Commercial Off the Shelf Products in Government Contracts – What Are COTS Contracts

In government contracting, agencies sometimes buy commercial off the shelf items and services (COTS Items).  Simply put, when the government buys these commercial items or services, there is not much that must change.

Getting involved in disputes with the government or engaging in bid protest litigation can create a huge burden on your company. However, defending yourself in litigation means first understanding the basic rules.

Commercial Off the Shelf products are leased, sold, or licensed items to the general public including the government. The owner /vendor profits from the hardware, and software but also retains the Intellectual Property.

In Federal Government Contracting  COTS contracts allow the agency to benefit from technological advances, cost savings from the use, and other negotiated perks.

Definition of COTS in Federal Government Contracting

The definition of COTS includes several key characteristics:

1. Commercial Availability: COTS items are commercially available in the marketplace, meaning they are sold to the general public or to a wide range of customers, not exclusively to the government.

2. Off-The-Shelf Product: COTS items are pre-existing and ready for immediate use without the need for substantial customization or modification. They are typically mass-produced or commercially packaged.

3. Minimal Integration: COTS items do not require significant integration efforts to be incorporated into the government’s systems or processes. They are intended to be easily and seamlessly implemented.

4. Standard Features and Functionality: COTS items come with standard features and functionalities that are commonly found in the commercial marketplace. They are not specifically designed or tailored to meet government requirements.

The use of COTS items in federal contracting offers several advantages. It can lead to cost savings, faster acquisition timelines, and reduced risks associated with developing custom solutions. By leveraging commercially available products and services, the government can take advantage of the innovation, economies of scale, and efficiencies offered by the commercial marketplace.

It is important to note that although COTS items are used as-is without significant modification, the government may still negotiate terms and conditions, such as pricing and delivery schedules, to meet its specific needs. Additionally, certain government agencies or programs may have additional guidelines or regulations related to the acquisition and use of COTS items.

The use of COTS items is governed by the Federal Acquisition Regulation (FAR), which provides guidance and requirements for federal contracting processes. Contractors and procurement officials should consult the FAR and agency-specific regulations to ensure compliance when acquiring and using COTS items in government contracts.

Government contractors in a bid protest seeking to challenge whether or not the awardee is selling FAR commercial items can avoid painful mistakes by articulating how the government is not meeting the legal commercial off the shelf product definition.

Knowing that the CO’s decision must be reasonable is a substantial part of the analysis when considering non-commercial sources as compared to commercial-off-shelf (cots contracts.)The exception to this rule is the acquisition of bulk cargo. Procurement of training services, installation, or cloud services can be considered COTS items under the Federal Acquisition Regulation (FAR 12). See information about Service Contract Act Fringe Benefits (SCA).

What is COTS?  What Does COTS Stand For?

FAR Commercial off the Shelf Items – What is COTS Contracts Definition: In government contracting, the commercial off the shelf product and FAR 12 FAR commercial items refer to whether commercial items are readily available without substantial modifications. The software can be a prime example. If the offeror has to substantially modify or program the software, then it might not meet the commercial definition. See VA Service Disabled Veteran Owned SDVOSB Requirements.

The use of COTS products allows procurement agencies to benefit from technological advances, cost savings, and the consistent competition in the commercial rapid procurement stemming from the marketplace as well as other innovative developments in federal agencies. The use of these items can minimize or eliminate the need for costly, time-consuming, government-sponsored research and development programs.

Federal Acquisition Regulations (FAR)
Subpart 2.101 – Definitions Commercially available off-the-shelf (COTS)” item

1. This means any item of supply (including construction material) that is
   • A commercial item (Item that can be sold, leased, or licensed to the general public);
   • Sold in substantial quantities in the commercial marketplace; and
   • Offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace; and
2. Does not include bulk cargo, as defined in section 3 of the Shipping Act of 1984 (46 U.S.C. App. 1702), such as agricultural products and petroleum products.

The analysis of whether contracts for services or products can be commercially available includes looking to see whether the acquisition would need custom developments or a substantial amount of design after the award.

• Government contracting agencies should look to buy COTS items and services because there could be considerable savings to taxpayer dollars.

There a fair amount of cases where disputes arose in COTS contracts. For example, in a pre-award bid protest, a contractor may challenge the services or products solicited by the government as COTS if there is evidence that the commercial sector or industry standards do not meet the government’s definition or statement of work requirements. See also information about Buy American Act countries.

FAR 12 COTS Items – Commercial Off the Shelf Definition

(1) Means any item of supply (including construction material) that is—

(i) A commercial item (as defined in paragraph (1) of the definition in this section);

(ii) Sold in substantial quantities in the commercial marketplace; and

(iii) Offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace; and

(2) Does not include bulk cargo, as defined in section 3 of the Shipping Act of 1984 (46 USC App. 1702), such as agricultural products and petroleum products.

Unless indicated otherwise, all the policies that apply to FAR commercial items also apply to COTS. Section 12.505 lists the laws that are not applicable to COTS items (as well as 12.503 and 12.504); the components test of the Buy American Act requirements and the two recovered materials certifications in Subpart 23.4 do not apply to COTS contracts.

COTS Exemption in the Buy American Act or Trade Agreements Act

The COTS (Commercial Off-The-Shelf) exemption is a provision within the Buy American Act (BAA) and the Trade Agreements Act (TAA) that allows federal agencies to procure commercial products or services that meet the criteria of being COTS items without requiring compliance with the domestic content requirements of the Acts. Here’s an explanation of the COTS exemption in both Acts:

1. Buy American Act (BAA) COTS Exemption:
– The Buy American Act promotes the purchase of domestic products over foreign ones for federal government procurements. It generally requires that products procured by the government have a certain percentage of domestic content (components or materials).
– However, the BAA includes an exemption for COTS items. Under the BAA COTS exemption, if a product qualifies as a COTS item, it is considered exempt from the domestic content requirements. This means that federal agencies can procure COTS items without considering their country of origin.

2. Trade Agreements Act (TAA) COTS Exemption:
– The Trade Agreements Act establishes a framework for the United States to participate in international trade agreements, such as the World Trade Organization Government Procurement Agreement (WTO GPA) and various free trade agreements.
– The TAA generally requires that products procured by the government come from designated countries with which the U.S. has trade agreements, or that the products be manufactured substantially in the U.S.
– However, similar to the BAA, the TAA includes a COTS exemption. If a product qualifies as a COTS item, it is exempt from the TAA requirements. This means that federal agencies can procure COTS items without considering their country of origin or the requirements of the TAA.

In both cases, the COTS exemption recognizes the nature of commercial products or services that are readily available in the commercial marketplace. Since COTS items are typically pre-existing, off-the-shelf products with standard features and functionalities, they are considered exempt from the domestic content requirements or country of origin restrictions of the BAA and the TAA.

It’s important to note that while the COTS exemption allows for the procurement of commercial items without regard to domestic content or country of origin, it does not apply to non-commercial items or products specifically tailored or modified for government use. Additionally, there may be specific agency guidelines or contract requirements that need to be considered when using the COTS exemption.

Contractors and federal agencies should consult the relevant provisions of the BAA and the TAA, as well as the Federal Acquisition Regulation (FAR), to understand the specific requirements and limitations of the COTS exemption and ensure compliance with applicable regulations.

Need help with your COTS Item implementation? For more questions about government contracting or help to litigate a government contract protest based on FAR commercial off the shelf / COTS contracts under FAR 12, call our lawyers at 1-866-601-5518.