On Friday, March 18, 2022, the Defense Acquisition Regulation (DAR) Council released a proposed rule to provide technical amendments to the Defense Federal Acquisition Regulations System (DFARS) and settle the DFARS Case 2018-D066. The proposed rule is available here. Interested parties may submit comments no later than May 17, 2022.

The proposed rule does not create any substantive changes; instead it proposes to replace the use of “commercial item” with the terms “commercial products” and “commercial services.” In addition, “noncommercial item” will be replaced with “other than commercial products and/or commercial service.”

This action is not surprising. The National Defense Authorization Act (NDAA) for Fiscal Year 2019 instructed the Department of Defense to undertake a bifurcation of the commercial item term to more clearly distinguish when commercial services were permissible.

More recently, in November, the Federal Acquisition Regulation (FAR) Council released a similar update, resulting in a new definition for each commercial product and commercial service, the removal of all references to commercial items in the FAR, and a change to 43 FAR clauses and provisions. Contractors may have received contract modifications updating their contract clauses. While the volume may appear overwhelming, the reality is the changes were not substantive.

Now, the DFARS will make the similar divide, changing 50 DFARS clauses and provisions. The DFARS will default to the new definitions already incorporated at FAR 2.101, and restated below. The most notable change is that commercial-off-the-shelf items, commonly called COTS, will now address commercial products but not commercial services. Those who deal in what they consider to be COTS services need to take a closer look at their contracts and compliance obligations, if any.

Otherwise, if the proposed rule is implemented, contractors and subcontractors should expect to see contract modifications with subtle changes in the corresponding DFARS clauses and provisions.  

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For reference FAR 2.101:

Commercial product means —

           (1) A product, other than real property, that is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes, and–

                (i) Has been sold, leased, or licensed to the general public; or

                (ii) Has been offered for sale, lease, or license to the general public;

           (2) A product that evolved from a product described in paragraph (1) of this definition through advances in technology or performance and that is not yet available in the commercial marketplace, but will be available in the commercial marketplace in time to satisfy the delivery requirements under a Government solicitation;

           (3) A product that would satisfy a criterion expressed in paragraph (1) or (2) of this definition, except for-

                (i) Modifications of a type customarily available in the commercial marketplace; or

                (ii) Minor modifications of a type not customarily available in the commercial marketplace made to meet Federal Government requirements. “Minor modifications” means modifications that do not significantly alter the nongovernmental function or essential physical characteristics of an item or component , or change the purpose of a process. Factors to be considered in determining whether a modification is minor include the value and size of the modification and the comparative value and size of the final product. Dollar values and percentages may be used as guideposts, but are not conclusive evidence that a modification is minor;

           (4) Any combination of products meeting the requirements of paragraph (1), (2), or (3) of this definition that are of a type customarily combined and sold in combination to the general public;

           (5) A product, or combination of products, referred to in paragraphs (1) through (4) of this definition, even though the product, or combination of products, is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor; or

           (6) A nondevelopmental item, if the procuring agency determines the product was developed exclusively at private expense and sold in substantial quantities, on a competitive basis, to multiple State and local governments or to multiple foreign governments.

Commercial service means —

           (1) Installation services, maintenance services, repair services, training services, and other services if–

                (i) Such services are procured for support of a commercial product as defined in this section, regardless of whether such services are provided by the same source or at the same time as the commercial product; and

                (ii) The source of such services provides similar services contemporaneously to the general public under terms and conditions similar to those offered to the Federal Government;

           (2) Services 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 outcomes to be achieved and under standard commercial terms and conditions. For purposes of these services–

                (i) Catalog price means a price included in a catalog, price list, schedule, or other form that is regularly maintained by the manufacturer or vendor, is either published or otherwise available for inspection by customers, and states prices at which sales are currently, or were last, made to a significant number of buyers constituting the general public; and

                (ii) Market prices means current prices that are established in the course of ordinary trade between buyers and sellers free to bargain and that can be substantiated through competition or from sources independent of the offerors; or

           (3) A service referred to in paragraph (1) or (2) of this definition, even though the service is transferred between or among separate divisions, subsidiaries, or affiliates of a contractor.

COTS item —

           (1) Means any item of supply (including construction material) that is–

                (i) A commercial product (as defined in paragraph (1) of the definition of “commercial product ” in this section);

                (ii) Sold in substantial quantities in the commercial marketplace; and

                (iii) Offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace; and

           (2) Does not include bulk cargo, as defined in 46 U.S.C. 40102(4), such as agricultural products and petroleum products.