Defense Department's New Definition of 'Commercial Item' Will Save Money

May 2, 2012

The Department of Defense (DoD) is taking a major step in stopping the waste of taxpayer dollars. POGO recently learned that DoD sent a legislative proposal to Congress to narrow the definition of a "commercial item" to mean goods or services that are actually sold to the general public in "like quantities." This proposal is a huge improvement over the current definition, a broadly worded definition open to abuse because it includes good or services "of a type" that are "offered" for sale or lease.

Why does this matter? Once a good or service is considered "commercial," the government has little to no information about the relative cost of a good or service, and has little ability to audit the numbers behind the cost that the government is paying. If the new definition becomes law, DoD will no longer have to buy C-17s, C-130Js, or billions of dollars of specialized weapons-related subsystems (see pages 8-10) as commercial items. This should yield savings for taxpayers, as it has in the past. In 2006, for example, the conversion of the C-130J to a commercial item, which caused the repricing of 39 aircraft, resulted in "institutional net savings of $168 [million]" -- thank you, Senator John McCain (R-AZ, who was credited with the Air Force's actions).

If this issue sounds vaguely familiar it is because POGO has recommended changing the definition of commercial item as far back as 1999. In 2005, POGO provided written testimony to Senator McCain and the Senate Armed Services Airland Subcommittee, urging that the commercial item designation only be used for goods and services whose price is set by the genuine commercial marketplace. The next year, we asked Congress to look into the upsurge in the number of no-bid commercial item contracts. 

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