Overview
FAR Subpart 12.5 implements 41 U.S.C. 1906 and 1907 by identifying specific provisions of law that are inapplicable or modified for contracts and subcontracts involving commercial products, commercial services, and Commercially Available Off-the-Shelf (COTS) items. The primary intent is to reduce the regulatory burden on commercial marketplace participants, thereby streamlining the procurement process and increasing the government's access to commercial technology and services.
Key Rules
- Waiver of Laws: Specific statutes—such as the Drug-Free Workplace Act, the Walsh-Healey Public Contracts Act (for supplies), and certain contingent fee restrictions—are explicitly listed as not applicable to commercial prime contracts.
- Subcontractor Exemptions: The subpart limits the "flow-down" of government-unique requirements to subcontractors. For commercial subcontracts, laws like the Fly America Act and the Validation of Proprietary Data restrictions are waived.
- COTS-Specific Relief: COTS items receive additional exemptions, most notably a waiver of the "domestic content test" under the Buy American Act (though the requirement to be manufactured in the U.S. often remains).
- Anti-Pass-Through Protection: Waivers do not apply if a prime contractor is merely reselling commercial products of another contractor without adding value; this prevents the creation of "shell" arrangements to bypass regulations.
- 8(a) Treatment: Contractors awarded subcontracts under the SBA 8(a) program are treated as prime contractors for the purposes of this subpart.
- Modified Applicability: Certain laws are not fully waived but are modified, such as Truthful Cost or Pricing Data (TINA) and Cost Accounting Standards (CAS), which have limited application to commercial items.
Responsibilities
- Contracting Officers (COs):
- Must ensure the correct versions of clauses (e.g., FAR 52.212-5) are included in solicitations and contracts to reflect the legal exemptions.
- Must verify that the items being procured meet the definition of "commercial product," "commercial service," or "COTS" before applying these waivers.
- Prime Contractors:
- Responsible for ensuring they add value to the products/services they resell to maintain the validity of the waivers.
- Must only flow down the specific clauses required by FAR 52.244-6 to their commercial subcontractors.
- Subcontractors:
- Must comply with the streamlined list of applicable laws while benefiting from the exemptions provided in FAR 12.504.
Practical Implications
- Market Entry: This subpart significantly lowers the "barrier to entry" for non-traditional defense contractors. By waiving government-unique accounting and compliance standards (like CAS or the Drug-Free Workplace Act), the government can attract companies that normally avoid federal work due to administrative overhead.
- Supply Chain Flexibility: The waiver of the Buy American Act's "domestic content test" for COTS items allows the government to purchase finished commercial goods without requiring the vendor to track the origin of every individual component, which is often impossible for complex electronics.
- Reduced Oversight Costs: Because GAO access to records and "Truthful Cost or Pricing Data" requirements are limited or waived, both the government and the contractor save on the costs associated with audits and data submission.
- Simplified Subcontracting: Prime contractors can use standard commercial terms with their vendors more easily, as they are not forced to "pollute" commercial subcontracts with dozens of government-unique clauses.