Pursuant to FAR Part 44.302, the need for a Contractor Purchasing System Review (CPSR) is triggered when sales to the government are expected to exceed $25 million during the next 12 months. DFARS 244.302 increased the threshold to $50 million.
It is critically important for your company to be prepared. If this is your first CPSR, this Guide to CPSR and Federal Procurement Compliance will help you and your company prepare.
Pursuant to FAR 44.3 and DFARS 252.244-7001, a purchasing system review is the process by which DCMA (Defense Contract Management Agency) reviews and evaluates how your company is spending government money and how compliant your company is with all applicable rules, regulations, policies, and laws. Ultimately, you, as the contractor, have a responsibility to be a good steward of the government’s money.
DCMA’s evaluation provides the Administrative Contracting Officer, or ACO, with all the necessary and pertinent information to grant, withhold, or withdraw approval of your purchasing system. Understanding the CPSR process and how to prepare is essential for the future of your business.
The “system” or “S” in contractor purchasing system review (CPSR) refers to the whole group of people, processes, and tools used to spend the Government’s (and thus, the taxpayer’s) money.
Critical components of a good “system” include policies and procedures, ethics, documentation, training, people, software tools, signature authority, and self-assessments. The system consists of the cradle-to-grave elements of the purchasing process from requisition, locating suppliers, analyzing prices offered and negotiating those prices, purchase orders, receipts, payment, and much more. The CPSR examines the whole system and process of buying goods and services. When your purchasing process passes the CPSR, it is considered an Approved Purchasing System.
Passing a CPSR means the government considers your business to be more reliable. Having an approved purchasing system means your company complies with procurement rules and regulations. Being CPSR approved can distinguish your company from others in this already crowded and competitive government contractor market.
In addition, you may have contracts that require your company to have an approved purchasing system.
Companies do not request a CPSR audit. Rather, if your company has qualifying sales to the government which are expected to exceed the threshold in the next 12 months, a risk assessment is performed by the Administrative Contracting Officer (ACO). The ACO reviews a variety of factors, including past performance, complexity and dollar value of subcontracts to determine if a review is warranted. The ACO will recommend a CPSR if the time and costs associated with it are deemed justified.
Before discussing the CPSR process in detail, it is important to note that there are four distinct types of reviews. These are as follows:
If you have never had a review of your purchasing system conducted, you will receive an initial review. It is a first-time review of a contractor’s purchasing system.
Purchasing systems that have identified specific weaknesses will receive a special review. This type of review examines weak areas for improvement.
If your purchasing system has been approved by the CPSR Group in the past, subsequent reviews will be the comprehensive review type. These are recurring reviews conducted every three (3) years.
If your purchasing system is determined to have significant deficiencies or is disapproved by the ACO, a follow-up review is conducted, which ensures all required corrective actions have been implemented.
Before discussing the CPSR process in detail, it is important to note that there are four distinct types of reviews. These are as follows:
If you have never had a review of your purchasing system conducted, you will receive an initial review. It is a first-time review of a contractor’s purchasing system.
Purchasing systems that have identified specific weaknesses will receive a special review. This type of review examines weak areas for improvement.
If your purchasing system has been approved by the CPSR Group in the past, subsequent reviews will be the comprehensive review type. These are recurring reviews conducted every three (3) years.
If your purchasing system is determined to have significant deficiencies or is disapproved by the ACO, a follow-up review is conducted, which ensures all required corrective actions have been implemented.
DCMA will send your company notification of an impending review, typically 60-90 days in advance along with a pre-review questionnaire. The questionnaire will ask for information related to the most recent 12 months, such as:
It is important to note that if you do not have a process for generating the “universe” of subcontracts and purchase orders at any given time, gathering this information can be a very daunting and time-consuming task.
Your CPSR review could be conducted in-person or virtually. Virtual CPSRs require all documentation and communication to be transferred online through tools like DoD SAFE or another secure website. In-person reviews will be conducted on-site and necessitate you setting aside a place for the analysts to work.
