On January 31, 2023, the Department of Defense proposed amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) to enshrine regulations surrounding commercial solutions openings (CSOs). The proposal would amend Part 212 of the DFARS in order to implement Section 803 of the National Defense Authorization Act for Fiscal Year 2022 (NDAA FY 22), which made permanent a CSO pilot program for acquiring innovative technical solutions to meet Department of Defense requirements. Now that CSOs are here to stay and are being incorporated into the DFARS, what does this mean for federal contractors? This alert will discuss the what, why, and how of CSOs under the proposed DFARS provisions, as well as some of the impacts the proposed regulations will have on firms that bid on CSOs.
CSOs, What They Are, and Why They're Used
A CSO is an alternative acquisition method available to the Department of Defense to fulfill requirements that require specific, novel solutions (e.g., research and development). See 10 U.S.C. § 3458(e)(1) (defining "innovative," in part, as "any technology, process, or method, including research and development, that is new as of the date of submission of a proposal" or a new "application" of an existing "technology, process, or method"). Under a CSO, the Department of Defense or one of its components issues a general solicitation that broadly describes the agency's area of interest, outlines selection criteria, and provides solicitation instructions. Unlike a traditional specification, an area of interest in a CSO describes a problem that the agency would like to solve or a technology that it would like to develop. Furthermore, submissions are evaluated on their own merits instead of being compared to one another. Selected submissions are subject to a multi-phase peer-review evaluation process by which the agency and the responding firm develop progressively more detailed scoped solutions to match the agency's area of interest. Common applications include information technology, research and development, and stimulating commercial technology maturation. For the Department of Defense, CSOs provide a streamlined tool for rapidly acquiring technologically advanced commercial solutions.
The Proposed DFARS Amendments
The Department of Defense's proposed rules closely follow the procedures for CSOs that existed under the pilot program. For agencies and firms that engaged in business opportunities via a CSO before the enactment of NDAA FY 2022, this means the new DFARS provisions will be familiar and unsurprising. The substance of the proposal is divided into two main provisions—DFARS 212.7X02, Policy, and 212.7X04, Procedures—with a handful of shorter provisions handling administrative items.
Section 212.7X02 outlines when contracting officers may use a CSO: "(1) To obtain innovative solutions or potential capabilities that fulfill requirements; (2) To close capability gaps, or provide potential innovative technological advancements; and (3) When meaningful proposals with varying technical or scientific approaches can be reasonably anticipated." Because Section 212.7X01 uses the same definition of "innovative" as 10 U.S.C. § 3458 above, we know that these three instances refer to situations where a Defense agency's requirements envision the development of a novel "technology, process, or method," or new application thereof. Products and services acquired via a CSO will be treated as commercial products and services, subject to FAR Part 12. See DFARS 212.7X02(b) and (c). Pure research and development requirements acquired via a CSO will be subject to FAR Part 35 and Part 235. Id. at 212.7X02(d).
Section 212.7X04 describes the solicitation process for a CSO: a CSO must (1) describe the agency's area of interest, (2) specify any necessary technical data, (3) describe evaluation factors (with "technical" and "importance to the agency" as "primary evaluation factors"), (4) specify the time period to respond to the CSO, and (5) contain submission instructions. A CSO should be posted to the government-wide point of entry (i.e., SAM.gov), after which submissions will be subject to a written peer-review evaluation process. Id. at 212.7X04(b)-(f).
One Implication for Contractors: Decreased Oversight
Codification of the CSO acquisition process will provide greater flexibility for agency acquisition teams to acquire innovative solutions and therefore better opportunities for contractors offering new technologies. This process, however, will likely leave even less room for oversight and accountability through the bid protest process because of the highly technical nature of CSO acquisitions. Litigation of CSO acquisitions under the pilot program provides some insight into how the proposed DFARS provisions will make challenges difficult. For example, in Kinemetrics, Inc. v. United States, the U.S. Court of Federal Claims resolved a bid protest involving a CSO acquisition. See 155 Fed. Cl. 777 (2021). In that case, the disappointed vendor challenged the U.S. Air Force's decision to fund a proposal to deliver innovative seismic measurement equipment to be used in monitoring nuclear treaty compliance across the globe. Id. at 782. The court explained that "in the context of a peer-review process regarding specialized, scientific equipment," it would "defer to the agency's expertise." Id. at 787 (citing Terex Corp. v. United States, 104 Fed. Cl. 525, 532 (2012) ("[W]here the resolution of an issue 'requires a high level of technical expertise,' it is 'properly left to the informed discretion of the responsible federal agencies.'" (additional citation omitted))). CSOs naturally involve highly technical matters, especially given the definitions laid out in the relevant statute and proposed regulations. Without any directive to the contrary in the proposed DFARS rules, CSOs will by default enjoy a degree of latitude even greater than what is normally given procurement decisions.
CSOs have graduated from experiment to one more way that the Department of Defense will fulfill highly technical, development-focused needs. Though the proposed amendments to the DFARS offer a straightforward and simplified process, that streamlined approach comes with potentially decreased opportunities for disappointed offerors in CSO solicitations to challenge potentially faulty evaluations. That said, CSOs present new opportunities for firms to partner with the Department of Defense to develop exciting new solutions to complex problems, with a truncated solicitation process that is designed to cut down on the time it takes to go from solicitation to contract. Comments on the proposed rule are due April 3, 2023.