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Contractor Purchasing Systems Reviews (CPSR)
The Current CPSR Environment
Bryan Felber, Director of Purchasing & Compliance
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Cautions
This will not be a complete CPSR primer
If you are new to CPSRs, get fully immersed and
trained in all aspects of CPSR
98% of companies fail their first CPSR
There are lots of companies and consultants that offer
training and CPSR prep assistance
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Cautions (continued)
Expectations and requirements change over time
New guidance from DCMA HQ
Different auditors and interpretations
Changes in regs
Different people have different opinions as to
requirements/expectations
Contractors
Auditors
Consultants
Imperative to keep current and monitor
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Resources
Contractor Purchasing System Review (CPSR)
Forum
CPSR Helps and Hints
FAR & DFARS Discussions
Various training opportunities
Webinars
Seminars
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CPSR – Who is Impacted
Even if not on the CPSR radar all are subject to the regs in their contracts. READ YOUR CONTRACT!!
If 52.244-2, Subcontracts, is in your contract, consent, notification, etc., apply
If 252.242-7005, Business Contractor Business Systems, You must establish and maintain acceptable business systems in accordance with the terms and conditions of the contract.
If 252.244-7001, Contractor Purchasing System Administration, your system must be CPSR compliant
DCMA usually goes by the $25M threshold, but can mandate a CPSR ANYTIME!!!
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CPSR – It’s a brave new world!
Expectations very different than in the past
Review is much more formal and rigorous
Companies doing the same thing under successful CPSRs 3 or 4 years ago are failing
Questionable Review Team interpretations/application of regs
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What to Expect
Generally 2 weeks duration, with 2 or more analysts
Data call comes about two months prior to the review
Important to be able to segregate POs properly to exclude
those not subject to review
Template
Selected POs provided ~1 week in advance of arrival
Electronic files
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What to Expect (Cont)
Entrance conference
Questionnaires provided before or upon arrival: Training
Procurement Authority
Purchase requisition through purchase order
Internal Audit
Parts Management
Receiving
Vendor Rating System
Close out process
Written questions/observations on purchase
files, response required within 24 hrs
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What to Expect (Cont)
Interviews of Buyers
Daily debriefs of observations, concerns
Exit conference
Report promised to ACO about a month after
conclusion of CPSR
Please don’t hold your breath
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What They Look For
Policies: Cover all the bases
Emerging expectation: split awards
Public law compliance
TINA certs must be in the form at FAR 15.406-2, including FAR references
CAS notification within 30 days of award
DPAS: written acceptance in required time
Price/cost analysis
Reps and certs
SAM
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What They Look For (Cont)
Debarment
SAM?
Day of award cert
Actual cert
In forms, agreements, POs
To be valid, agreements/orders must be signed or
accepted in writing
Evidence of written acceptance of small bus
plans
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What They Look For (Cont)
Source Justifications
Adequate support
Customer directed: attach evidence
Teammate: Attach teaming agmt and/or contract
proposal identifying teammates
Economically justified: Have analysis
Only known source: explain, document market
research
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What They Look For (Cont)
Commerciality
Com’l Item Determination form not enough
Need support to prove commerciality
• Your own market research
• Proof vendor has sold or offered for sale
commercially
• If not adequately supported, vendor to be treated
non-commercially
• If ≥$750K, TINA cert required
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What They Look For (Cont)
Misc.
DCMA does not accept the use of GSA
schedules for price analysis (based on MAR
2014 DoD directive).
Subcontractor Financing - especially progress
payments and financing on FFP awards
Policy on Split Awards
Negotiation of all noncompetitive awards. You
might diplomatically push back, but be SURE to
have clean and effective price analyses
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Buyer Interviews
How long have you been a buyer with company?
Who does your cost/price analysis?
Who does your source justifications?
Who’s responsible for reps/certs (review, location)?
Who does expediting reports and how often?
How do you do best value?
How do you validate commercial item determinations?
During RFP, do you check Ts & Cs, reps/certs before
sending?
Do you have adequate time to process PRs?
Does management support me?
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Buyer Interviews (cont)
What is the extent of competition?
How well does Purchasing work with other depts?
How often have I been told to go to a specific vendor?
Policies & procedures.
Do you have a policy on counterfeit avoidance?
How do you avoid counterfeits?
How often do we do training?
Do we have waste, fraud, abuse signs in our building?
Do I get what I need from management?
If I was a manager, what type of training would I see
the need for?
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Questionable Application
Intercompany orders
• DCMA expected:
• TINA and CAS applicability
• Small bus plans
• Anti-lobbying and Exec Comp
• Make/buy analysis
• Explanation why intercompany transaction is in the best interest of the government
• Price/cost analysis
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Questionable Application (Cont)
Intercompany orders useful definitions: “Contractor” means the total contractor organization or a separate entity of it,
such as an affiliate, division, or plant, that performs its own purchasing.