All CPSR types begin with an entrance briefing on the first day of the review. Every member of the team is introduced during the entrance briefing, and initial discussions will take place. These discussions include” a review of the upcoming schedule of events; an introduction to the review elements; and an explanation of the process to address identified deficiencies. The entire CPSR process is designed to be as upfront and transparent as possible.
Daily briefings are conducted at the end of each day. Questions and requests for information will be submitted daily, via email. You have twenty-four (24) hours to respond to those requests for documentation. However, the sooner you can provide the information to the DCMA analysts, the quicker they can close out that particular action. An exit briefing, or out brief, occurs on the final day of the review. The exit brief is to reiterate information shared during the daily out briefs and provide preliminary recommendations which will be included in the detailed report submitted to the ACO.
Following the review, the analyst will issue their CPSR report to the ACO. If no deficiencies exist, the ACO will issue a final determination. If deficiencies do exist, the ACO will issue a Level II Correction Action Request (CAR) to which the contractor has 30 days within which to respond with a Corrective Action Plan (CAP). If the CAP adequately addresses the corrections, the ACO will close the Level CAR and issue its final determination approving your purchasing system.
If the CAP does not adequately address the deficiencies, the ACO will issue an Initial Determination Letter which includes all open deficiencies to which the contractor has an additional 30 days to address. Based upon the contractor’s response to the Initial Determination Letter, the ACO will either approve or disapprove the contractor’s purchasing system.
The Final Determination Letter allows the contractor an additional 45 days to correct any remaining deficiencies or submit a Corrective Action Plan (CAP) acceptable to the ACO addressing milestones and actions to eliminate the deficiencies. If the CAP is accepted by the ACO, a special or follow-up review will be conducted by the CPSR team to verify the CAP has been implemented.
An “acceptable purchasing system” is that which complies with the system criteria in DFARS 252.244-7001(c). Although there are currently thirty (30) elements identified in the CPSR Guidebook, DFARS 252.244-7001(c) identifies twenty-four (24). They are as follows:
1. Have an adequate system description including policies, procedures, and purchasing practices that comply with the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS);
2. Ensure that all applicable purchase orders and subcontracts contain all flow down clauses, including terms and conditions and any other clauses needed to carry out the requirements of the prime contract;
3. Maintain an organization plan that establishes clear lines of authority and responsibility;
4. Ensure all purchase orders are based on authorized requisitions and include a complete and accurate history of purchase transactions to support vendor selected, price paid, and document the subcontract/purchase order files which are subject to Government review;
5. Establish and maintain adequate documentation to provide a complete and accurate history of purchase transactions to support vendors selected and prices paid;
6. Apply a consistent make-or-buy policy that is in the best interest of the Government;
7. Use competitive sourcing to the maximum extent practicable and ensure debarred or suspended contractors are properly excluded from contract award;
8. Evaluate price, quality, delivery, technical capabilities, and financial capabilities of competing vendors to ensure fair and reasonable prices;
9. Require management level justification and adequate cost or price analysis, as applicable, for any sole or single source award;
10. Perform timely and adequate cost or price analysis and technical evaluation for each subcontractor and supplier proposal or quote to ensure fair and reasonable subcontract prices;
11. Document negotiations in accordance with FAR 15.406-3;
12. Seek, take, and document economically feasible purchase discounts, including cash discounts, trade discounts, quantity discounts, rebates, freight allowances, and company-wide volume discounts;
13. Ensure proper type of contract selection and prohibit issuance of cost-plus-a-percentage-of-cost subcontracts;
14. Maintain subcontract surveillance to ensure timely delivery of an acceptable product and procedures to notify the Government of potential subcontract problems that may impact delivery, quantity, or price;
15. Document and justify reasons for subcontract changes that affect cost or price;
16. Notify the Government of the award of all subcontracts that contain the FAR and DFARS flow down clauses that allow for Government audit of those subcontracts and ensure the performance of audits of those subcontracts;
17. Enforce adequate policies on conflict of interest, gifts, and gratuities, including the requirements of 41 U.S.C. chapter 87, Kickbacks;
18. Perform internal audits or management reviews, training, and maintain policies and procedures for the purchasing department to ensure the integrity of the purchasing system;
