Bottom Line Up Front
Make sure you know if you are selling commercial, commercial off-the-shelf (COTS), or non-commercial items to the government because it directly impacts your procurement strategy, compliance obligations, pricing requirements, rights in intellectual property and contract administration:
- Selling commercial items: You are facing a speedier procurement process, and you are likely not going to have to provide your cost build up for your pricing. You will be able to sell your product as you do in the commercial market, for the most part to include using your commercial terms to sell software. You have more control over your intellectual property.
- Selling COTS items: You are exempt from even more acquisition regulations and are generally not covered by export regulations so there is less compliance burden.
- Selling non-commercial items: You face more regulations and more government oversight because you will likely be required to, for example:
- support your pricing with detailed cost disclosures;
- maintain a financial system that meets Cost Accounting Standards;
- give the government greater rights to intellectual property;
- comply with export control regulations, and more.
Quick Test:
- Would a commercial customer buy it? It’s a commercial item.
- Was it developed to meet a defense, national security or specific government need? It’s a non-commercial item.
Commercial Items Are Sold In The Commercial Market
Commercial products, including software or web-based platforms, are products of a type the general public or nongovernmental entities customarily use for purposes other than governmental purposes, and have been:
- Sold, leased or licensed to the general public;
- Offered for sale, lease or license to the general public.
Commercial Off-the-Shelf (COTS) Products
COTS products are a subset of commercial products. Every COTS item is a commercial product, but not every commercial item is a COTS item.
A product qualifies as COTS when it:
- Meets the definition of a commercial product;
- Is sold in substantial quantities in the commercial marketplace; and
- Is offered to the federal government without modification in the same form sold to commercial customers.
A product does not qualify as COTS if it requires government-specific modifications that change the product delivered to the government. However, minor customary commercial practices such as packaging, installation, or ordinary configuration may not disqualify an otherwise COTS product.
Products Soon to Be in the Commercial Market
Commercial products are products, including software or web-based platforms, in the commercial market, that have evolved through advances in technology or performance yet not currently available commercially, but will be available commercially by the time the government contract must be performed.
Modified Commercial Products
Commercial products are products, including software or web-based platforms, that are not available in the commercial marketplace and will not be by the time of federal government contract performance and has:
- Been modified and the modification is not customarily available commercially, or
- Undergone a minor modification that is not customarily available commercially so that it can meet federal government contract requirements. Minor modifications do not significantly change the purpose of the product or do not alter the nongovernmental function or essential physical characteristics of the product or components used in the item. To evaluate a modification, consider the value and size of the modification compared to the final product to see if the modification was minor and consider any other factors that may inform the analysis.
Non-Developmental Products
The government may determine that a product, including software or web-based platforms, is commercial even if it has not been sold commercially if it was developed exclusively at private expense and sold in substantial quantities, on a competitive basis, to multiple state, local or foreign governments.
Services Related to Commercial Products
Services to install, maintain, repair, train on or other services related to commercial products are commercial services if:
- The services are purchased in support of a commercial product as defined above, regardless of whether the services are provided by the same entity or at the same time as the commercial product was sold; and
- The entity providing the services provides similar services contemporaneously to the general public under terms and conditions similar to the terms offered to the federal government.
Services Sold Based on Catalog or Market Prices
Services are commercial services if offered and sold competitively in substantial quantities in the commercial marketplace based on established catalog or market prices for specific tasks performed or specific outcomes to be achieved and under standard commercial terms and conditions.
Catalog price is a price listed in a catalog, price list, schedule or any other form that is regularly maintained and published or otherwise available for customers.
Market prices are the current prices established in the course of ordinary business between buyers and sellers who can both bargain and the price can be established by competition or from other independent sources.
Non-Commercial Items
Acquisition regulations do not provide a definition of non-commercial items. So, what you are left with is this: non-commercial products or services are products or services that are not commercial. Not helpful.
In practical terms, a non-commercial product or service is any product, software or service that is developed, produced, or provided primarily to meet government requirements and is not generally sold in the commercial market and if in development, likely not to be sold in a commercial market.
Common Characteristics of Non-Commercial Items
- Designed specifically for a federal agency or military customer.
- Have not been sold, leased, licensed, or offered to the general public.
- Require unique government specifications, standards, or performance requirements.
- Lack established commercial market pricing.
- Developed using government funding.
Action
- Know what you are selling and have the documentation to prove your position.
- As your products, software and services evolve make sure your assessment stays current.
- When pitching, choose your words carefully if there is room to debate on whether you are selling commercial or not. How you describe your product, software, or service may determine if you are selling commercial or not.
- If responding to an RFP will tell you whether the buy is for commercial or non-commercial items. If that call is wrong, don’t just accept it, build the case that your item is commercial, using the definitions below.
