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PRACTICE NOTE

and Commercial Service Contracting

byErin L. Toomey, Foley & Lardner LLP, with Practical Law Commercial Transactions

Status: Maintained | Jurisdiction: United States

This document is published by Practical Law and can be found at: content.next.westlaw.com/5-532-3257

Request a free trial and demonstration at: tr.com/practicallaw-home

This Practice Note explains the concept of commercial product and commercial service contracting

between suppliers of goods and services and the federal government. This Note reviews the

advantages of commercial product and commercial service contracting over traditional government

contracting and advises current and prospective federal government contractors on how they

can beneﬁt from this aspect of procurement reform. This Note includes a discussion of Federal

Acquisition Streamlining Act of 1994 (FASA), the implementing regulations under the Federal

Acquisition Regulation (FAR), and required contract clauses for commercial product and commercial

service prime contracts and subcontracts.

The US government spends a signiﬁcant amount of money

each year procuring a wide variety of goods and services

from contractors, ranging from typical government

purchases, such as weapons and aircraft, to what may

be considered atypical purchases, such as advertising,

consulting, and construction services as well as mundane

goods, such as ofﬁce supplies, clothing and food.

The concerns of companies that are wary of entering into

the federal government marketplace, however, are well-

founded. Government-unique auditing and accounting

requirements, speciﬁcations and standards, and

other requirements have dissuaded many commercial

contractors from selling their goods and services to

the federal government. However, due to acquisition

reform in the 1990’s and the concept of commercial

item contracting, now called commercial product and

commercial service contracting, the federal government

can now procure commercial supplies and services

from contractors on terms and conditions similar to

commercial contracts.

This Note discusses the federal government concept of

commercial product and commercial service contracting,

its beneﬁts, and how contractors can beneﬁt from this

aspect of procurement reform. It explains:

• The statutory reforms in the 1990’s that established

commercial item contracting.

• What qualiﬁes as a commercial product or commercial

service.

• Required contract clauses applicable to commercial

product and commercial service contracts.

• Government-speciﬁc requirements that still apply to

commercial product and commercial service contracts.

• The differences between commercial product

and commercial service contracts and traditional

government contracts.

• How to ﬁnd and respond to commercial product or

commercial service solicitations from the federal

government.

• The beneﬁts and risks of commercial product and

commercial service contracting.

Reforms Establishing Commercial

Product and Commercial Service

Contracting

Before the passage of the Federal Acquisition Streamlining

Act of 1994 (FASA), many commercial contractors refused

to sell goods and services to the federal government based

on the signiﬁcant additional costs and risks associated with

government-unique speciﬁcations, auditing requirements,

and other onerous terms and conditions.

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Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

Under FASA

In October 1994, the government enacted FASA,

which dramatically changed the government’s

procurement philosophy. A key provision in FASA is

the government’s stated preference for the purchase of

commercial products and commercial services because

the purchase of proven commercial products and

commercial services can:

• Reduce the need for government-funded research and

development.

• Minimize acquisition lead-time.

• Reduce the need for:

– detailed design speciﬁcations; and

– expensive product testing.

FASA further encourages government agencies to

ensure that requirements are deﬁned so that commercial

products and commercial services may be procured to

fulﬁll agency requirements.

Revised Federal Acquisition Regulation

Part 12

In 1995, the Federal Acquisition Regulation (FAR) council

implemented FASA by revising FAR Part 12 to:

• Contain policies and procedures applicable only to

commercial products and commercial services.

• Create acquisition policies that more closely resemble

the commercial marketplace.

• Identify exemptions from government contracting

laws and regulations for commercial product and

commercial service contracts.

Among other things, FAR Part 12 requires government

agencies to:

• Conduct market research to determine if commercial

products or commercial services are available to satisfy

the agency’s requirements.

• Buy commercial products and commercial services

when they are available to meet the agency’s needs.

• Require prime contractors and subcontractors at

all tiers to incorporate, to the maximum extent

practicable, commercial products and commercial

services as components of items supplied to the

government.

