Integrated Dual Use Commercial Companies

DoD Data and Commercial Item Handbooks

Holly Emrick Svetz(703) 394-2261hsvetz@wcsr.com

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Outline

• DoD Acquisition Data Management Handbook

• DoD Commercial Item Handbook

DoD Acquisition Data Management Handbook

• DRAFT MIL-HDBK-X132 available at https://acc.dau.mil/CommunityBrowser.aspx?id=261828

• Long Description: "For the last several years, DOD Service representatives have been involved in a collaborative effort, to create guidance material for use by Data Managers, in the arena of Acquisition Data Management.  A Draft Military Handbook has been created (Draft MIL-HDBK-X132), which has gone through several iterations and review cycles.  The latest review resulted in comments from the DOD Data Management community, which are currently in the process of being adjudicated.  The Draft document posted here, is provided as advance information for DOD Data Management personnel, and other interested users; and can be used as a general guide and approach in day-to-day acquisition data management, pending formal release of the Handbook.  Comments, questions and discussions on the guidance material are also welcome, and can be submitted using the Questions/Discussions link at the top of this page."

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Data Handbook Background

• First draft 22 October 2008.

• Second draft 12 Dec 2008.

• "This handbook is for guidance only. Do not cite this document as a requirement." (cover)

• FORWARD: "This handbook identifies requirements and provides common guidance for the acquisition and management of contractor prepared data within DoD components. This handbook is applicable to all forms of data whether it is digital, hard copy, or data to which access via contractor provided digital information services is required." (p. i)

• Comments were due in August, but the ABA Public Contract Law Section is preparing comments the agency said would be considered.

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Data Handbook Definitions - Data

• 3.1.28 Data. Recorded information regardless of the form or method of recording. The term includes technical data, computer software documentation, financial information, management information, representation of facts, numbers, or datum of any nature that can be communicated, stored, and processed to form information and other information required by a contract to be delivered to, or accessed by, the Government. (p. 5)

• FAR 52.227-14(a) “Data” means recorded information, regardless of form or the media on which it may be recorded. The term includes technical data and computer software. The term does not include information incidental to contract administration, such as financial, administrative, cost or pricing, or management information.

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Data Handbook Definitions - Rights in Technical Data

• 3.1.136 Rights in technical data (TD). The minimum essential data rights acquired under contract by the Government in technical data. Based on the funding source for development of the technical data, these data rights are Unlimited Rights (exclusively funded at Government expense), Government Purpose Rights (mixed Government and contractor funding), Limited Rights (exclusively funded at contractor expense) or Specifically Negotiated License Rights (tailored data rights but not less than Limited Rights).The right for the Government to acquire TD. If the Government has funded or will fund a part of or the entire development of the item, component, or process, then the Government is entitled to unlimited rights in the TD. However, if the above is developed by a contractor or subcontractor exclusively at private expense, the Government is entitled to limited rights. Such data should be unpublished and identified as limited rights data. (p. 13)

• Blue font = recommended inserts

• Red font = recommended deletions

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Data Handbook - Planning for Acquisition of Data

• 6.1 General. A critical element of the acquisition process is planning for the acquisition of data to support the life cycle of a defense system. The decision to procure data is the result of a careful examination of the requirements for the data, life cycle cost, and the ability of the Government to maintain and use the data in the future. Pursuant to DFARS 227.7103-1(a), DoD policy is to acquire only the technical data, and the rights in that data, necessary to satisfy agency needs. Since the Government’s ability to access and use contractor provided data can range from very limited, due to a lack of data rights, to complete access to or possession of the data, with unlimitedfull rights to use as needed, it is important that alternative approaches for providing the data are evaluated to assure that the minimum essentialnecessary Government data rights are acquired to support full life cycle needs. (p. 25)

• Blue font = recommended inserts

• Red font = recommended deletions

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Data Handbook - Data Rights• 9.1 General. Data rights refer to intellectual property rights regarding the use of

the data developed, accessed, and/or delivered under a Government contract. Data rights involve proprietary, restrictive, Government purpose, unlimited, limited, and may include patents, copyrights, and other IPdata rights provisions. Data rights in technical data are necessary in the determination of release, duplication, and disclosure of technical data. Data rights in technical data and computer software are generally determined by whose money is used in the development of the data. If the data is developed exclusively with Government funding, then the Government has the right to access and receive the data with unlimited rights. If contract data is developed with exclusively with private sector funding, the Government, generally, will be allowed Limited Rights in the technical data and Restricted Rights in computer software. If a mix of Government and private sector funding is used to the develop the data then the Government would receive Government Purpose Rights. (p. 39)

• Blue font = recommended inserts• Red font = recommended deletions

•

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Data Handbook - Requirements for withholding of technical data

• Covers distribution marking for export control in detail.

