For example, legislation passed in 2015 included a  provision stating DOD contracting officers may presume that previously  established commercial item determinations shall serve as determinations  for future procurements of an item. The DCMA Commercial Item Group, which became operational in 2016,  provides recommendations on commercial item determinations within  DOD. Case Studies Identified Four Interrelated Factors That Influenced Commercial Item and Price Reasonableness Determinations, but Generally Did Not Delay Awards

In the case studies we examined, we found four interrelated factors that  influenced how DOD determines if an item is commercial and whether the  price is fair and reasonable, and that each factor had its own set of  challenges:
Availability of marketplace information
Ability to obtain contractor data
Extent of modifications to an item needed to satisfy DOD
Reliability of prior commercial item determinations  Despite these challenges, contract award was not typically delayed. In the end, the DCMA’s Commercial Item  Group officials completed an on-site review of the manufacturing process  to gain an in-depth understanding of the services provided. Several contracting officers told us  that once an item is determined commercial, contractors are less willing  to provide any pricing data. Modified Items Require Additional Steps

Our case studies showed that determining commerciality and price  reasonableness for items that are modified from the commercial variant  can be difficult, in part, because what can be deemed ‘a minor  modification’ is subject to interpretation. For our case studies,  when prime contractors or subcontractors claimed a modified item was  commercial, contracting officers had to take extra steps to determine  whether the commerciality assertions appropriately met the commercial  item definition, such as completing a comparative analysis of commercial  items to the modified item. This made it more difficult for the contracting officer to make a  determination based on market research. However the contracting  officer found no commercial market existed for this item so the  contracting officer had to take additional steps. The time it took for the contractor to provide  information to the government and the government to make a  determination ranged from a few days to over a year. Another option is to elevate issues to DOD management, which can make  a determination on whether an item is commercial and is being offered at  a fair and reasonable price. Both Formal and Informal Information Sharing Efforts Exist, but With No Comprehensive Strategy

DOD has taken steps to share more information across the department to  inform commercial item and price reasonableness determinations, but  efforts to date are in early stages of development or happening informally  across the department. Defense Procurement and  Acquisition Policy and DCMA officials acknowledged that DOD has not  yet determined who is responsible for the funding and upkeep of this  information. While the database serves as a means to formally share information to  help contracting officers make commercial item and price reasonableness  determinations, contracting officers in our case studies noted instances  where informal sharing of information between programs and services led  to improved outcomes, such as a lower price. Therefore, information sharing within the department is critical in  helping DOD’s contracting officers determine commerciality and  reasonable prices on DOD’s acquisitions. Recommendation for Executive Action

We are making the following recommendation to DOD:  The Director of Defense Procurement and Acquisition Policy should work  with the Defense Contract Management Agency to develop a strategy for  sharing information related to commerciality and price reasonableness  determinations across DOD, including a plan to increase the information available in the Commercial Item alternative mechanisms to share information, either formal or informal;  and assignments of roles and responsibilities with regard to sharing  commercial item information, including how the database should be  funded, supported, and maintained. Appendix I: Objectives, Scope, and Methodology

Our objectives were to: (1) identify the factors that influenced the  Department of Defense’s (DOD) commercial item and price  reasonableness determinations and (2) assess the extent to which DOD  has taken steps to make information available to help make these  determinations. To assess challenges in making commercial item and price  reasonableness determinations, we identified a non-generalizable sample  of contracts which were reported by DOD officials and contractors as a  contract where it was difficult to make commercial item determinations,  price reasonableness determinations, or both, from a variety of sources.
Why GAO Did This Study

DOD buys goods and services from the commercial market to take advantage of new innovations and save on acquisition costs. However, the department's process for determining whether an item can be purchased commercially—and, at a fair and reasonable price—can be long and challenging in certain situations.
GAO was asked to review this process. This report identifies (1) factors that influenced DOD's commercial item and price reasonableness determinations, and (2) the extent to which DOD has taken steps to make information available to facilitate these determinations.
To conduct this work, GAO examined federal regulations and guidance and selected case studies, which included a non-generalizable sample of 15 contracts awarded between fiscal years 2010 and 2018. GAO identified the case studies based on input from multiple sources that those contracts involved commercial item or price reasonableness determination challenges. GAO interviewed government and contractor officials responsible for those contracts.

What GAO Found

The Department of Defense (DOD) has a process to determine if an item is available for purchase in the commercial marketplace at a reasonable price. Among selected case studies, GAO found four interrelated factors, each with its set of challenges that influenced how and whether DOD determines if an item is commercial and if its price is reasonable. These factors are:
Availability of marketplace information : Market research is a key component that informs commercial item and price reasonableness determinations. However, GAO found that obtaining market-related information can be challenging because the products DOD requires may not be widely available in the commercial marketplace.
Ability to obtain contractor data : When adequate market information is not available, DOD officials turn to the contractor for information to support the commercial item determination or data to make a price reasonableness determination. In the case studies GAO reviewed, most contractors provided relevant information, but not without delays and challenges. For example, while pricing data is key to DOD's ability to determine price reasonableness, several contracting officers reported that contractors were less willing to provide this data once an item was determined commercial.
Extent of modifications to an item : When a commercial item must be modified to meet DOD's requirements, DOD officials may have to take additional steps, such as completing a comparative analysis of commercial items to the modified item. For example, in one case, a commercial navigation system had to be modified to withstand an explosion. To make the commercial item determination DOD officials had to make an on-site visit to the manufacturer to gain in-depth understanding of the services provided and to ensure they met DOD requirements.
Reliability of prior commercial item determinations : Contracting officers may presume that an item is commercial if a DOD component had previously made that determination. However, GAO found that, in some cases, contracting officers reviewing a prior determination discovered that it was based on inaccurate information.
DOD has taken steps to share more information across the department to inform these determinations, but efforts are in early stages of development or informal. No comprehensive information sharing strategy exists. In 2016, DOD established the Commercial Item Group within the Defense Contract Management Agency to provide recommendations on commercial item determinations. This group created a publicly available database to centralize commercial item information across DOD. However, this effort is incomplete. Also, according to DOD officials, they have not yet established who is responsible for the funding and upkeep of the information. Additionally, GAO case studies included instances where informal information sharing resulted in better outcomes, such as a lower price. Creating more opportunities to share information internally is crucial for DOD to facilitate a timely and efficient process in making these determinations and ensuring the best financial outcome for the government.

What GAO Recommends

GAO recommends that DOD develop a strategy for how information related to commerciality and price reasonableness determinations should be shared across the department, including making improvements to the existing database and determining responsibilities for its funding and upkeep. DOD agreed with GAO's recommendation and stated that actions will be taken starting in 2018 to address it.