August 19, 2019

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DoD Retreats on Evaluation of Price Reasonableness

Last week, the Department of Defense (“DoD”) quietly withdrew its ill-received proposed rule on the evaluation of price reasonableness in commercial items acquisitions.  Issued on August 3, 2015, the Proposed Rule purported to provide guidance for evaluating the reasonableness of prices using data other than certified cost or pricing data.  As we previously reported, it fell short of this goal and, instead, increased confusion in the determination of price reasonableness for commercial goods that have been “offered for sale” but not sold.  It also adopted open-ended data provisions that arguably permit the agency to request almost unlimited information to substantiate the reasonableness of prices.

The Proposed Rule elicited strong, negative comments from the defense industry and the American Bar Association’s Section of Public Contract Law.  Many accused DoD of attempting to eliminate the commercial acquisition of items without prior commercial sales.  In addition, Sen. John McCain (R-Ariz.), Chairman of the Senate Armed Services Committee issued a letter urging Secretary of Defense Ashton Carter to rethink the proposed rule as inconsistent with the Secretary’s efforts to court commercial contractors.

The proposed rule also was at odds with the direction of FY2016 National Defense Authorization Act (NDAA), which included a number of provisions focusing on commercial item acquisitions.  In particular, the NDAA attempted to clarify and simplify the process by (a) establishing a presumption that prior commercial item determinations are valid for the subsequent purchase of the same item (Sec. 851); (b) requiring Contracting Officers consider recent government purchase prices for the same or similar items when determining price reasonableness (Sec. 853); and (c) restricts a contracting officer’s ability to convert a FAR Part 12 acquisition of a commercial product or service into a FAR Part 15 transaction by requiring that the contracting officer make a written determination that the prior determination was in error and that DoD will recognize cost savings as a result (Sec. 856).

Between the McCain letter and the NDAA, Congress could not have been clearer that the goal is to create a less–not more–burdensome process for commercial item contracting.  Maybe rescinding the proposed rule is the DoD’s first step towards listening?  In any event, commercial item contracting will remain a DoD focal point in the coming year and will continue to face significant changes to the regulatory landscape in the months to come.  DoD still must address the NDAA provisions addressed above and is expected to issue a new proposed rule on the evaluation of price reasonableness.  We will continue to provide updates on new developments as they unfold.

 
© 2019 Covington & Burling LLP

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About this Author

Jason Workmaster, Litigation attorney, Covington
Of Counsel

Jason Workmaster focuses his practice on government contracts-related litigation, including civil False Claims Act (FCA) cases, contract disputes, and bid protests. He has represented a host of clients in these types of cases in U.S. District Court, the U.S. Court of Federal Claims (COFC), and the Government Accountability Office (GAO).

A nationally recognized leader on FCA issues, Mr. Workmaster has appeared on NBC’s The TODAY Show and Canadian TV’s National News to discuss the highly publicized FCA case against the cyclist Lance Armstrong. Mr....

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Kevin T. Barnett, Government contracts attorney, Covington Burling
Associate

Kevin Barnett represents a broad array of clients, ranging from large defense contractors to small technology companies in all aspects of government contracts law.

He has litigated claims against the United States and has counseled clients on complicated regulatory compliance issues involving GSA schedule contracts, small business rules, Buy American Act and Trade Agreement Act issues. He also routinely assists clients on the Freedom of Information Act (FOIA) process from drafting through litigating in federal court.

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