• Confused and limited coverage of withholding FOIA Exemption 4 date.

• No recognition that the data rights markings are sufficient evidence of FOIA Exemption 4 treatment.

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Data Handbook - Data Access vs. Delivery

• 16.1 General. Access to data results from a formal arrangement that allows the Government to view and read data generated or maintained by a contractor. Access may apply to contractor data not owned by the Government, as well as Government owned data held by the contractor. Access, in itself, does not authorize use, re-production, manipulation, altering, or transfer of possession of data. The extent and limits of Government access, Government data rights, and disposition and delivery requirements, if any, should be delineated in the contract. (p. 47)

• YAY!

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Data Handbook - Deferred Ordering and Delivery

• 16.4 Deferred ordering and delivery. Deferred ordering and delivery techniques should be used with complex or long-term defense system acquisitions, when exact data requirements are difficult to determine. This technique is also applicable for cases when delivery of specific data is difficult to prescribe. Deferred ordering is a technique for delaying the ordering of data generated in the performance of the contract until the Government determines what data is actually needed and when it is needed. This technique ensures the availability of the raw data while avoiding the cost of buying the data, if the need never arises. Deferred delivery of data is a technique for delaying delivery and/or access of data until the Government determines when the data should be delivered or accessed. Also, deferred delivery is a means of postponing the delivery/access of data until the design of the related item has stabilized. (p. 51)

• BOO!

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Commercial Item Handbook - Foreword

• "While use of commercial item procedures is an acceptable practice, misclassification of items as commercial can leave the Department of Defense (DoD) vulnerable to accepting prices that are not the best value. Additionally, there were several findings that contracting officials did not adequately justify the commercial nature of commercial contracts for defense systems and subsystems. Therefore, contracting actions were awarded that did not achieve the benefits of buying truly commercial products and relinquished price and other oversight protections." (p. iv)

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DoD IG Report 2006-115 (p. 5)

• "Contracting officials did not adequately justify the commercial nature of 35 of 42 (83 percent) commercial contracts for defense systems and subsystems awarded in FYs 2003 and 2004. This occurred because contracting officials:

– used loopholes in the broad commercial item definition to justify acquiring defense systems and subsystems without determining that a commercial market exists, and

– misapplied the commercial item definition to fit their acquisition situation and otherwise did not document their rationale for using commercial item acquisition procedures.

• As a result, contracting officials inappropriately awarded contracting actions that did not achieve the benefits of buying truly commercial products and relinquished price and other oversight protections under the FAR that would have allowed better visibility to establish fair and reasonable prices."

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Response to DoD IG Report

• 2. When commercial item determinations are made, these determinations should be in writing and included in the contracting file.

• Management Comments. The Under Secretary of Defense for Acquisition, Technology, and Logistics concurred and stated that a Defense Procurement and Acquisition Policy letter would be issued within the next sixty days requiring a written determination that the commercial item definition has been met for acquisitions exceeding $15 million.

• Audit Response. The Under Secretary of Defense for Acquisition, Technology, and Logistics comments conform to requirements and no additional comments are required.

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DFARS Revised

• DFARS revised, 73 Fed. Reg. 4114 (Jan. 24, 2008).

• 212.102 Applicability.

(a) (i) When using FAR Part 12 procedures for acquisitions exceeding $1 million in value, the contracting officer shall—

(A) Determine in writing that the acquisition meets the commercial item definition in FAR 2.101; and

(B) Include the written determination in the contract file.

(ii) Follow the procedures at PGI 212.102(a) (Pop-up Window or PGI Viewer Mode) regarding file documentation.

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Issue Resolved

• While misclassification of commercial items was an issue in the 2006 DoD IG report, the IG agreed with the corrective action proposed by USD(AT&L).

