In with the Old: New DFARS Rules Restore Critical Protections for Commercial Products and Services
It's often said that "everything old is new again" in the world of federal procurement. Showing the wisdom of this saying, the Department of Defense (DoD) issued two final rules last week allowing DoD to make greater use of prior commercial item determinations and put the burden back on the government to challenge data rights assertions based on the commerciality of a product. The rules should come as welcomed news to government contractors and government contracting officers alike, as they represent a small but important return to the "good old days" of commercial items contracting.
Commercial Item Determinations
The first final rule revises Defense Federal Acquisition Regulation (DFARS) 212.102, effective April 28, 2022, to make it easier for DoD contracting officers (CO) to rely on past commercial sales to the government as a prior commercial item determination for a particular item. The rule also updates DFARS 212.102(a)(iii) to clarify that commercial item determinations are only required for acquisitions that exceed the simplified acquisition threshold.
The rule should benefit both the government and contractors because COs can soon determine that an item is a commercial product based on prior commerciality determinations in the Commercial Item Database, a prior contract, or other evidence that an item has previously been procured using FAR Part 12 procedures. This reduces the burden on COs to prepare new commercial item determinations and on contractors to provide information about commercial products they have already sold to the United States.
Validation of Proprietary and Technical Data
The second final rule implements Section 865 of the National Defense Authorization Act (NDAA) for fiscal year 2019, which repealed years of legislative changes to the statutory presumption that commercial items are developed at private expense. Specifically, the rule revises DFARS 227.7103-13 (government right to review, verify, challenge, and validate asserted restrictions) and DFARS 252.227-7037 (Validation of Restrictive Markings on Technical Data) to again be consistent with "the original Federal Acquisition Streamlining Act (FASA)."
Going forward, DoD must presume that commercial products were developed exclusively at private expense when evaluating data rights assertions made by contractors and subcontractors. Though the government still has the right to challenge such assertions under DFARS 227.7103-13, beginning April 28, 2022: (1) a contractor or subcontractor is no longer required to submit a justification in response to such a challenge, and (2) the government can only overcome the presumption of commerciality if it can provide specific information that demonstrates the item was not deployed exclusively as private expense. In most cases, this type of information "may exist but be in the custody and control of the contractor" and, thus, the contractor's asserted rights likely will control.
DoD notes several benefits stemming from this final rule. First, contractors will no longer be required to respond to challenges or pre-challenge requests for information when asserting data rights premised on commerciality or provide evidence establishing that an item was developed exclusively at private expense. Second, the government is less likely to initiate challenges because of the requirement that it already possess or be able to identify sufficient information to disprove the contractor's assertions.
The "new" DoD rules are a welcome throwback to the "old FASA days" and provide immediate, tangible benefits to contractors and subcontractors supplying commercial products and services to the government. With similar measures up next on DoD's 2022 regulatory agenda (previously discussed here), here's hoping DoD will consider making additional changes to streamline acquisition timelines and compliance obligations in commercial items procurements.
For more information about DoD's changes to commercial item contracts, please contact one of the Miller & Chevalier attorneys listed below.
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