19. Establish and maintain policies and procedures to ensure purchase orders and subcontracts contain mandatory and applicable flow down clauses, as required by the FAR and DFARS, including terms and conditions required by the prime contract and any clauses required to carry out the requirements of the prime contract, including the requirements of 246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, if applicable;
20. Provide for an organizational and administrative structure that ensures effective and efficient procurement of required quality materials and parts at the best value from responsible and reliable sources, including the requirements of 246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, if applicable;
21. Establish and maintain selection processes to ensure the most responsive and responsible sources for furnishing required quality parts and materials and to promote competitive sourcing among dependable suppliers so that purchases are reasonably priced and from sources that meet contractor quality requirements, including the requirements of 246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, and the item marking requirements of 252.211-7003 , Item Unique Identification and Valuation, if applicable;
22. Establish and maintain procedures to ensure performance of adequate price or cost analysis on purchasing actions;
23. Establish and maintain procedures to ensure that proper types of subcontracts are selected, and that there are controls over subcontracting, including oversight and surveillance of subcontracted effort; and
24. Establish and maintain procedures to timely notify the Contracting Officer, in writing, if—
You need to be prepared for the CPSR team to look at other areas related to procurement which are not identified in the DFARS such as buyer lead time, split awards, and commercial item determinations.
First and foremost, you must have policies and procedures that provide instructions and directions for day-to-day procurement operations and compliance with applicable laws and regulations.
Your company’s policies & procedures should be regularly reviewed and maintained in order to ensure the Government’s interests are being protected and contracting requirements are being met. The significant number of findings during a CPSR will come from your procurement documentation which is based upon your company’s policies & procedures.
Your company’s policies & procedures should be regularly reviewed and maintained in order to ensure the Government’s interests are being protected and contracting requirements are being met. The significant number of findings during a CPSR will come from your procurement documentation which is based upon your company’s policies & procedures.
A. Are regulatory thresholds in the P&P current and up to date?
B. Do the P&Ps adequately address each of the 24 system requirements?
C. Are the P&Ps readily available to employees?
D. Do P&Ps match what is being done day-to-day?
Each procurement file is considered a stand-alone file. This procurement file should document the procurement history of the transaction. Consistency and continuity for each procurement transaction will demonstrate adherence to company policies & procedures. Lack of standardization in documenting the procurement file will create opportunities for compliance missteps and findings during a CPSR. Standardized documentation procedures ensure that all the rules are consistently followed by each procurement person every time.
This will also save your company time and resources.
A. How does the documentation in our procurement file match what is stated in our P&Ps?
B. Does our documentation match the current thresholds?
C. Is there a central repository for all procurement forms and templates, i.e., is everyone in the company using the same forms and formats?
D. Do we have separate practices for Price Analysis and Cost Analysis?
E. Do we have a checklist of documentation that is required in procurement documentation files?
You cannot be adequately prepared for a CPSR unless your entire staff is trained in government purchasing requirements. The regulations change regularly, so you will need to implement a consistent training schedule to keep your staff up to date. Annual training sessions are the best way to ensure your staff has all the information they need to do their jobs properly.
Training should include information about purchasing requirements, best practices, and industry trends. Remember to also document all your training, including which individuals attended. File training schedules, sign-in sheets, and other evidence of the annual training sessions. You will need to provide this during a CPSR review.
You cannot be adequately prepared for a CPSR unless your entire staff is trained in government purchasing requirements. The regulations change regularly, so you will need to implement a consistent training schedule to keep your staff up to date. Annual training sessions are the best way to ensure your staff has all the information they need to do their jobs properly.
Training should include information about purchasing requirements, best practices, and industry trends. Remember to also document all your training, including which individuals attended. File training schedules, sign-in sheets, and other evidence of the annual training sessions. You will need to provide this during a CPSR review.