(48 C.F.R.§12.101(a), (b) and (c).)

What Qualiﬁes as a Commercial

Product or Commercial Service?

The deﬁnitions of a commercial product and a commercial

service are broad and address physical products and

services differently.

Deﬁnition of Commercial Product

Section 2.101 of the FAR deﬁnes a commercial product as:

• A product other than real property (land) of a

type customarily used by the general public or by

nongovernmental entities for nongovernmental

purposes and that has been either sold, leased, or

licensed (or offered for sale, lease, or license) to the

general public.

(48 C.F.R.§2.101(1).)

• A product that evolved from a product described

in Section 2.101(1) of the FAR through advances in

technology or performance and is not yet available

in the commercial marketplace, but will be in time to

satisfy the delivery requirements under a government

solicitation (48 C.F.R.§2.101(2)).

• A product that would be considered a commercial product

as deﬁned in Section 2.101(1) or (2) of the FAR but for:

– modiﬁcations of a type customarily available in the

commercial marketplace; or

– minor modiﬁcations not customarily available in

the commercial marketplace made to meet federal

government requirements.

(48 C.F.R.§2.101(3).)

• A combination of products that meets the criteria of

Section 2.101(1), (2), or (3) of the FAR that are of a type

customarily combined and sold in combination to the

general public (48 C.F.R.§2.101(4)).

• A product or combination of products as referred

to in Section 2.101(1), (2), (3), or (4) of the FAR even

though it is transferred between or among separate

divisions, subsidiaries, or afﬁliates of a contractor

(48C.F.R.§2.101(5)).

• A non-developmental item if the procuring agency

determines that the product was:

– developed exclusively at public expense; and

– sold in substantial quantities, on a competitive

basis, to multiple State and local governments or to

multiple foreign governments.

(48 C.F.R.§2.101(6).)

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Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

A commercial product includes any product that is

commercially available off-the-shelf (COTS). A COTS item

is any supply item, including construction material, that is:

• A commercial product as deﬁned in Section 2.101(1) of

the FAR.

• Sold in substantial quantities in the commercial

marketplace.

• Offered to the federal government, under a contract

or subcontract at any tier, without modiﬁcation, in the

same form as it is sold in the commercial marketplace.

(48 C.F.R.§2.101.)

However, while a COTS item is a commercial product,

a product need not be a COTS item to be considered a

commercial product.

Deﬁnition of Commercial Service

A commercial service is deﬁned as:

• A service procured in support of a commercial product if

the supplier provides similar services at the same time

to the general public under terms and conditions similar

to those offered to the federal government, regardless

of whether the services are performed by the same

source or at the same time as the commercial product,

including the following support services:

– installation;

– maintenance;

– repair; and

– training.

(48 C.F.R.§2.101(1).)

• Any service:

– 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 tasks to be

achieved; and

– under standard commercial terms and conditions.

(48 C.F.R.§2.101(2).)

• A service referred to in Section 2.101(1) or (2), even

though the service is transferred between or among

separate divisions, subsidiaries, or afﬁliates of a

contractor (48 C.F.R.§2.101(3)).

Services other than those under Section 2.101(1) of the

FAR must have established catalog or market prices to

qualify as commercial services.

”Of a Type” Signiﬁcantly Broadens the

Deﬁnitions of Commercial Product and

Commercial Service

It is signiﬁcant that to qualify as a commercial product or

commercial service, a contractor need only demonstrate

that the goods or services offered to the government are

“of a type” offered for sale or sold to the general public.

This does not require a contractor to show either:

• The identical product or service is offered or sold to the

general public.

• The contractor itself offers or sells the product or service

to the general public.

The FAR does not, however, clearly deﬁne the point at

which the differences between the commercial product

and the product offered to the government are so

signiﬁcant to breach the “of a type” standard.

Commercial Product and Commercial

Service Pricing

To get FAR Part 12 preferential treatment, the FAR

requires commercial product and commercial service

contracts to be either:

• Firm-ﬁxed-price.

• Fixed price with economic price adjustment based on:

– established prices; or

– cost indexes of labor or material.

