In addition to opening the door to possible awards under the government's Other Transactions Authority (OTA), products and services provided by contractors that meet the definition of a Non-Traditional Defense Contractor (NDC) may be treated by the government as commercial without any commercial determination pursuant to Defense Federal Acquisition Regulation Supplement (DFARS) 252.215-7013.
As discussed below, this commerciality exception provides a number of significant benefits that increase the value of this designation.
Definition of an NDC
As we have written about in this blog post, there has been an uptick over the past few years in the government's use of its flexible OTA, particularly by the Department of Defense (DoD). This has increased the value to companies of maintaining eligibility for OTA awards, which 10 U.S.C. § 4022(d) mandates can only be made by DoD for prototype efforts if one of the following circumstances is true (different standards apply to research OTA awards under 10 U.S.C. § 4021):
- At least one NDC or nonprofit research institution participates to a significant extent in the prototype project.
- All the significant participants are small businesses or NDCs.
- At least 1/3 of the total cost of the prototype project will be paid by sources other than the federal government.
- The government determines in writing that exceptional circumstances justify the award that would not be practical or feasible under a contract.
As provided in 10 U.S.C. § 3014 and DFARS 202.101, an NDC is defined as an entity that is not currently performing and has not performed, any contract or subcontract for DoD that is subject to full coverage under the Cost Accounting Standards (CAS), prescribed pursuant to 41 U.S.C. § 1502 and the regulations implementing such section, for at least the one-year period preceding the solicitation of sources by DoD. As a result of this broad definition, NDCs often include startups, small businesses, and companies that primarily operate in commercial markets. These contractors bring innovative technologies and solutions from the commercial sector to defense applications, often introducing new perspectives and capabilities that can enhance the effectiveness of the U.S. military.
The Commerciality Exception
DFARS 252.215-7013, Supplies and Services Provided by Nontraditional Defense Contractors, a regulation published in January 2023, informs offerors that supplies and services provided to DoD by an NDC may be treated as commercial products or services. Further, the regulation states that the decision to apply commercial product or commercial service procedures to procurements from NDCs does not require a formal commercial product or commercial service determination. This regulation, which is required by DFARS 215.408(6) to be included in all solicitations, provides a significant opportunity for NDCs to contribute to DoD projects without navigating usual regulatory hurdles. It also allows DoD to streamline procurement processes to access a wider range of innovative solutions and suppliers.
Why Does the Designation of NDC Supplies and Services as Commercial Matter?
There are three key reasons why the designation of NDC supplies and services as commercial is advantageous to both DoD and the NDC community:
- Easing Barriers to Entry: For NDCs, the classification of their offerings as commercial under DFARS 252.215-7013 significantly reduces administrative burdens and encourages companies to enter the federal market because they are exempt from many regulations that apply to non-commercial items. For example, this designation eliminates the need to obtain a commerciality determination, invest and build out CAS-compliant accounting systems, or generate certified cost or pricing data under the Truth in Negotiations Act (TINA). With regard to the last benefit, a May 2024 memo from DoD's Defense Pricing, Contracting, and Acquisition Policy office reminded the DoD acquisition workforce that this exception allows NDCs to request an exception from the requirement under DFARS 252.215-7010 to provide certified cost or pricing data. Further, this means that NDCs may offer new products or services to DoD in response to commercial item solicitations without regard to whether those products or services have been offered or sold to the public, or are of a type offered or sold to the general public. By ensuring an NDC's products or services are treated as commercial, as well as requesting and obtaining exceptions to the provision of certified cost or pricing data, an entity may also prolong its NDC qualification.
- Accelerating Innovation: The flexibility
provided by DFARS 252.215-7013 enables DoD to quickly integrate
cutting-edge technologies from the commercial sector. This is
critical, especially in areas like cybersecurity, artificial
intelligence, and advanced manufacturing, where private sector
advancements often outpace traditional defense developments.
Importantly, the Federal Acquisition Regulation (FAR) Part 12
allows for streamlined solicitation and evaluation procedures for
commercial items in acquisitions that exceed the simplified
acquisition threshold (currently $250,000 in most cases) but are
less than $7.5 million, or $15 million for acquisitions described
in FAR 13.500. This includes combining the synopsis and
solicitation into a single document, and reducing the time required
to solicit and award contracts. This shorter procurement cycle
typically means less financial investment for companies pursuing
these FAR Part 12 federal award opportunities.
- Enhancing Supply Chain Resilience: By expanding the pool of potential suppliers, DoD can build a more resilient and diverse supply chain. This diversity helps mitigate risks associated with dependency on a limited number of suppliers and encourages the introduction of new, creative solutions to defense challenges.
Conclusion
DFARS 252.215-7013 is a valuable tool for DoD to accelerate the integration of innovative solutions into the defense sector and lower the cost for NDCs to participate in the defense contracting market. By designating supplies and services provided by NDCs as commercial, DoD not only expands its access to cutting-edge technologies but also promotes a more dynamic and responsive defense industry. For NDCs entering this space, understanding and leveraging this provision can open up new opportunities for growth and collaboration with DoD.
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