Many firms that enter federal contracting sell things the commercial market already buys: software, equipment, maintenance, training, professional services. For these purchases, the FAR provides a distinct, streamlined set of rules in Part 12. Understanding it is especially useful heading into the fourth quarter, when agencies often favor fast, simple acquisitions and commercial terms make awards easier to complete before the fiscal year ends.
A preference written into law
Federal policy has favored commercial purchasing since the 1990s, when the Federal Acquisition Streamlining Act directed agencies to acquire commercial items where they could meet the government’s needs. Agencies are expected to conduct market research to determine whether commercial offerings are available and to state their requirements in terms that allow those offerings to compete. The regulations once referred to commercial items; they now distinguish between commercial products and commercial services, with definitions in FAR Part 2 built around offerings of a type customarily used by the general public or by nongovernmental entities and sold or offered to them, along with certain modifications and related services.
What changes when a purchase is commercial
- A shorter clause set. Commercial acquisitions use a standard group of provisions and clauses designed to resemble commercial practice, and agencies are limited in adding other clauses unless they are required by law or consistent with customary commercial practice.
- A standard form. Solicitations and awards often use the Standard Form 1449, which combines the solicitation, offer and award in one document.
- Contract types. Commercial acquisitions generally use firm-fixed-price or fixed-price with economic price adjustment, with time-and-materials and labor-hour arrangements permitted for certain commercial services under specified conditions.
- Tailored terms. Contracting officers may tailor some terms to reflect customary practice in the market, such as warranty or payment terms.
- Simplified termination. A commercial termination for convenience uses a simpler formula based on the percentage of work performed plus reasonable charges resulting from the termination.
- Fewer cost data requirements. Commercial acquisitions are generally exempt from the requirement to submit certified cost or pricing data, although the government can still ask for other information to determine that the price is reasonable.
What does not change
Commercial does not mean anything goes. Statutory requirements still apply, including those carried in the clause that lists the laws and executive orders relevant to commercial acquisitions. Small business programs, labor standards for covered services, country-of-origin rules and supply chain prohibitions all continue to matter. Some of these clauses must also flow down to subcontractors, and the commercial clause set identifies which ones.
How to help a buyer treat your offering as commercial
Agencies decide whether a product or service is commercial, usually as part of market research. You can help by showing that your offering is sold to commercial customers on similar terms: published price lists, catalog pages, commercial contracts or invoices with sensitive details removed, and evidence of the market in which the offering competes. If your offering is a modification of a commercial product, explain what the modification involves and whether it is of a type customarily available in the marketplace.
Be prepared, too, to explain your commercial terms and why they are customary, since the government cannot accept terms that conflict with federal law, such as certain indemnification or automatic renewal provisions in license agreements. The current text of Part 12 and its clauses is available at acquisition.gov, and a firm with questions about license terms should talk to a lawyer familiar with government contracts.