(48 C.F.R.§12.207(a).)

For more information, see Practice Note, Federal

Government Contracts: Overview: Different Types of

Federal Government Contracts.

In limited circumstances, a contractor may receive

a time-and-materials or a labor-hour commercial

services contract, but there are some restrictions on the

government’s ability to issue these types of contracts

(48C.F.R.§12.207(b)).

For both commercial products and commercial services,

before issuing a commercial product or commercial

service prime contract or subcontract, the government

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Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

or higher-tiered contractor must use a price analysis

to determine whether the contractor’s price is fair and

reasonable. This price analysis typically does not involve

an examination of the contractor’s separate cost elements

or proposed proﬁt used to develop the ﬁrm-ﬁxed-price,

but in some circumstances, the government may request

data other than certiﬁed cost or pricing data to support the

government’s price analysis (48 C.F.R.§15.403-3(c)). For

more information see Box, Price Analysis for Commercial

Product and Commercial Service Contracts.

Commercial Product and

Commercial Service Prime

Contracts and Subcontracts:

Required Contract Clauses

Commercial product and commercial service prime

contractors and subcontractors are only required to accept

a small set of FAR and agency supplement clauses in

their contracts. Most federal agencies have their own FAR

supplements. For example, the Department of Defense FAR

Supplement (DFARS) applies to sales to the Department of

Defense (DoD).

FAR Subpart 12.5 provides a laundry list of laws that:

• Are not applicable to prime contracts for the acquisition

of commercial products or commercial services.

• Are not applicable to subcontracts, at any tier, for the

acquisition of commercial products or commercial

services.

• Are not applicable to contracts for the acquisition of

COTS items.

• Have been amended to eliminate or modify their

applicability to either prime contracts or subcontracts

for the acquisition of commercial products or

commercial services.

(48 C.F.R.§§12.500 and 12.503-12.505.)

Required Contract Clauses for Prime

Contracts and Solicitations

Commercial product and commercial service prime

contracts and solicitations must incorporate only the

following four primary FAR clauses:

• FAR Clause 52.212-1, Instructions to Offerors –

Commercial Products and Commercial Services

(48 C.F.R.§52.212-1). Provides a single, streamlined

set of instructions to be used when soliciting offers

for commercial products or commercial services (48

C.F.R.§12.301(b)(1)).

• FAR Clause 52.212-3, Offeror Representations

and Certiﬁcations – Commercial Products and

Commercial Services (48 C.F.R.§52.212-3). Provides

a single, consolidated list of representations and

certiﬁcations for the acquisition of commercial products

or commercial services (48 C.F.R.§12.301(b)(2)).

• FAR Clause 52.212-4, Contract Terms and

Conditions – Commercial Products and Commercial

Services (48 C.F.R.§52.212-4). Includes terms

and conditions which are, to the maximum extent

practicable, consistent with customary commercial

practices (48C.F.R.§12.301(b)(3)). Contractors may:

– request to have some of these terms and conditions

tailored to adapt to the market conditions

for a particular transaction (for example, the

warranty, risk of loss, and termination clauses)

(48C.F.R.§12.302(a)); and

– suggest additional terms that are consistent with that

particular industry (48 C.F.R.§12.302(c)).

Seven out of the 22 paragraphs of this clause implement

statutory requirements and therefore cannot be tailored,

including paragraphs on:

– assignments;

– disputes;

– payment;

– invoice;

– unauthorized obligations; and

– certain legally mandated compliance matters

(48C.F.R.§12.302(b)).

• FAR Clause 52.212-5, Contract Terms and

Conditions Required to Implement Statutes or

Executive Orders – Commercial Products and

Commercial Services (48 C.F.R.§52.212-5).

Incorporates by reference only those paragraphs

required to implement provisions of law or

executive orders applicable to the acquisition

of commercial products or commercial services

(48C.F.R.§12.301(b)(4)). FAR Clause 52.212-5 has

a check-the-box format. Contracting officers must

check off only those clauses that apply to the prime

contract and contractors are only required to comply

with the clauses that have been checked off.

