CPSR Requirement #1: Adequate Policies and Procedures
A Contractor Purchasing System Review (CPSR) can seem complicated and overwhelming especially to those who are new to purchasing in support of a U.S. Government contract. An “acceptable purchasing system” is one which complies with the currently twenty-four (24) criteria. , CPSRs are intimidating but once you are familiar with the basics and implement the proper processes and tools, compliance will become routine.
To help your company pass the CPSR, we have created a series of articles that describe each system criteria in straightforward terms. By following the guidance in these articles, gathered over decades of experience, you will be well on your way toward a successful CPSR.
What is a CPSR?
The CPSR is a type of business system review performed by the government, specifically related to an entity’s purchasing system. A “purchasing system”, as defined in DFARS 242.244-7001(a) is the “system(s) for purchasing and subcontracting, including make-or-buy decisions, the selection of vendors, analysis of quoted prices, negotiation of price with vendors, placing and administering orders, and expediting delivery of materials.” The administrating contracting officer (ACO) is solely responsible for initiating CPSR which initiation may come at the request of another organization. You may be subject to a CPSR if your company is expected to have $50 million or more in sales during the next 12 months
CPSR Requirement #1 Explained
Requirement 1 is the foundation for the entire CPSR and an excellent place to start if you’re new to government contracting. It reads as follows:
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).
In plain English, your daily procurement activities must be governed by documented policies, procedures, and purchasing practices, collectively known as your “Procurement Manual.” This manual is where your procurement personnel should find information required to do their jobs effectively and in compliance with the FAR. Your manual should contain all of your policies and not just those that apply at the time you are developing your manual. For example, if you are a small business you are exempt from CAS. However, your manual should include a policy on CAS.
Policies & Procedures
Your manual should contain all policies regardless whether they apply to your business.
Not having all policies will result in a CPSR finding. In all cases, the CPSR review team will compare your policies and procedures to the set of documentation created to support your purchases. Essentially, your review just checks to ensure that you’re doing what you say you’re going to do. Your manual should include only that documentation you want audited. Don’t overcomplicate your manual by adding processes that are beyond what is required by the FAR.
Below is an example list of typical policies, taken from the 2021 CPSR Guidebook. There are other policies you may want to include that are not listed below. These include, but are not limited to, Split Awards, Conflict of Interest, Kickbacks, and Procurement Integrity Act. You will want to review your policies regularly to ensure they reflect the latest public thresholds and the day on which a change went into effect. It is important to note that a change can go into effect before it is memorialized in an update to the FAR. You will want to regularly monitor the Federal Register.
- Truthful Cost or Pricing Data (“TINA”)
- Cost Accounting Standards (CAS)
- Prior Consent and Advance Notification
- Small Business Subcontracting Plans
- Debarred, Suspended, or Proposed for Debarment (Debarment)
- Defense Priorities and Allocation System (DPAS) Rating
- Federal Funding Accountability and Transparency Act of 2006
- Counterfeit Parts Mitigation and Surveillance
- Price Analysis
- Source Selection
- Make-or-Buy Program
- Limitation on Pass-through Charges
- Documentation Requirements
- Internal Review/Self Audit
- Mandatory FAR and DFARS Flow Down Requirements / Terms & Conditions
- Purchase Requisition Process
- Commercial Item Determination
- Subcontract Types
- Procurement Authority
- Supply Chain Management Process
- Buy American
- Restrictions on the Acquisition of Specialty Metals/Articles Containing Specialty Metals
- Subcontractor/Vendor Closeout Process
- Long Term Purchasing Agreements
- Handling Change Orders and Modifications
- Intra/Inter-Company, Affiliate, or Subsidiary Transactions
The purpose of documenting policies and procedures is to define how your procurement system works. In alignment with that, the CPSR team will not only review your procedures for adequacy, they will then use those procedures to conduct your CPSR. If your procurement documentation doesn’t match the requirements set forth in your procedures, you’ll receive findings. Be sure, then, that your procedures say what you do and that you do what they say!
How to Prepare
Make sure you have well documented, compliant, and approved policies and procedures that address the elements above. Additionally, employees should be trained on these policies and procedures so that procurement practices align with stated policies. Training of employees should be documented to demonstrate to an auditor/analyst.
Still, have questions on this topic? SpendLogic can help. Our tools automate and streamline CPSR compliance. We specialize in helping our clients comply with all FAR and DFARS regulations. In fact, our tools were built based on the FAR, specifically for companies subject to CPSRs. Contact us today to learn more about our products or to schedule a demo.