In a letter to Secretary of Defense Ashton Carter on September 8, 2015, Senator John McCain called for the immediate rescission of the Department of Defense’s (DOD) proposed rule on evaluating price reasonableness for commercial items (DFARS Case 2013-D034). The proposed rule, which was published on August 3, 2015, would result in significant, substantive changes to commercial item acquisitions under DOD-funded contracts, including requiring the use of market-based pricing that is based on actual, nongovernmental sales in the absence of adequate price competition. Prime contractors would also be required under the proposed rule to obtain cost data to support commerciality determinations for subcontractors. Other key elements of the proposed rule are summarized in Dentons’ advisory, available here.
In the letter, Senator McCain stated that the proposed rule’s “cumbersome and excessively bureaucratic requirements” to provide cost data for commercial item procurements “could effectively preclude any significant participation by commercial firms in defense programs.” Senator McCain recognized that the requirements in the proposed rule would, in effect, require commercial item contractors to create new accounting systems before conducting business with the DOD. He further stressed that commercial item contractors are likely to exit the government procurement market rather than undertake these significant regulatory obligations, depriving the DOD of the opportunity to procure vital, cutting-edge technologies.
Moreover, the increased regulatory burdens for commercial item procurements in the proposed rule, according to Senator McCain, are directly contrary to the DOD’s ongoing efforts to engage more high-tech commercial firms in the government procurement market and serve as “a signal that DOD has little interest in realistic commercial acquisition practices.”
Comments on the proposed rule must be submitted to DOD on or before October 2, 2015. Dentons will continue to monitor developments associated with the proposed rule and provide updates here.