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Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

Required Contract Clauses for

Commercial Product and Commercial

Service Subcontracts

Even if a higher-tiered contractor has a non-commercial

product or non-commercial service prime contract, the

higher-tiered contractor can and is encouraged to issue

commercial product or commercial service subcontracts to

the maximum extent practicable (48 C.F.R.§§44.402(a)

and 52.244-6(b)). The required clauses for commercial

product and commercial service subcontracts issued

under commercial product or commercial service prime

contracts are listed in Section 52.212-5(e) of the FAR

(48C.F.R.§52.212-5(e)). The required clauses for

commercial product or commercial service subcontracts

issued under non-commercial product or non-commercial

service prime contracts are listed in Section 52.244-6(c) of

the FAR (48 C.F.R. 52.244-6(c)).

The lists of clauses in Sections 52.212-5(e) and 52.244-6(c)

of the FAR:

• Are signiﬁcantly shorter than those required for

non-commercial product or non-commercial service

subcontracts.

• Permit the higher-tiered contractor to include in the

commercial product or commercial service subcontract

additional clauses necessary to satisfy its contractual

obligations (for example, a changes clause, a stop work

order clause and a termination for convenience clause).

Unique Government Contracting

Requirements That Still Apply

Even commercial product and commercial service

contractors must comply with a limited number of federal

government-unique requirements that apply to all

government contractors, including:

• Those aimed at achieving the government’s

socioeconomic policies (see Equal Employment

Opportunity Contract Clauses).

• Import and export restrictions and anti-corruption

regulations (see Additional Requirements).

Equal Employment Opportunity Contract

Clauses

Federal government contractors must promote equal

opportunity as required by the Equal Employment

Opportunity (EEO) contract clauses if the contractor

receives more than $10,000 per year in government

contract awards. The EEO contract clauses implement:

• Executive Order 11246 (September 24, 1965) and its

implementing regulations.

• The Vietnam Era Veterans’ Readjustment Assistance

Act of 1972 (38 U.S.C.§§4211 and 4212), the Veterans

Employment Opportunities Act of 1998 (Public Law

105-339), the Jobs for Veterans Act (Public Law 107-

288), Executive Order 11701 (January 24, 1973) and their

implementing regulations.

• Section 503 of the Rehabilitation Act of 1973 (29 U.S.C

§793), Executive Order 11758 (January 15, 1974) and

their implementing regulations.

The Department of Labor monitors and enforces contractors’

compliance with these contract clauses through its Ofﬁce

of Federal Contract Compliance Programs (OFCCP).

These contract clauses impose obligations on government

contractors that deviate from the practices of an ordinary

commercial contractor. These include, but are not limited to:

• Requiring contractors to ﬁle annual compliance reports.

• Requiring contractors to create an Afﬁrmative Action

Program, if the contractor has:

– 50 or more employees; and

– a prime contract or subcontract of $50,000 or more

(or bills of lading that can be expected to total

$50,000 or more in a 12-month period).

(41 C.F.R.§60-2.1.)

• Permitting the OFCCP to audit the contractor’s

personnel records.

• Regulating how a contractor posts employment

opportunities.

Additional Requirements

In addition to the EEO contract clauses, commercial

product and commercial service contractors must also

comply with:

• All applicable import and export restrictions (for more

information on export laws, see Complying with US

Export Control Regulations Checklist and Practice

Notes, Export Regulations: EAR, ITAR, and FTR and

Export Regulation: US Antiboycott Laws).

• Restrictions on recruiting and hiring former government

employees.

• The Anti-Kickback Act (41 U.S.C.§8701).

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Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

• Lobbying restrictions.

• Prohibitions on human trafﬁcking.

• Cybersecurity requirements. (48 C.F.R.§52.204-21)

• If a contract for services, the Service Contract Labor

Standards. For more information on Service Contract

Labor Standards, see Practice Note, Government

Contracts: Service Contract Labor Standards

Compliance.

