FAR Will Clarify Commercial Item Definition Into Services and Products

There will be a new definition for commercial items under the FAR, via a final rule effective December 6, 2021. The rule divides the definition into two separate categories: “commercial service” and “commercial product.” Below, we’ll summarize these changes to an important definition in federal contracting.

The new definition stems from a change in the 2019 NDAA that split the definition the definition of “commercial item” at 41 U.S.C. 103 into the definitions of “commercial product” and “commercial service,” at 41 U.S.C. 103 and 103a. This change was suggested by the Section 809 Panel, a panel commissioned by Congress to come up with ways to streamline and improve defense contracting. While this recommendation was accepted by Congress, other Section 809 panel ideas, such as eliminating small business set-asides, were rejected by Congress.

The Panel recommended the splitting of the commercial items definition in order to to better “reflect the significant roles services and commercial services play today in the DoD procurement budget.” However, this definition change is not supposed to change the substance of the rule, as it “does not expand or shrink the universe of products or services the Government may procure using FAR part 12, nor does it change the terms and conditions with which contractors must comply.”

Commercial Product

So, what is a commercial product? The main definition of commercial product now reads:

(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;

The definition also includes offshoots of the type of products defined above, including:

  • A product “evolved” through technological advances from a product described above that will be ready “in the commercial marketplace in time to satisfy the delivery requirements under a Government solicitation”
  • A product modified from the main definition in a customary way or a “minor modification” for the government, meaning it doesn’t change the purpose, function, or physical characteristics of an item
  • A combination of products meeting the definition that is sold in combination to the public
  • The last type of commercial product is quite specific and involved sale to state, local, or foreign governments: “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

A commercial service includes the following types:

  • “Installation services, maintenance services, repair services, training services, and other services if” the services support a commercial product and the contractor provides similar services to the general public.
  • “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.”

This rule change should be helpful to contractors in determining what products and services count as commercial. It will also be important to agencies when determining if the commercial products and services rules of FAR Part 12 apply to certain procurements.

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