federal government
As the federal government turns increasingly to the commercial market for the products and services it needs, knowledge and understanding of the industries and sectors that make up the global commercial market becomes a vital capability. It is important to be knowledgeable about commercial offerings, capabilities, and practices before structuring an acquisition in any detail. Contact with vendors, contractors, and suppliers for the purposes of market research is now encouraged. Moreover, it is the law.
The Federal Acquisition Streamlining Act of 1994 (FASA) requires that federal agencies, to the maximum extent practical:
• State requirements in terms that enable and encourage companies to supply commercial and non-developmental items,
• Revise procurement policies, practices, and procedures not required by law to remove impediments to the acquisition;
• Buy commercial items and services and non-developmental items to meet agency needs; and
• Require prime contractors and subcontractors at all levels to incorporate commercial and non-developmental items as components of systems they develop for federal agencies.
To meet the specific requirements of the law, federal agencies are required to conduct market research consistent with guidance in the Federal Acquisition Regulation prior to developing new specification for procurement and before soliciting bids or proposals for contracts which exceeds the simplified acquisition threshold. The law also requires federal agencies to purchase commercial items and services in a commercial manner, which allows for tailoring the solicitation, contract terms and conditions consistent with customary commercial practices.
The Federal Acquisition Regulation Part 10 prescribes policies and procedures for conducting market research to arrive at the most suitable approach to acquiring, distributing, and supporting supplies and services.
Market research is essential to optimize the potential use of commercial items, commercial services, and non-developmental items to meet government needs. One of the cornerstones of acquisition reform is to reduce the use of federal and military-unique specifications that result in unique processes, products, and support systems. Use of commercial items and services expand the industrial base available to meet government needs and provide other benefits such as:
• Reduced acquisition cost: By tapping a globally competitive, commercial responsive national industrial base, acquisition programs can procure systems and equipment at commercially competitive costs.
• Reduce Cycle times: New systems can be delivered to warfighters within commercially available cycle times, which are much shorter than the average 12 to 18 year development cycle for a major Department of Defense (DoD) weapon system.
Military research and development no longer leads the commercial market in areas such as electronics. In the global marketplace, everyone has access to the same commercial technology base. The military advantage, either in deterrence or in warfighting, will lie with those capturing state-of-the art technology, getting it into weapons systems, and successfully fielding first, and sustaining those systems over their useful life.
The federal government, especially, the Department of Defense (DoD) will be relying more heavily on the commercial market for the items, systems, and services it needs to achieve its budget and readiness goals. Consequently, market research is critical in leveraging the commercial market to achieve warfighting and systems management objectives.
However, like most change and reform, with it comes confusion. Most of the confusion among procurement personnel in today’s environment is related to who does the market research and what level of documentation is adequate. Unfortunately, the answer to these questions like most others in the area of procurement law and policy is “it depends.” Who and the level of research will vary depending on the complexity and dollar value of the requirement and the nature of the item or service being contemplated. However, this course will attempt to answer the questions of what, why, when and who to some extent.
PURPOSE
Market research is conducted to determine whether matches exist between the commercial sources for commercial items and an agency’s requirements. This includes off the shelf items and those that may require slight alteration. If items can’t be used in standard form, market research is used to determine whether the items could be modified to meet the requirements or whether the requirement could be modified, to a reasonable extent, to make the items compliant. The goal of market research is to arrive at the most suitable approach to acquiring, distributing, and supporting supplies and services. A thoroughly executed market research process will provide information on the following:
• Existing products
• Capable sources, including small business
• Competitive market forces
• Generalized pricing information
• Varying levels of product performance and quality
• Commercial practices
• Support capabilities
• Successful acquisition practices of other organizations
• Laws or regulations unique to what is being purchased
• Other required and mandatory source that compete for the same business (i.e., UNICOR, Handicapped or Blind)
Private industry use market research to find sellers and when making “make or buy” decisions. With the passage of the Federal Acquisition Streamlining Act of 1994 (FASA) and Federal Acquisition Reform Act (FARA) in 1996, Congress dramatically shifted procurement policy for the federal government. The simplified acquisition threshold has been raised to $100,000, and simplified acquisition procedures can be used for commercial item buys up to $5 million. Central to the reforms are the mandates to maximize the acquisition of commercial items and service, and to acquire those items in a manner similar to that used by the commercial business sector. These changes should reduce paperwork, increase competition, streamline the procurement of goods and services, and open the federal marketplace to commercial companies previously reluctant to deal with government entities. Two of the biggest changes brought by FASA and FARA are the significant discretion allowed to the contracting officer in acquiring commercial items and services, and the increased attention to market research as an integral part of the procurement process. To buy commercial items and services, requirements are not described in detailed specifications, but in terms of the desired results. Government buyers no longer focus on creating goods or services, but finding commercial solutions. Since market research is accomplished to support the acquisition of commercial items, it is important to become familiar with the definition and policy associated with them.
