Commercial item

What Is a Commercial Item?

A commercial item, within the context of Government Contracting, refers to any product or service that is customarily used by the general public or non-governmental entities for non-governmental purposes. This broad classification is a cornerstone of federal procurement and aims to streamline the acquisition process for government agencies by allowing them to purchase goods and services already available in the marketplace, rather than requiring custom-developed solutions. The definition of a commercial item is detailed in the Federal Acquisition Regulation (FAR), which governs how federal agencies purchase goods and services.⁴¹

The concept is intended to bring the efficiency and competitive pricing of the commercial marketplace to government purchases. A product or service can qualify as a commercial item if it has been sold, leased, or licensed to the general public, or offered for sale, lease, or license to the general public. It can also include items that have evolved from such products through technological advances, or those with minor modifications to meet government requirements without significantly altering their commercial function or characteristics.⁴⁰

History and Origin

The preference for acquiring commercial items in federal contracting gained significant traction with the passage of the Federal Acquisition Streamlining Act (FASA) of 1994. This landmark legislation established a statutory preference for agencies to acquire commercial items to the maximum extent practicable.³⁹ Before FASA, government procurement was often characterized by highly specific and customized requirements, leading to lengthy acquisition cycles and higher costs. The intent behind FASA was to leverage the innovation and efficiency of the commercial sector, moving away from a system that frequently necessitated unique, government-specific developments.³⁸

The introduction of this preference sought to reduce administrative burdens and promote efficiency. Initially, the definition of a commercial item was applied to common items like office supplies or standard computers. Over time, the scope expanded to include complex systems that evolved from or were offered for commercial sale, even with minor modifications for government use.³⁷ This shift allowed for streamlined procedures, including exemptions from certain cost accounting standards and certified cost or pricing data requirements, aiming to make it easier and faster for the government to access modern technologies and services.³⁶ In late 2021, the Federal Acquisition Regulation (FAR) formally revised its definition, separating "commercial item" into distinct definitions for "commercial product" and "commercial service" to provide greater clarity and reflect the significant role services play in federal procurement.³⁴, ³⁵

Key Takeaways

• A commercial item is a product or service widely available in the commercial marketplace, used by the general public.
• The Federal Acquisition Regulation (FAR) provides the primary definition and guidelines for its acquisition by U.S. federal agencies.³³
• Acquiring commercial items allows government agencies to use streamlined simplified acquisition procedures, reducing administrative burden and procurement timelines.³¹, ³²
• The use of commercial items helps the government leverage market innovation, increase competition, and potentially achieve price reasonableness and cost savings.³⁰
• Products can qualify as commercial items even with minor modifications, or if they are integrated systems composed of commercial components.²⁹

Interpreting the Commercial Item

Interpreting what qualifies as a commercial item is crucial in federal acquisition process, as it dictates the applicable procurement rules and procedures. A key aspect of this interpretation is whether the product or service is "of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes."²⁸ This means that a product doesn't necessarily have to be identical to something sold commercially, but it must be similar in form, fit, and function to an item widely available.²⁶, ²⁷

Contracting officers play a pivotal role in making commercial item determinations, often relying on market research to ascertain commercial availability and customary practices.²⁵ The determination allows the government to apply more flexible, commercial-like terms and conditions to contracts, such as standard commercial warranties and acceptance procedures, rather than the more rigid terms typically associated with government-unique developments.²⁴ This interpretation extends to services like installation, maintenance, repair, and training, provided they are offered to the general public or support a commercial item.²³

Hypothetical Example

Imagine the Department of Defense (DoD) needs new desktop computers for its administrative offices. Instead of commissioning a company to design and build computers specifically for the DoD's unique requirements (which would be a non-commercial acquisition), the contracting officer initiates a commercial item acquisition.

1. Requirement Definition: The DoD defines its need for standard desktop computers with specific processing power, memory, and storage, along with standard operating system software, all of which are commonly available.
2. Market Research: The contracting officer conducts market research and finds numerous commercial vendors offering computers that meet or exceed these specifications, sold widely to businesses and the public.
3. Solicitation: The DoD issues a solicitation using streamlined procedures under Federal Acquisition Regulation Part 12, tailored for commercial products. This allows vendors to submit proposals based on their existing commercial offerings.
4. Award: After evaluating bids, the DoD awards a firm-fixed-price contract to a vendor providing a standard commercial desktop computer model, benefiting from competitive market pricing and faster delivery timelines.

This approach saves taxpayer money, reduces administrative overhead, and allows the DoD to quickly acquire modern technology that is already widely used and supported in the commercial sector.