A. Are employees trained on public law requirements found in the DFARS?
B. Does employee training take place regularly, and do we have evidence to prove it?
C. Do we provide training when regulations change?
An organizational plan should exist in which the lines of authority and responsibility are clearly defined. Program managers, engineers, and other non-procurement staff should not have authority to place orders or direct where orders should be placed. It is the responsibility of procurement personnel to ensure the effective and efficient procurement of services, materials, and parts at the best value from responsible and reliable sources. Allowing non procurement personnel to purchase goods and services significantly increases chances for non-compliance. Essentially, the government wants to see that you don’t have the fox guarding the hen house.
A. Is there a separation between the requisitioner and the purchaser?
B. Do requisitions come through with adequate time for the purchaser to conduct the necessary due diligence?
C. Are procurement agents the only ones authorized to request and act upon supplier bids?
D. How often is the engineering group directing or even committing purchases?
E. Are there formal delegations of authority in place which define the purchase authority by employee title?
Not every procurement can be a sole/single source despite what your technical team may say. A lack of competition is an immediate red flag to CPSR auditors. Competition should be the norm with sole/single source being the exception when procuring an item or service. The FAR 52.244-5 states that subcontractors and suppliers should be selected “on a competitive basis to the maximum extent practical…”.
If the CPSR review team discovers a systemic lack of competition, that is a serious problem. It can even lead to the withholding of your CPSR certification. Lack of competition creates potential issues in other areas reviewed during a CPSR such as Source Selection, Certified Cost or Pricing Data (a/k/a TINA), and Cost Accounting Standards.
A: Can we show that we compete for 60%+ of our procurements, or explain why a lower value is sufficient?
B: Do we actively seek out alternative sources and avoid specifying sources in drawings and statements of work?
C: Are our competition practices in alignment with the concepts of “adequate competition” in the FAR and DFARS?
D: For Best Value competitions, are scoring criteria defined and objective?
E: When we are unable to compete, do we adequately document the reasons why in alignment with the FAR?
In general, the Government wants to know that you are spending taxpayer money wisely. Therefore, you need to ensure the prices you pay for products or services received are fair and reasonable. Make sure you are using a competitive price analysis technique whenever possible. Price negotiations are also expected in non-competitive procurement.
Use the proper processes for price negotiations and document everything. This will ensure that you avoid many pitfalls of the CPSR, including insufficient source justifications, negotiation memoranda, cost and price analyses.
A: Are negotiations required per our P&Ps?
B: Are employees negotiating and documenting in accordance with Pops and FAR 15.406-3?
C: Do procurement files tell a clear story that employees routinely negotiate to get the best deal?
A procurement file should be documented from cradle-to-grave in order to tell the story of that particular acquisition. Compliance reviews/internal audits are a control process. This process monitors compliance with government and company regulations, policies and procedures. This process verifies the integrity of the purchasing system.
Your documentation will evidence your compliance with the twenty-four criteria listed above and your company’s policies and procedures. Internal compliance reviews ensure procurement personnel are properly and adequately documenting each procurement.
A: Do our P&Ps require internal reviews of procurement documentation?
B: Do we use a standardized review process, relying on the presence of objective evidence during those reviews?
Flow-downs and terms & conditions set forth essential terms of the contract between the U.S. Government and the prime contractor. The prime contractor then has the obligation to incorporate certain specific prime contract clauses into a subcontract/purchase order issues to a subcontractor/supplier. These “mandatory” clauses will characteristically have language setting for the requirement, e.g., “include this clause” or “include the substance of this clause”. Terms and conditions outline the relationship between the service provider and the user of that service and are designed to protect the interest of the contractor as well as the government.
If a subcontract/purchase order is not aligned with the prime contract via the use of appropriate flow-downs, as well as certain terms and conditions, it puts the outcome of the prime contract at risk. Not all clauses in a prime contract apply to a subcontractor/supplier and therefore should not be flowed down. Clauses are not “self-deleting”, and contractors should not flow down every clause in its prime contract to a subcontractor/supplier.
A: Who is responsible for determining which clauses flow down to a subcontractor/supplier?
B: Do we have separate flow downs for commercial (FAR Part 12) and non-commercial purchases?
C: Do the flow-downs for each procurement tie back to the specific prime contract?