PilieroMazza recently highlighted a Department of Defense (DOD) memo (linked here) requiring DOD Components to adopt the Software Acquisition Pathway (SWP) as the preferred acquisition method for business and weapon system programs. The memo also recommends using the Commercial Solutions Opening (CSO) and Other Transactions (OT) as the default solicitation and award approach (visit this link to access our blog series and webinar on “The Rise of OTA in Defense Contracting”). As DOD and other agencies are expected to increase Commercial Item and Service Contracting, government contractors in the technology industry should understand the requirements, benefits, and trends associated with such contracting to take advantage of defense contracting opportunities.
DOD Increases Reliance on Commercial Item and Service Contracting
On March 6, 2025, the Secretary of Defense issued the memo “Directing Modern Software Acquisition to Maximize Lethality” (linked here). Acknowledging that software is at the core of every weapon and supporting system fielded, DOD intends to reform its acquisition process to acquire weapon and business systems to “keep pace with commercial technology advancements, leverage the entire commercial ecosystem for defense systems, rapidly deliver scaled digital capabilities, and evolve our systems faster than adversaries can adapt on the battlefield.” The Secretary, therefore, directed all DOD Components to adopt the SWP as the preferred pathway for all software development components of business and weapon system programs and to use CSO and OT as the default solicitation and award approach for acquiring capabilities under the SWP.
The existing authorities for this action include 10 U.S.C. sections 3458 and 4022, DFARS 212.70, and DOD Instruction (DODI) 5000.87. Each is intended to reduce bureaucracy and accelerate capabilities by implementing a managed risk and continuous improvement approach. DODI 5000.87 provides for a rapid, iterative approach to software development to allocate resources to the most relevant capability needs. 10 U.S.C. § 3458 enables the acquisition of innovative commercial products and services under a fixed-price or fixed-price inventive contract up to $100 Million without further written determination by the Secretary of Defense for Acquisition and Sustainment or other relevant service acquisition executive. 10 U.S.C. § 4022 enables prototype projects related to enhancing mission effectiveness and improving platforms, systems, components, or materials, with different approval requirements based on project cost. DFARS 212.70 implements 10 U.S.C. § 3458, enabling the acquisition of innovative commercial products or services through a CSO. A CSO enables DOD to work with non-traditional defense contractors in a fast, flexible, and collaborative manner, resulting in the award of an OT agreement. Such work must meet the following requirements:[1]
- it must be a prototype relevant to enhancing mission effectiveness of personnel of the DOD;
- competitive procedures, to the maximum extent practicable, shall be used; and
- unless a non-traditional defense contractor of a small business participates significantly, one-third of the cost must be borne by someone other than the federal government.
When Commercial Acquisition Is Permitted and Should Be Used
An agency must conduct market research to determine whether commercial products or services are available that could meet the agency’s requirements. When available, the agency should require contractors to incorporate those to the maximum extent practicable. DOD is a leader in promoting the incorporation of commercial items and services. DFARS 212.102 requires that a prior commerciality determination in the Commercial Item Database, or other evidence that an item was previously acquired by DOD using FAR Part 12 commercial acquisition procedures, serves as a determination that an item is a commercial product or service. In order to enhance innovation and investment and create incentives for non-traditional defense contractors, the provision also permits supplies and services provided by non-traditional defense contractors to be treated as commercial.
Contracting for commercial items or services is a streamlined process that avoids the time-consuming and formal process of a fully negotiated procurement where the purchase is for a relatively smaller value or where the items or services are already available in general commerce. Commercial acquisition should be used where administrative costs and lead time may be reduced by the availability of commercial pricing information, commercial procedures, and terms and conditions, and where streamlined procedures are preferable to deliver required capabilities quickly. Commercial acquisition is not preferable where tailored or unique government requirements are necessary, standard commercial rights and licenses increase the burden on the government to ensure specialized rights are explicit, or integration of commercial technologies into a large program is required. Common applications suitable for Commercial acquisition include the following:[2]
- Commercial Off-the-Shelf (COTS) Defense Business Systems
- COTS solutions and technologies
- Products and services provided by non-traditional defense contractors
- Information Technology (IT) products and services
- Health IT products and services
- Cyber services and solutions
- Cloud services and solutions
- Software licenses
- Telecommunications and wireless services
- Mobile solutions
Effects on Contractors
The DOD memo demonstrates a shift towards leveraging commercial products and services for innovation and efficiency. As noted, DOD intends to use a streamlined process to award contracts for innovative products and services more efficiently, enabling it to keep pace with commercial technology. Contractors involved in the delivery of innovative technology products or services will likely see greater reliance on Commercial acquisition. While this is currently more relevant to DOD, the impact will likely be seen in other agencies, as they often adopt regulations and policies similar to those of DOD.
DOD will likely continue to increase small business participation in the Defense Industrial Base (DIB). In 2023, DOD recognized it was at risk of losing mission-critical domestic capabilities due to the decline in the number of small businesses in the DIB. DOD funded nationwide APEX Accelerators to help small businesses learn how to work with the federal government and initiated Project Spectrum to provide small businesses with knowledge and tools to protect critical assets in cyberspace.[3] The Small Business Administration (SBA) recently announced similar priorities to those of DOD aimed at enhancing domestic small business manufacturing, including strengthening the domestic supply chain and eliminating or streamlining administrative requirements (linked here). Small businesses will likely have more opportunities to compete for procurements for commercial items and services.
Takeaways
- Increased Reliance on Commercial Acquisition: DOD is implementing a more streamlined approach to acquiring innovative commercial technologies. It deems rapid procurement to keep up with commercial advancements as critical. Other agencies will likely employ similar approaches for technology-based acquisitions that they assess as critical to their operation. Contractors should expect more procurement opportunities under FAR Part 12 and DFARS Part 212, and they should consider how they provide and/or integrate commercial items or services to be more competitive.
- Commercial Determination: If a product has not been acquired under a commercial procurement, contractors should seek determinations to classify certain products as commercial. That status will enable an agency to forego complex acquisition procedures to purchase it.
- Non-traditional Defense Contractor Status: A non-traditional defense contractor is defined as an entity that is not currently performing and has not performed, for at least a one-year period preceding a solicitation, any contract or subcontract for DOD that is subject to full coverage under the cost accounting standards. Contractors should consider their status and look for opportunities to provide commercial products or services to DOD, pursuant to DFARS 212.102(a)(iv), or other agencies.
- Small Business Initiatives: There is an acknowledged focus on domestic small business manufacturing, a desire to integrate more small businesses into the supply chain and DIB, and providing resources for enabling small business contracting. Small businesses should monitor for increased opportunities for commercial acquisitions—including considering their status as non-traditional defense contractors—and review DOD’s Office of Small Business Programs resources.
If you have any questions regarding the implications of DOD’s memo or want to understand the Commercial Items and Services contracting requirements, please contact Cy Alba or another member of PilieroMazza’s Government Contracts practice group.
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[1] Solve Your Toughest Problems with Commercial Technologies at Commercial Speeds, Def. Innovation Unit, (last visited Mar. 18, 2025) (link).
[2] Commercial Items (FAR Part 12), Def. Acquisitions Univ., https://aaf.dau.edu/aaf/contracting-cone/commercial-items/ (last visited Mar. 17, 2025)
[3] Office of Small Business Programs, Dep’t of Def., (link).