Practical Applications

The concept of a commercial item is primarily applied in government contracting and public finance, enabling federal agencies to acquire products and services more efficiently. This approach is prevalent across various sectors:

• Information Technology (IT): Many government IT procurements, from software licenses to cloud computing services and hardware, are structured as commercial item acquisitions. This allows agencies to leverage rapidly evolving commercial technologies.²¹, ²²
• Logistics and Transportation: Standardized vehicles, fuel, and transportation services used by the government are often acquired as commercial items, drawing from existing market solutions.
• Professional Services: Services such as training, consulting, and certain maintenance activities can be deemed commercial items if they are offered and sold competitively in the commercial marketplace.²⁰
• Defense Industry: While often associated with bespoke military equipment, the Department of Defense (DoD) increasingly seeks to incorporate commercial items, including subsystems and components, into its larger systems to reduce costs and access cutting-edge technology.¹⁹ For example, SES Space & Defense, a subsidiary of the European satellite company SES, secured an $89.6 million contract to provide commercial satellite communications (COMSATCOM) services to the U.S. Army, highlighting the integration of commercial offerings into critical government operations.¹⁸
• General Supplies: Everyday items like office supplies, furniture, and common tools are classic examples of commercial items acquired through simplified procedures.

This reliance on commercial items significantly impacts the supply chain for government contractors, encouraging them to offer their standard commercial products and services rather than developing government-unique solutions.

Limitations and Criticisms

While the acquisition of commercial items offers significant advantages, it is not without limitations and criticisms, particularly concerning price reasonableness and the scope of the definition. One persistent challenge is determining fair and reasonable prices for items that may not have direct commercial equivalents or are only "of a type" sold commercially.¹⁷ Unlike truly commodity-like items with transparent market prices, complex commercial items can still present difficulties for contracting officers in obtaining adequate pricing data, as they are often exempt from detailed cost accounting standards.¹⁵, ¹⁶ Critics argue that this exemption can sometimes lead to situations where the government lacks the necessary leverage to negotiate optimal prices, particularly in sole-source scenarios.¹⁴

Another area of contention has been the broad interpretation of what constitutes a "commercial item." Over time, the definition expanded to include items that evolved from commercial products or those with minor modifications, leading to concerns that some highly specialized or military-specific items were being designated as "commercial" to bypass more stringent regulations.¹³ This can create challenges for legal compliance and oversight. Additionally, some protests related to commercial item acquisitions have highlighted issues where contracting officers' determinations of commerciality or the use of streamlined procedures were challenged, leading to disputes that can delay procurement processes. The Government Accountability Office (GAO) hears protests where a protester believes the agency has improperly applied commercial item procedures.¹¹, ¹²

Commercial Item vs. Commercially Available Off-the-Shelf (COTS) Item

The terms "commercial item" and "Commercially available off-the-shelf (COTS) item" are often used interchangeably in government contracting, but they have distinct meanings under the Federal Acquisition Regulation (FAR). Understanding the difference is important for both government agencies and contractors.

A Commercial Item is a broad category defined as any product or service customarily used by the general public or non-governmental entities for non-governmental purposes. This definition includes items that have been offered for sale, leased, or licensed to the public, items that have evolved from such products, and even those with minor modifications to meet government requirements.¹⁰ Services can also be commercial items.

A Commercially Available Off-the-Shelf (COTS) Item is a specific subset of a commercial item. To be considered COTS, an item must meet the definition of a commercial item and also be sold in substantial quantities in the commercial marketplace, and be offered to the government, under a contract or subcontract at any tier, without modification.⁹ This means COTS items are essentially ready-to-use, unmodified commercial products. All COTS items are commercial items, but not all commercial items are COTS items, as commercial items can include modified products or integrated systems.⁸

The key distinction lies in the degree of modification and availability. COTS items represent the purest form of commercial acquisition—no changes are made for government use. Commercial items, however, allow for minor modifications, or for the integration of commercial components into a new system, providing more flexibility while still leveraging commercial market benefits.

FAQs

What is the primary purpose of classifying something as a commercial item?

The primary purpose is to enable U.S. federal agencies to use streamlined acquisition processes when purchasing products and services that are already available in the commercial marketplace. This reduces administrative burden, saves time, and aims to achieve better value by leveraging market competition.

⁶, ⁷### Who determines if an item is commercial?
The contracting officer for the federal agency making the purchase is responsible for determining if an item meets the definition of a commercial item. This determination often involves conducting market research to assess commercial availability and customary practices.

⁵### Are commercial items always cheaper for the government?
While the intent is to achieve cost savings through market competition, classifying an item as commercial does not automatically guarantee it will be cheaper. Factors like the uniqueness of the item, the level of competition, and the adequacy of price reasonableness analysis can influence the final cost.

⁴### Does the government ever buy modified commercial items?
Yes, the definition of a commercial item allows for "minor modifications" to meet federal government requirements, as long as these modifications do not significantly alter the item's non-governmental function or essential physical characteristics. T², ³his flexibility enables agencies to adapt commercial products slightly to fit their specific needs while still benefiting from streamlined procedures.

How does "commercial item" relate to a "nondevelopmental item"?

A commercial item is a specific type of nondevelopmental item (NDI). An NDI is any item that was previously developed and used by a U.S. federal, state, or local government agency, or by a foreign government, or that was developed exclusively at private expense and sold competitively in substantial quantities to multiple state and local governments. Commercial items are a subset of NDIs.¹