Defense Contractors: Modified Your Product And Selling Only to The DoD? Preserve "Commercial Item" Status Anyway

Defense contractors modifying commercial products to meet specific U.S. military requirements face challenges preserving the product’s classification as a “commercial item” under FAR 2.101—especially when the modified version is purchased only by NAVAIR (Naval Air Systems Command) and the U.S. Air Force (USAF). Here's a strategy to meet the challenge.

Why Commercial Item Classification Matters

The benefits of retaining commercial item status are substantial:

FAR Part 12 streamlined acquisition processes
Exemption from cost and pricing data (TINA) requirements
Lower compliance and audit burdens
Preservation of intellectual property rights
Broader flexibility in pricing and terms

Regulatory Background

FAR 2.101 allows for commercial item designation even when the government is the sole purchaser—provided the item:

Is "of a type" customarily used by the general public;
Incorporates modifications "of a type" available in the commercial marketplace; or
Includes only minor modifications made to meet government requirements.

The statute 10 U.S.C. § 3451 (Commercial Product Preference) requires agencies to favor commercial products whenever possible.

Strategy to Preserve Commercial Item Classification

1. Anchor in an Existing Commercial Product

The base product should have demonstrable commercial sales, licenses, or leases to non-government customers. Document:

- Purchase orders

- Catalog listings

- Civilian industry users (e.g., aerospace, avionics, telecommunications)

2. Frame Modifications as 'of a Type'

Describe the changes as:

- In line with normal upgrades in the private sector

- Consistent with evolving commercial technology trends

- Comparable to variants sold to international or private aerospace markets

3. Point to Commercial Analogs

Even if only NAVAIR and USAF purchase the exact modified item, demonstrate that:

- Similar capabilities are sought in commercial or international defense markets

- The design approach, components, or architecture match commercial patterns

4. Use Commercial Language in Documentation

Ensure statements of work, product specs, and marketing materials describe:

- Commercial standards

- Modularity or adaptability for non-government use

- Open architectures aligned with dual-use technology

5. Maintain a Commercial Roadmap

Even if not yet executed, create internal plans to:

- Market the product to foreign allies under FMS or direct commercial sales

- Develop spin-off versions for civilian use (e.g., for commercial aerospace or UAV applications)

6. Coordinate Early with Government Points of Contact

Engage:

- NAVAIR’s Commercial Item Group (CIG)

- USAF acquisition officials

- Legal counsel experienced in commercial item determinations (CID)

7. Support a CID with Robust Evidence

Compile and submit a CID package with:

- Comparison matrices to the commercial baseline

- Documentation of the base product’s commercial status

- Market research and industry trends that justify the classification

8. Avoid Triggers That Undermine Commerciality

Don’t tie the product to:

- Unique or custom DoD-only designs

- CAS or TINA-covered pricing structures

- Special government-only terms and conditions in your contracts

9. Offer a Dual-Trim Model

If feasible, present the product in:

- A full-feature military-only version (sold to NAVAIR/USAF)

- A baseline model that could be marketed more broadly, even if no current customers exist

10. Keep an Internal Audit File

Maintain documentation that supports:

- How and why the product remains “of a type” commercial

- Pricing strategies

- Efforts to explore commercial markets, even if not yet executed

Addressing the “Sole Customer” Perception

A key myth is that commercial item classification requires current civilian buyers. In fact, FAR 2.101 explicitly allows commercial classification even when only the government purchases the item—as long as it’s “of a type” available commercially or incorporates modifications consistent with commercial practice.

The fact that both NAVAIR and USAF are customers can be positioned as evidence of the item’s broader military utility, rather than DoD-unique customization.

Conclusion

Maintaining commercial item status is possible—even if only NAVAIR and USAF buy the modified version—so long as contractors proactively document commercial ancestry, justify “modifications of a type,” and preserve the potential for dual-use applications. These strategies support streamlined acquisition, protect pricing flexibility, and minimize regulatory burdens.