• Certain restrictions on using or selling technologies (for

example, Kaspersky Lab, covered telecommunications

equipment and services, and TikTok) (48 C.F.R.

§§52.204-23, 52.204-25 and 52.204-27).

• In some instances, laws that impose a preference for

domestic sources or materials (for more information,

see Practice Note, Buying American: Country of Origin

Requirements in US Government Contracts).

• If the contract exceeds $6 million and has a period of

performance longer than 120 days, a requirement to

have a written code of business ethics and conduct (FAR

§52.203-13). Even if not required, contractors should

consider implementing such a code and a compliance

program as a best practice for government contractors

(for more information, see Practice Note, Federal

Government Contracts: Overview: Implementing an

Effective Compliance Program).

• A requirement for prime contractors and ﬁrst-

tier subcontractors to report the names and total

compensation of the ﬁve most highly compensated

executives for the contractor’s preceding ﬁscal year, if:

– the contractor receives 80% or more of its annual

gross revenues from federal contracts, subcontracts,

loans, grants, subgrants, and cooperative

agreements;

– the contractor receives $25 million or more in annual

gross revenues from federal contracts, subcontracts,

loans, grants, subgrants, and cooperative

agreements; and

– the public does not already have access to this

information through SEC or IRS reports.

(48 C.F.R.§§4.1400 - 4.1403 and 52.204-10.)

Fraud Enforcement Mechanisms

All government contractors are subject to the federal

government’s procurement fraud enforcement

mechanisms, which come in a variety of forms. The

government can prosecute procurement fraud under

several criminal and civil statutes, including:

• The False Statements Act. The government uses this

statute most frequently to address all categories of

procurement fraud (18 U.S.C.§1001). It prohibits lying

(knowingly and willfully making a false statement) to the

government. A statement made under this act may be:

– oral;

– written;

– sworn; or

– unsworn.

• The False Claims Act (FCA). The FCA:

– provides for treble damages and penalties for

the submission of false claims by either a prime

contractor or subcontractor to any federal agency or

entity using federal funds to pay these claims;

– authorizes private citizens with evidence of fraud

against the government to ﬁle lawsuits in their own

name (on behalf of themselves and the government)

and then keep a signiﬁcant share of the government’s

recovery (a qui tam action) (31 U.S.C.§3730). Qui tam

actions are often brought by disgruntled current or

former employees who are aware of the company’s

business practices in performing its government

contracts. Whistleblowers (referred to as relators)

often are rewarded with 15% to 25% of the total

recovery from the company (31 U.S.C.§3730); and

– protects employees from retaliation by their employers.

(31 U.S.C.§§3729-3733.)

Government contractors can address all of these

government requirements with an effective compliance

program. Implementing appropriate policies and

procedures to comply with these requirements has a

minimal impact on the contractor’s business practices

compared to the efforts required to comply with

traditional government contract requirements. For

information on the FCA generally, see Practice Note,

Understanding the False Claims Act.

How Commercial Product and

Commercial Service Contracts

Differ From Traditional Government

Contracts

Exemptions From Certain Requirements

Even though commercial product and commercial

service contractors must comply with certain government

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Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

requirements (see Unique Government Contracting

Requirements That Still Apply), they are exempt from

many of the traditional government contract requirements

that increase administrative costs and risk, such as:

• The Truthful Cost or Pricing Data Statute (formerly

known as the Truth in Negotiations Act (TINA)). This

law requires a contractor to disclose to the government

all of its cost or pricing data as of the date of price

agreement and certify that its disclosure is current,

accurate, and complete (41 U.S.C. §3501 et seq.). For

more information on the disclosure requirements,

see Practice Note, Federal Government Contracts:

Overview: The Truthful Cost or Pricing Data Statute.

• Cost Accounting Standards and related audits. The

federal government’s Cost Accounting Standards

(CAS) govern the measurement, timing and allocability

of costs charged to certain negotiated government

contracts. The CAS rules and regulations impose major

accounting requirements on government contractors

and require the negotiation of impacts of changes

to the contractor’s cost accounting practices (48

C.F.R.§§9903.301- 9903.307). For more information

on CAS, see Practice Note, Federal Government

Contracts: Overview: Cost Accounting Standards.

