What Happens If I Fail A Contract Purchasing System Review?
If you’re a government contractor whose purchasing policies are out of date or you’ve recently lost key personnel with knowledge of your company’s policies and procedures on procurement, it’s probably a good time to start thinking about your next Contractor Purchasing System Review (CPSR). Or, you may be reading this article because you’ve just received a CPSR Risk Assessment Form from your Administrative Contracting Officer (ACO) and you’re anxiously trying to figure out how to make sure you pass your first CPSR. Regardless of your circumstance, your next CPSR will eventually impact your company’s reputation and bottom line, so it’s never a bad time to take a closer look at your procurement policies, procedures, and operations.
What is a Contract Purchasing System Review?
As a government contractor, you and your company are expected to comply with applicable federal laws and regulations governing government contracts, including having a purchasing system that is compliant with all aspects of the Federal Acquisition Regulations (FAR). The CPSR is the primary tool used by the government to determine if your purchasing system and internal controls are in compliance.
More specific guidance on these requirements can be found in the following publications:
- DFAR 252.244-7001 – Contractor Purchasing System Administration
- FAR Subpart 44.3 – Contractor Purchasing System Reviews
- DCMA Instruction 109 – Contractor Purchasing System Reviews (sets forth 24 system criteria)
- A Guide to CPSR and Federal Procurement Compliance
- DCMA CPSR Guidebook
The CPSR is a two-step process, wherein a company’s internal policies and procedures are evaluated for compliance, and then compared to actual day-to-day operations to ensure the company’s practices match their stated policies. Common findings of a failed audit can include:
- Written policies and procedures do not adequately address an applicable FAR (e.g. policies do not exist for certain requirements or are poorly written);
- Failure to obtain required certifications at time of award (e.g., the Truthful Cost or Pricing Data Act (formerly TINA), CAS, suspension/debarment, limitation on use of appropriated funds);
- Inadequate FAR flow-downs;
- Inadequate representations and certifications package;
- Failure to adequately conduct and document commercial item determinations;
- Inadequate analysis and documentation supporting a procurement decision (particularly related to price analysis and source selection);
- Lack of competition (lack of adequate justifications for single/sole source contracts);
- Non-compliance with laws, regulations, and specific contract requirements.
What are the consequences of a failed CPSR?
Failure to pass your CPSR can result in 5% withholds as well as withdrawal of your company’s ability to subcontract without first seeking written approval (i.e. Advanced Notification and Consent) from your ACO. Withholds have an immediate impact on your company’s cash flow. Failure to pass not only affects your “bottom-line,” but also causes delays in deliveries, systematic inefficiencies, increased overhead expenses, and can lead to your disqualification on competitive RFPs. Moreover, a failed CPSR can render a black mark on your company’s reputation, resulting in increased scrutiny and potentially impacting the likelihood of winning future competitive RFPs.
What can I do to make sure I pass my CPSR?
If you have already been notified of a pending CPSR and you are a first-time auditee, you can work with your ACO to notify them of potential deficiencies and request an extension, which can range anywhere from three months to one year. Since the review period is for the previous 12-month period, this can buy you critical time to assess your company’s current state and implement changes to ensure compliance.
Of course, the best time to conduct an internal CPSR compliance assessment is BEFORE you receive an audit notice. Some businesses choose to work with a consultant, who will likely conduct a thorough risk assessment, identify the corrective actions necessary to bring the company into compliance, develop an implementation plan, and finally, attempt to institute new systems to guarantee future compliance. However, this process can be lengthy and expensive. And the process of even finding a qualified consultant can be time-consuming and difficult.
SpendLogic offers a more effective and potentially less expensive approach through our software that builds price analysis, source justification, and commercial item determination compliance into the system itself. Our methods are taken directly from the FAR, in addition to feedback we solicit on industry trends. And, instead of having to modify your internal processes after a CPSR every three years, SpendLogic continually makes background adjustments so your process is always up to date and you can be confident in your continued compliance. Leran more when you schedule a demo.