44.101
“Subcontractor” means any supplier, distributor, vendor, or firm that furnishes
supplies or services to or for a prime contractor or another subcontractor.
44.101
“Make item”, . . . means an item or work effort to be produced or performed
by the prime contractor or its affiliates, subsidiaries, or divisions. 15.407-2(b)
“Affiliates” means associated business concerns or individuals if, directly or
indirectly--
(1) Either one controls or can control the other; or
(2) A third party controls or can control both.
2.101
“Subcontract” (except as used in 15.407-2) also includes a transfer of
commercial items between divisions, subsidiaries, or affiliates of a contractor
or a subcontractor (10 U.S.C. 2306a(h)(2) and 41 U.S.C. 3501(a)(3)). 15.401
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Questionable Application (Cont)
Intercompany TINA and Small Business Plans:
DCAA Memorandum PSP 730.5.1/2010-009, March 2,
2010, excludes TINA applicability to inter-
organizational transfers.
DCMA Small Business analyst confirmed in 2014:,
“The affiliate/other division, does NOT do a plan for
you as the prime”
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Questionable Application (Cont)
Intercompany make/buy and price/cost analysis:
Make/Buy analysis only done if doing out of the ordinary, e.g.,
buying something we usually make, vice versa
15.401 only applies Part 15 requirements to transfers of
commercial items
Just as purchasing does not do a make/buy analysis on items
normally proposed as make items by the awarded entity, we
would not do a make/buy analysis for items made by an affiliate
Just as purchasing doesn’t perform price/cost analysis on the
make portions of the contract awarded to the contractor, it also
does not perform price/cost analysis of an affiliate
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Questionable Application (Cont)
Orders below micro-purchase threshold
Selected a good number (28%)
Recommend procurement files include documentation supporting the vendor selected and a fair and reasonable price. DFARS 252.244-7001(c)(4)
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Questionable Application (Cont)
Orders below micro-purchase threshold FAR 13.203(a) Solicitation, evaluation of quotations, and award.
(1) To the extent practicable, micro-purchases shall be distributed equitably
among qualified suppliers.
(2) Micro-purchases may be awarded without soliciting competitive
quotations if the contracting officer or individual appointed . . . considers the
price to be reasonable.
(3) The administrative cost of verifying the reasonableness of the price for
purchases may more than offset potential savings from detecting instances of
overpricing. Therefore, action to verify price reasonableness need only be
taken if --
(i) The contracting officer . . . suspects that the price may not be reasonable, or
(ii) Purchasing a supply or service for which no comparable pricing information
is readily available
(b) Documentation. If competitive quotations were solicited and award was
made to other than the low quoter, documentation to support the purchase
may be limited to identification of the solicited concerns and an explanation
for the award decision.
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Questionable Application (Cont)
Ts & Cs
They faulted us for having terms that restrict
subcontractor/vendor contact with our customer
Privity of contract
Prime contractor is the one responsible for performance
Unrestricted contact can create problems
the subcontractor saying or providing something with which we
disagree and on which the government relies
duplication of effort where the sub provided something that the
prime also supplied
constructive changes adopted by the subcontractor without our
knowledge and which we might have prevented
Order of precedence: Some teams say FAR should be 1st,
though 52.215-8 says otherwise AND orders with subs are
commercial transactions, even if not com’l items.
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Questionable Application (Cont)
Consultants
Analyst said anything charged directly to a govt contract
One consultant has seen the following in data calls in several
CPSRs this year:
"Purchases excluded from the universe: ... Consulting Agreements
(where the consultant is a contract hire, acting as an employee of
the company, under the direct supervision of company personnel)"
Past Team Lead and Jeff White have same application
“Subcontract” means any agreement (other than one involving
an employer-employee relationship) entered into by a
Government prime contractor or subcontractor calling for
supplies and/or services required for performance of the
contract, contract modification, or subcontract. (FAR 19.701)
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Hints
Ensure emails have clear references to
attachments, approval requests, etc.
Interviewees should not guess at answers, but if they
don’t know, say they know where to go to find answers
(policies, procedures, regulations, management).
Be sure POs are carefully reviewed before they go out
Especially for things not manually entered in PO, but which
come from other inputs that appear on the PO
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Additional Expectations
When a file review is requested, any and all underlying agreements must also be provided, e.g.,:
SubK, ICA, BOA, IDIQ, TO/DO, Mod
The final award documents of any award with a
total anticipated award value ≥$750K should be
reviewed by management before it is issued
and follow up review within 30 days.
Keep up with closeouts
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Penalties for Failure
5% to 10% payment withholds for one or more
business system failures
Inability to bid on contracts that require approved
system
Competitive disadvantage in bidding on contracts which
consider system approval in evaluation
Requirement for prior consent to subcontract
Additional oversight by other agencies
Corrective action plan
Impact to reputation
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Questions?
