports their price and helps you make a determination of fair and reasonable pricing.
Note that market research should have been performed prior to the last two bullets which would have helped write a better RFQ/P, and would have provided the contracting officer/manager with better information regarding the item, availability, commercial status, and pricing long before any bids were received.

Leave a Reply