• The policy letter was issued, followed by a DFARS revision requiring documentation of commercial item determination for contracts over $1M, a much lower threshold than originally proposed.

• Therefore, the language in the Foreword is OBE and should be deleted.

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Modifications

• "For modifications of a type available in the commercial marketplace, factors to be considered include value, size, and the comparative value and size of the final product. Dollar value and percentage may be used as guideposts, but are not conclusive evidence that a modification is minor." (p. 3)

• Plain reading shows this is not correct.

• "In either case, the source of funding for the modification does not impact its qualification as a commercial item."

– This is a HUGE concession.– If the item retains its commercial item nature even though a very expensive

modification was funded by the Government, the Government will get commercial item rights rather than unlimited rights in the modification.

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Commercial terms

• "In addition, Government-unique requirements or terms and conditions can be included, as long as there are sufficient common characteristics between the commercially available service and the service being acquired." (p. 6)

– Many commercial companies are concerned that making any exception or change to their commercial license or terms and conditions will endanger the commercial item status.

– E.g., commercial services can be provided by deployed contractors and so significant additional requirements and terms and conditions would be required to protect the contractor as much as to protect the Government.

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Commercial Item Determination

• Alternative approaches to Commercial Item Determination (p. 7)

– Prior Agency or Department Determinations• But see "For items included on an active Federal Supply Service Multiple-Award

Schedule contract, the firm should include proof that an exception has been granted for the schedule item." (p. 10)

– Identifying Groups of Items as Commercial

– Contractor Determinations

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Commercial Item Exceptions

• Agree with comments that commercial item determination and determination of price reasonableness are two separate actions.

– Pricing should not be required to make a commercial item determination.– Would suggest inserting a sentence in the comments:

Commercial items may be offered in response to solicitations which call for the submission of cost or pricing data. The Commercial Item determination process is described above. Where an item which qualifies as commercial is offered, the Contracting Officer is not to require the submission of cost or pricing data in support of the commercial item determination. Data other than cost or pricing data may be requested to support the price of a commercial item under the narrow circumstances described in Chapter 4 under the heading ‘Determining Fair and Reasonable Prices’, and as described in FAR 15.403-3(2).

• Same rationale applies to the requirement that contractor prove that a cost or pricing information exception has been granted for FSS services. (p. 10)

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Sole Source Procedures

• Commercial buyers can pay "whatever the market will bear" to get a needed party, although smart buying practices include obtaining reasonable prices. (p. 39)

– Really true?– Commercial companies have no credit and tight expenses today.

• Agree with comment but would revise somewhat:– If the price still cannot be determined to be fair and reasonable, market-based

price analysis techniques may not be sufficient and other price analysis techniques or, as a last resort, the Contracting Officer should consider requesting data other than cost or pricing data to support the pricing analysis. The price analysis, however, does not affect the Commercial Item nature of the product or service.

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Source of Supply Risks

• Program managers should act early in the product life cycle to mitigate source-of-supply risks. These risks include business dissolution, product line elimination, and quality degradation. (Again, in a COTS program, traditional actions that can reduce these risks including placing design drawings in escrow with a third party in case a supplier discontinues production, negotiating contract terms that require the provision of design drawings to the Government if the business dissolves, and negotiating contract terms that require prior notice and provide options for product life buyout if production of an item ends may not be available and must be addressed in the original COTS selection process.) Since lifetime buys are very expensive, they should not necessarily be made for the program's duration, but rather should be employed as an interim measure until a technology insertion strategy unfolds.

– Agree with this?– Why only COTS?

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Hats Off!

• As discussed above, the contracting officer shall not tailor any clause or otherwise include any additional terms or conditions in a solicitation or contract for commercial items in a manner that is inconsistent with customary commercial practice for the item being acquired unless a waiver is approved in accordance with agency procedures. The request for waiver must describe the customary commercial practice found in the marketplace, support the need to include a term or condition that is inconsistent with that practice and includes a determination that use of the customary commercial practice is inconsistent with the needs of the Government. A waiver may be requested for an individual or class of contracts for that specific item. The head of the contracting activity is the approval authority within the DoD for waivers under FAR 12.302(c). (p. 47)

– Anyone ever heard of such a waiver to INCLUDE a term or condition?

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Questions/Comments

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