• Traditional federal government terms and conditions

pertaining to intellectual property (see Intellectual

Property Rights).

• Contract clauses allowing the federal government to

unilaterally make changes to the contract (see Changes

Clauses).

While exempt from the above requirements, commercial

product and commercial service contractors and

subcontractors can contractually agree to be bound by

them. They should therefore be vigilant in negotiating

their government contracts to conﬁrm that these

requirements are not included.

Intellectual Property Rights

The FAR greatly reduces the intellectual property rights

the government obtains under a commercial product

or commercial service prime contract or subcontract,

allowing the contractor to more easily retain important

rights.

Non-Commercial Products and Non-Commercial

Services

For non-commercial product and non-commercial service

prime contracts and subcontracts, the government

receives rights in technical data and computer software

delivered to the government which were developed

using government funds (48 C.F.R.§52.227-14). In

non-commercial product and non-commercial service

contracts, to limit the rights the government receives in

both technical data and software, the contractor bears

the burden of demonstrating that the technical data or

computer software was developed exclusively at private

expense. Further, the non-commercial product and non-

commercial service FAR technical data and computer

software clauses require contractors to properly mark

with restrictive legends the technical data and computer

software delivered to the government in which the

contractor wants to limit the government’s rights.

The contractor’s failure to properly mark the technical

data or computer software delivered to the government

can lead to the government’s receipt of an unlimited

rights license in this data or software, which permits the

government to share it with the contractor’s competitors

(see Bell Helicopter Textron, ASBCA No. 21192, 85-2 BCA

¶ 18415 (1985)). However, the FAR recognizes that strict

compliance with these provisions would discourage

commercial product and commercial service contractors

from government procurement and contains provisions

that signiﬁcantly reduce the administrative burden.

Commercial Products and Commercial Services

For commercial products and commercial services, FAR

Part 12 provides that:

• The government acquires technical data and the rights

in that data customarily provided to the public with

a commercial product or process (48 C.F.R.§12.211).

Therefore, the contractor is only obligated to grant the

government its standard commercial license.

• There is a presumption that technical data delivered

under a contract for commercial products was

developed exclusively at private expense (48 C.F.R.

§12.211; see also DFARS§227.7103-13).

Regarding computer software, the government acquires

commercial computer software or documentation under

licenses customarily provided to the public if these

licenses:

• Are consistent with federal law.

• Satisfy the federal government’s needs.

(48 C.F.R.§12.212.)

The contractor is not required to provide the government

with any other rights in the computer software or

documentation unless mutually agreed between the

contractor and the government.

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Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

For both technical data pertaining to a commercial

product and commercial computer software, the

requirement that contractors properly mark with speciﬁc

restrictive legends the technical data and computer

software in which the contractor wants to limit the

government’s rights is eliminated.

For more information about intellectual property rights

in government contracts, see Practice Note, Government

Contracts: Protecting Intellectual Property.

Changes Clauses

Non-Commercial Products and Non-Commercial

Services

Another traditional government contracting requirement

is the government’s ability to unilaterally direct changes to

the contract in speciﬁed areas, within the general scope of

the contract (48 C.F.R.§52.243). If the government makes

these changes, the contractor must continue performing

the contract as changed. If the contractor experiences

an increase in the cost of performance or a delay in the

schedule as a result of the change, the contractor:

• Can seek an equitable adjustment to either or both:

– the contract price; or

– the schedule.

• Must timely submit the necessary documents to support

the equitable adjustment.

• Must perform the government-directed change, even if

the contractor and the government have not agreed on

the applicable equitable adjustment.

• Should negotiate and execute a contract modiﬁcation

for these changes.

• Can seek administrative relief under the disputes

clause (FAR Clause 52.233-1), which, however, is often

a lengthy and burdensome process, if an agreement

with the government on the amount or scope of the

equitable adjustment cannot be reached.

