How a Weighted Guidelines Tool Benefits your CPSR
A successful Contractor Purchasing System Review (CPSR) results in an “approved” purchasing system and opens the door to a lot more government business. A CPSR ensures that a contractor has a systematic approach to purchasing procedures, as outlined by the DFARS (Defense Federal Acquisition Regulations). Cost analysis, which includes ensuring profit objectives are fair and reasonable, is part of every CPSR. Profit is a key motivator in executing government contracts. Use of a structured approach to profit provides the contracting officer with a standardized way to apply fee to certified costs. It also provides contractors an opportunity to negotiate specific profit factors.
There are a variety of tools available to help Prime Contractors, Subcontractors, and Government contracting officers meet the requirements laid out in DFARs, including tools to analyze profit factors. The DFARS specifically calls out the Weighted Guidelines Method (WGM) as one way to analyze profit. This article will look at what the weighted guidelines is and will show how applying it benefits contractors facing a CPSR.
What is the Weighted Guidelines Method?
The WGM is set forth in DFARS 252.404-71 and is a technique used by contracting officers for analyzing profit. It is essentially a calculator that indicates your profit percentages, as applied against certified costs, by focusing on four special factors:
- Performance Risk
- Contract Type Risk
- Facilities Capital Employed
- Cost Efficiency
How Does the WGM work?
When developing your profit objective, the weighted guidelines uses risk factors to determine the fee rate. Various government websites have translated the DFARs into a spreadsheet-based tool, which is broken into six areas:
- All costs before fees, such as the material, subcontracts, labor, etc.
- Technical and management/cost control mix
- Technical risk
- Management/control risk
- Contract type risk
- Cost-efficiency factors
Depending on the proposal, you may need to fill out the “Working Capital” and “Capital Financed” sections as well. In addition, within the categories above, special incremental weightings are available to boost total fee (such as the special “technology incentive” weighting within Technical risk.)
The end result of your tabulations will be a fee percentage, which is to be applied to cost.
SpendLogic has created a browser-friendly weighted guidelines tool, which is much more user-friendly than those available in Excel from the government. For a look at the SpendLogic Weighted Guidelines Method tool, click the link (https://spendlogic.com/weighted-guidelines/)
Benefit of the Weighted Guidelines Method
Using a Weighted Guidelines Method when analyzing profit signals to federal contracting officers, as well as Prime Contractors, that you meet the requirements of the DFARS. Providing a weighted guidelines could even help GovCons achieve higher profit objectives in their contracts, such as by increasing technology incentive ranges for special factors. A weighted guidelines analysis may also bring clarity to negotiations where such an analysis is not required by DFARS. If you can demonstrate your efforts at reducing costs, the purchasing agency may allow higher profit objectives above a designated range.
On the other side of the table, sales teams utilizing the Weighted Guidelines Method sends a signal to the contracting officer that a structured approach to cost estimating is being applied. When contractors provide solid, quantifiable pricing, this leads to more trust.
Who Needs a CPSR?
It is not required by law, but a CPSR is standard procedure when sales for government contracting exceed $50 million in 12 months. At this threshold, the government’s contracting officer is required to do a risk assessment, and when doing so, will ask for a CPSR. It is the responsibility of the contracting officer to initiate the process.
If it is your first government contract exceeding $50 million, you will have an initial CPSR that is very detailed in nature. You will then do CPSRs every three years that are slightly less detailed, but still requirement heavy.
If your risk assessment form indicates a high percentage of non-competitive awards, your likelihood of having a CPSR will be much higher. Non-competitive sources are a fact of life in government contracts due to the specialized nature of government requirements. Although the FAR states a preference for purchasing commercial items, it is often not possible. This is a driving force in the requirement for CPSRs.
What Happens if I Fail a CPSR?
If you fail to pass your CPSR, it can restrict your ability to subcontract and require prior written approval for future work, as well as scar your reputation. You can also experience 5% withholds that can immediately disrupt cash flow and affect your working capital, resulting in delays in order completion and profit.
What Can I Do to Make Sure I Pass My CPSR?
Take time to ensure that the right tools are in place to avoid making the “easy mistakes.” When the DCMA finds irregularities in one area of your purchasing system, it will often lead to findings in other areas. Some of the most common issues include:
- Public Law Violations
- Inadequate Cost and Price Analysis
- Inadequate Sole Source Justifications
- Inadequate Commercial Item Determinations
The Weighted Guidelines Tool is One of Many Services We Offer
Here at Spendlogic, we specialize in providing online CPSR compliance tools to government primes and subs. We also provide consulting services focused on cost analysis of certified cost or pricing data, sole source selection documentation, commercial item determinations (CIDs), negotiations, and policies and procedures manuals. When it’s time to begin your bid, our tools and expertise can be your guide. Contact us to find out how we can help you.