DEFINITIONS
MARKET RESEARCH
COMMERCIAL ITEMS
The definition of commercial items can be found in FAR part 2. One of the functions of the market research is to identify whether or not a given item meets the definition of a commercial item. The Federal Acquisition Streamlining Act greatly expanded the definition of commercial item to include services.
NON-DEVELOPMENTAL ITEMS
The statute also makes a clear distinction between commercial items and non-developmental items. Non-developmental items include any commercial items sold only to governments, that require only minor modification to meet agency needs, and any item in production but not yet in use. With these new rules, individuals and teams will now have increased capability to meet a user’s need in the commercial marketplace using customary market practices instead of government imposed practices when ever possible. Empowering people to make choices and tailoring the acquisition are intended to reduce cycle time and cut costs.
Market research is essential because it is required for the contracting officer to make the fundamental determinations and decisions of commercial contracting. The following are examples of questions that should be considered:
• Is it an item of a type customarily used by the general public?
• Will the improved version of a commercial item be available in the commercial marketplace in time to satisfy the delivery requirements?
• Are proposed modifications of a type customarily available in the commercial marketplace?
• Has an item achieved market acceptance?
eam should be aware of the FAR requirements for documenting the results. As stated earlier, there can be clear and far reaching consequences to not conducting market research, however, the consequences are the same if it is done but not documented properly. The records of essential agency needs, source list searches, and market information, as described above, should be available for easy incorporation into the research report. Other information gathered by team members may also be critical to the final determinations of capability. Such additional information concern quality or questionable commercial practices, or observations of industry trends. This information must be maintained by team members for incorporation into the report. While agencies must document the results of market research “in a manner appropriate to the size and complexity of the acquisition,” there is no specific format that must be used. The report should summarize the activities undertaken by those conducting the market research. Additionally, it should provide a logical basis for the team’s determination of the existence of a commercial or non-developmental item to satisfy the agency’s needs. The following are recommended for inclusion in a report, if appropriate:
• An explanation of the acquisition’s background, including its purpose and any special features.
• An identification of the market research team members (at a minimum, the buyer and the requirements official).
• A description of the agency’s needs, in terms of their function, performance, and/or essential physical characteristics. This section should also discuss possible alternatives or modifications to the needs statement or to the potential for trade-off analyses.
• Identification of the desired or required schedule for the delivery of the end items.
• An explanation of the methodology that was used for compiling and refining the list of potential suppliers, including the number of firms that were contacted and a list of the suppliers in the final consideration.
• A summary of the industry sources that were contacted and the types of information obtained from them.
• A summary of the customary commercial terms, provisions, and conditions, including payment, freight, acceptance, and warranties.
• Identification of the price range discovered, possible reasons for variations, and the potential for determining a fair market price.
• The market research, including a summary description of the available commercial or non-developmental items, along with their respective merits or shortcomings.
FAR POLICY ON DOCUMENTING RESULTS
Appendix D is provided as an example of a standard format which can be utilized to document the results of the market research activity. The form is provided as a sample only and should not be construed as the best or only way to document market research results. The remainder of this section provides FAR guidance language with specific citation, as well as, suggested approaches to documenting the various stages which may be employed during the market investigation process.
FAR 10.002(b)(1)
The extent of market research will vary, depending on such factors as urgency, estimated dollar value, complexity, and past experience. Market research involves obtaining information specific to the item being acquired and should include–
(i) Whether the Government’s needs can be met by–
(A) Items of a type customarily available in the commercial marketplace;
(B) Items of a type customarily available in the commercial marketplace with modifications; or
(C) Items used exclusively for governmental purposes;
(ii) Customary practices regarding customizing, modifying or tailoring of items to meet customer needs and associated costs;
(iii) Customary practices, including warranty, buyer financing, discounts, etc., under which commercial sales of the products are made;
(iv) The requirements of any laws and regulations unique to the item being acquired;
(v)The availability of items that contain recovered materials and items that are energy efficient;
(vi) The distribution and support capabilities of potential suppliers, including alternative arrangements and cost estimates; and
(vii)Size and status of potential sources (see Part 19).
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