Commercial Products and Commercial Services

For commercial products and commercial services,

however, FAR Part 12 provides that contract changes

must be mutually agreed between the contractor and the

government. Before accepting the change, the contractor

can negotiate with the government regarding the impact of

the change on the price, schedule, or both, and execute a

bilateral contract modiﬁcation accordingly. If it cannot agree

with the government, the contractor can reject the change.

Finding and Responding to

Federal Government Commercial

Product and Commercial Service

Solicitations

Suppliers can identify a commercial product or

commercial service solicitation or advocate for a federal

agency to issue a commercial product or commercial

service solicitation in a variety of ways. For example,

prospective government contractors can:

• Find opportunities on the SAM website. The System

for Award Management (SAM) website enables

contractors to search for solicitations and contract

awards, for example, by:

– agency;

– item code; or

– keyword.

• Find opportunities and additional information on the

Acquisition.Gov website. The Acquisition.Gov website

contains information not only on opportunities, but

also aggregates information on available government

contracting resources for contractors.

• Network with US government ofﬁcials. Suppliers can

network with federal government ofﬁcials to:

– understand government requirements;

– market commercial products and commercial

services; and

– help shape future government needs.

• Work with lobbyists. Suppliers can hire lobbyists to

meet with government ofﬁcials and advocate on their

behalf.

• Ensure that the solicitation contemplates the award

of a FAR Part 12 commercial product or commercial

service contract. A contractor can enter into a variety of

different types of contracts with the federal government.

If the transaction involves commercial products or

commercial services, suppliers should ensure that

the solicitation contemplates the award of a FAR Part

12 commercial product or commercial service prime

contract. If a solicitation is too restrictive, before the

deadline to submit proposals, a prospective contractor

can seek the re-solicitation of the goods or services on a

commercial product or commercial service basis and ﬁle

a bid protest with:

– the contracting government agency (see Practice Note,

Government Contracts: Agency-Level Bid Protests);

Government Contracts: Reduced Risk Through Commercial Product and Commercial Service Contracting

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– the US Government Accountability Ofﬁce (see

Practice Note, Government Contracts: GAO Bid

Protests); or

– the Court of Federal Claims (see Practice Note,

Government Contracts: COFC Bid Protests).

(48 C.F.R.§§33.101- 33.106.)

Before suppliers can submit proposals in response

to government solicitations, they must fulﬁll a few

administrative requirements, including:

• Registering in the System for Award Management (SAM).

• Filling out representations and certiﬁcations in SAM.

Beneﬁts and Risks of Commercial

Product or Commercial Service

Contracting

From a practical standpoint, taking advantage of FAR Part

12 makes sense for the government, prime contractors,

and subcontractors. Prime contractors potentially have

a larger pool of suppliers willing to accept government

subcontracts if they are more like commercial sales.

Subcontractors beneﬁt by having:

• Less onerous contract clauses.

• Reduced compliance risks.

• The ability to contract on more typical commercial

terms.

The government, prime contractors, and subcontractors

all beneﬁt from:

• Lower prices.

• Fewer compliance-related requirements.

• Reduced administrative costs.

• More supply sources.

That is not to say, however, that no risks exist in becoming

a commercial product or commercial service government

contractor (see Unique Government Contracting

Requirements That Still Apply). To mitigate these risks,

government contractors can:

• Develop and implement an effective compliance

program to avoid liability under the False Claims Act or

violations of the False Statements Act.

• Take appropriate corrective action when they discover a

real or potential violation.

• Limit their contracts with the government to commercial

product and commercial service contracts.

Price Analysis for Commercial

Product and Commercial

Service Contracts

To award a commercial product or commercial

service contract, the federal government must

conduct a price analysis to determine that the

contract price is fair and reasonable. In a price

analysis, the government must compare the

contractor’s proposed price to other information

available to the government, such as:

• Other offers submitted in response to a

solicitation.

• Previous prices for the same or similar products

or services paid by:

– the government; or

– non-government customers.

• Published price lists.

• Independent government cost estimates.

• Prices obtained from market research.

(48 C.F.R.§15.404-1(b).)