DoD Implements a New Pilot Program to Acquire Commercial Technologies

By: John Ford, Senior Consultant

Section 879 of the 2017 National Defense Authorization Act (“NDAA”), P.L. 114-328, authorized the Department of Defense (“DoD”) to use a new procedure known as a commercial solution opening (“CSO”) to acquire commercial technologies to satisfy agency requirements. A CSO pilot program was implemented on June 26, 2018, when DoD issued Class Deviation 2018-O0016.

Under the NDAA, DoD “may acquire innovative commercial items, technologies, and services through a competitive selection of proposals resulting from a general solicitation and the peer review of such proposals.” For these purposes, the NDAA and Class Deviation provide the following definition of “innovative:”

• Any technology, process, or method, including research and development, that is new as of the date of submission of a proposal; or
• Any application that is new as of the date of submission of a proposal of a technology, process, or method existing as of such date.

The Class Deviation states that the “general solicitation” will be similar to a broad agency announcement that is described in FAR 35.016. The Deviation states that contracting officers shall publish the general solicitation in Federal Business Opportunities (“FBO”) at least annually. Synopsizing of individual opportunities is not necessary. The NDAA states that this procedure meets the test for being a competitive procedure. Therefore, we do not see contractors receiving awards under this program being required to submit certified cost or pricing data. This conclusion is bolstered by the fact that the solutions being obtained are considered commercial items, which are exempt from the submission of certified cost or pricing data. Further, because the contracts awarded under the pilot program are considered to be for commercial items, we would anticipate that they are not subject to the Cost Accounting Standards.

The general solicitation is to describe the criteria for selection of proposals and the potential data rights that DoD will need to satisfy its requirements. Regarding the evaluation criteria, the Deviation states that the primary evaluation factors will be technical, importance to agency programs, availability of funds and a fair and reasonable price. As concerns the availability of funds factor, because contracts will be awarded based on proposals received in response to the general solicitation, the agency needs to be sure that it has sufficient funds to fund each proposal that offers a potential benefit to DoD. Thus, some proposals may be rejected or scaled back merely because DoD does not have sufficient funds to fund each meritorious proposal.

The Deviation does not provide guidance on what data rights may be available to DoD under this program. The solutions acquired under the program are to be treated as commercial items. However, some of the solutions may be based on existing commercial items. Defense Acquisition Regulation Supplement (“DFARS”) 227.7202-1 states that commercial software “shall be acquired under the licenses customarily provided to the public.” It also says that contractors shall not be required to “[r]elinquish to, or otherwise provide, the Government rights to use, modify, reproduce, release, perform, display, or disclose commercial computer software or commercial computer software documentation except for a transfer of rights mutually agreed upon.” The Deviation does not state how these policies are to be applied to the solutions obtained in the pilot program. Moreover, it does not address what rights the government may have in modifications made to commercial software under a CSO.

Along these same lines, the Deviation does not address the relationship between this program and the Small Business Innovative Research (“SBIR”) program. There is nothing in the NDAA that prevents CSOs from being used in the SBIR program. If they are, DFARS 252.227-7018 is to be inserted in SBIR contracts. Under that clause, the government obtains SBIR rights in software and technical data developed under the SBIR contract. However, the Deviation does not provide guidance on this point. Thus, rights in commercial software, rights in modifications to commercial software and software developed under SBIR programs are issues that will need to be resolved as the pilot program progresses.

The NDAA states that proposals for CSOs will be peer reviewed. This implies, but does not explicitly state, that proposals may be reviewed by non-government personnel. FAR 37.203 generally provides that:

Contractors may not be paid for services to conduct evaluations or analyses of any aspect of a proposal submitted for an initial contract award unless—

• Neither covered personnel from the requesting agency, nor from another agency, with adequate training and capabilities to perform the required proposal evaluation, are readily available;
• The contractor is a Federally-Funded Research and Development Center (FFRDC); or
• Such functions are otherwise authorized by law.

If the use of the term “peer review” in the NDAA is interpreted as an authorization to use contractors to evaluate proposals submitted for CSOs, (1) and (2) from FAR 37.203 would not be an issue. If the use of that phrase does not mean that, then (1) and (2) come into play.  Additionally, the criminal provisions of 18 U.S.C. 1905 could be implicated if contractors are used to review proposals. That statute makes it a criminal offense for a government employee to divulge confidential financial information or trade secrets of contractors outside the government except as otherwise authorized by law. Again the Deviation does not provide guidance on this.

The NDAA and Deviation place some limits on the ability to use CSOs. Both restrict the contract type that can be used to fixed-price contracts, including fixed-price incentive contracts. This is a broadening of the contract types that can be used to acquire commercial items. Generally, the FAR only permits the use of firm-fixed-price and fixed-price with economic price adjustment contracts for the acquisition of commercial items. While those contract types may still be used on CSO contracts, other fixed-price contract types described in FAR Part 16 may also be used.

Another restriction is that contracts cannot exceed $100 million without special approvals within DoD or the components. Further, if a CSO contract will exceed $100 million, Congress must be notified of such award.

As noted earlier, this is a pilot program. The authority to use this procedure expires on September 30, 2022. However, the Deviation states that expiration of the pilot program will not have any effect on contracts in existence. Thus, if a task order contract is issued under the pilot program, it appears that the ordering period could extend beyond September 30, 2022, and task orders could be issued against that contract beyond that date. Similarly, if a contract contains options to be exercised after that date, there does not appear to be any restriction on the exercise of those options, although the pilot program has expired.

In conclusion, we note that section 880 of the NDAA gives the Secretary of Homeland Security and the Administrator of General Services Administration similar authority, but with contracts for those agencies limited to $10 million without special approval and notification to Congress. We have seen no indication that those agencies have provided guidance on the use of this authority within those agencies.