Contracting Purchasing System Reviews: What Are They and ...

[Pages:3]views

August 2018

Contracting Purchasing System Reviews: What are They and What's New?

Mike Mardesich, Senior Manager | DHG Government Contract Advisory Bill Walter, Managing Director | DHG Government Contract Advisory Contributing Author: Jeff White | J.A. White and Associates

As the requirement and interest in approved purchasing systems rises, contractors are looking for insight and guidance with purchasing system approval. While purchasing system guidance has been around for decades, the Defense Contract Management Agency (DCMA) issued updated guidance for its personnel evaluating contractor purchasing systems and preparing Contracting Purchasing System Review (CPSR) reports.

A CPSR analyzes how contractors spend government funds, as well as their compliance with government policy when subcontracting. FAR clause 52.244-2 requires government consent before awarding any subcontract that exceeds the simplified acquisition threshold (SAT) or five percent of a cost-reimbursable, time and materials contract or unpriced orders under fixed price contracts. The CPSR provides the basis for the DCMA to evaluate the adequacy of a contractor's purchasing system and make recommendations for improvements, if necessary.

The process provides the administrative contracting officer (ACO) justification for providing or denying approval of the contractor's purchasing system. While the DCMA now has sole responsibility for CPSRs, the Defense Contract Audit Agency (DCAA) may assist at the request of the DCMA. Additionally, as the threshold for purchasing systems

increased from $25M to $50M in qualified purchasing volume on federal contracts, the DCMA released new evaluation criteria that most contractors may find advantageous for preapproval on RFPs.

Rules, Regulations and Guidance

The rules and regulations that contain purchasing system criteria that must be satisfied to achieve a purchasing system approval have been relatively consistent over the years. However, recent changes to thresholds will have an impact on what is subject to a CPSR and what is not. For example, the SAT was recently increased to $250,000 and the Truth in Negotiations Act (TINA) threshold was increased to $2M. A quick recap of the regulations that govern CPSRs are as follows:

Assurance | Tax | Advisory | govcon@ | govcon

views

? FAR Part 44.302: When a CPSR is required:

?? The ACO will perform a review to determine if a CPSR is required. Generally, this opportunity is triggered when a contractor's sales to the Federal Government are expected to exceed $50M during the next 12 months.

?? Some contracts may still be eligible for the $25M threshold based on when prime contracts were implemented, as well as the number of contracts in place prior to the new threshold.

? FAR Part 44.3: Purchasing System Review and Prior Consent

?? Lack of an approved purchasing system may require ACO consent.

? FAR 52.244-2: Subcontracts Clause

?? When a purchasing system is approved, with few exceptions, prior consent to subcontract is not required.

? DFARS 252.244-7001: Contractor Purchasing System Administration

?? Paragraph (c) provides 24-point criteria providing guidance on ACO responsibilities.

? DFARS 252.242-7005: Contractor Business Systems

?? A CPSR is one of six business systems.

?? A disapproved purchasing system could lead to billing withholds and significant administrative effort to remedy.

?? Clause is applicable to contracts subject to Cost Accounting Standards.

? DCMA CPSR Guidebook

?? A reference of the 30 major purchasing areas has been provided by DCMA. Download here.

The ACO will conduct a risk assessment to determine the need for a CPSR. Once the need for a review is identified, the ACO will develop a plan, set review dates and coordinate with the contractors. If the ACO determines that your company is a candidate for a CPSR, you can expect that the government will:

Obtain and review purchasing policy and procedures documents

Obtain and review sales data and list of all eligible procurement actions awarded during the audit period

Conduct entrance briefing

Sample purchase orders and subcontracts at various award levels; specific actions to be audited will not be identified before the audit begins

Conduct daily reviews with contractor purchasing personnel

Conduct exit briefing (verbal only)

Create report for ACO in Final Format

During DCMA's review of a contractor's procurement files, they will examine the degree of price competition obtained; pricing policies and techniques in place; planning, award and management of major subcontracts; inclusion of appropriate flow-down clauses; appropriateness of types of contracts used; methods of evaluating subcontractor responsibilities; and policies and procedures pertaining to small business subcontracting programs.

The DCMA will provide contractors with minor and major CPSR recommendations. Minor recommendations include areas where improvement should enhance efficiency. Major recommendations represent non-compliance with public law, repeat recommendations due to lack of corrective action and lack of documentation for price/cost analysis. Major recommendations may lead to a significant deficiency that could result in a system disapproval. These recommendations need to be addressed and if needed, corrective actions implemented prior to the next review.

After the initial CPSR, the DCMA will continue to evaluate and plan for oversight and review of a contractor's purchasing system. Generally, the ACO will:

Maintain a level of surveillance

Ensure effective contractor management

Review effectiveness of corrective actions (if any)

Plan for CPSR reviews every three years

Assurance | Tax | Advisory | govcon@ | govcon

2

views

Today's Trends

DCMA is performing outreach to industry and performing CPSRs throughout the year. As we support these reviews, trends are appearing in relation to compliance and maintenance. The following areas are some common examples of what our teams are seeing regarding CPSRs:

? Advanced Planning: The DCMA is providing advanced scheduling/planning to contactors who will undergo review. Typically, contractors are receiving a notice 18 to 24 months prior to the review.

? Documentation Weakness: DCMA teams are concluding that contractor procurement files are not entirely complete. The teams expect contractor's documentation to tell a comprehensive story and include an easy-to-follow index, a DCMA CPSR checklist containing 61 items to be examined and a thorough procurement summary outlining the life and death of the procurement action.

? Lack of Internal Audits: The DCMA is looking for mock CPSRs and the systems in place, comparing findings against the criteria. There is an expectation that a contractor should perform annual, semi-annual or quarterly internal or external audit functions with a holistic approach.

? Lack of Corrective Action: Once the DCAA accepts a corrective action plan (CAP), the ACO expects it to be implemented. A proactive CAP should adjust for continuous compliance and remediation for issues found in the audit process. Contractors will want to review old CAPs to ensure implementation originally promised to the DCMA.

? Terms and Conditions: Findings regarding failure to incorporate or flow down terms and conditions resulting in findings that subcontracts are "not adequately protecting the government." Evaluators expect terms and conditions to include binding government laws set forth by the prime contractor which flows down to subcontractors. Provisions must be in place to ensure the government's right to technical data is properly protected.

How to Prepare for a CPSR

To prepare for compliance, contractors should start developing an approvable purchasing system immediately. Building a system is a long and complex process involving coordination from many facets of your organization, including training employees on purchasing policies and procedures. Contractors will need written policies and procedures that address the 24 DFARS criteria and 40 item DCMA checklist. This will include processes and evidence demonstrating how your system operates and identifies responsibilities on your team. Evidence of annual procurement training should be maintained and be readily available upon request. The primary effort associated with a CPSR is when the government team samples and reviews a year's worth of your purchasing files to evaluate compliance with written purchasing policies and procedures.

Contacts

Mike Mardesich Senior Manager, DHG Government Contract Advisory Group

Bill Walter Managing Director, DHG Government Contract Advisory Group

Jeff White CEO and Founder of J.A. White & Associates, Inc.

Jeff has more than 25 years of procurement and subcontract administration experience in the GovCon marketplace.

Assurance | Tax | Advisory | govcon@ | govcon

3

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download