The document provides an overview of preparing for a Contractor Purchasing System Review (CPSR). It discusses the background and criteria for CPSRs, including the 24 criteria in the Defense Federal Acquisition Regulation Supplement that purchasing systems must meet. It also outlines the general policies and procedures that reviewers will examine, such as competition requirements, price analysis techniques, and contract formation guidelines. The document gives advice on how to approach a CPSR, including starting with the criteria and ensuring the review is properly scheduled.

1. Preparing for the CPSR –
A Practical Guide
Mark Hijar, Founder, ProcureLinx LLC
Rich Wilkinson, Director, Watkins Meegan LLC

2. Session Content
Session Content
• Background
B k d
• Where to Start (And, It’s Not Where You Think)
• Procurement Policies and Procedures
• The Process
The Process
• A Look Forward
• Questions
Q ti
Proprietary and Confidential 2

3. Background

4. Background
• The Contractor Purchasing System Review (CPSR) has been
The Contractor Purchasing System Review (CPSR) has been
around since the early days of DCAA
• DCMA has had primary responsibility for the review at
Major Contractors (>$50M of ADV) since 1990 (DCAA did
M j C t t ( $50M f ADV) i 1990 (DCAA did
the smaller firms if and when they were reviewed)
• DCMA now has sole responsibility for the CPSR under the
final DFARS Business Systems Rule (Feb 2012)
• DCAA may assist at the request of DCMA (Price?Cost
Analysis, Other Than FFP awards, etc.)
Analysis, Other‐Than‐FFP awards, etc.)
• Purchasing System adequacy determination is the sole
purview of the Administrative Contracting Officer (ACO)
Proprietary and Confidential 4

5. The Business Systems Rule
The Business Systems Rule
• DFARS defines six (6) contractor systems subject to
DFARS defines six (6) contractor systems subject to
determination of adequacy (subject to applicability)
• Three are audited by DCAA
– Accounting(1)
– Estimating(1)
– Material Management Accounting System (MMAS)(2)
• Th
The remaining three are reviewed (not audited) by DCMA
i i th i d ( t dit d) b DCMA
– Purchasing(3)
– Government Property(2)
– Earned Value Management(2)
(1) Always applicable
(2) Applicable only when system is required
( ) pp
(3) Applicable, but reviewed only above a threshold or on request
, y q
Proprietary and Confidential 5

6. More on Business Systems
More on Business Systems
• Authority for adequacy determinations vested solely in the
Authority for adequacy determinations vested solely in the
ACO
g ,
• DCMA issues findings and can recommend, but not
determine
• DCMA will report findings in subsequent reports as if it was
making a determination – nearly the same effect
ki d t i ti l th ff t
• Threshold for Purchasing System review currently set at
$25M in qualified purchasing volume on Federal contracts
$25M in qualified purchasing volume on Federal contracts
(administrative and subject to revision without notice)
Proprietary and Confidential 6

7. How Do Contractors Get Selected for a
CPSR?
• They Make the News (Good or Bad)
• Upon Contracting Officer Request
• Prime Contract Requirement
Prime Contract Requirement
• You Had a CPSR More Than Three Years Ago
• By Contractor Request
B C t t R t
Proprietary and Confidential 7

8. Where to Start
Where to Start

9. The Adequacy Criteria
The Adequacy Criteria
• The Business Systems Rule sets forth 24 system
The Business Systems Rule sets forth 24 system
criteria that must be present in all contractor
p
purchasing systems in order for a purchasing system
g y p g y
to be “acceptable” (see DFARS § 252.244‐7001(a))
• DCMA CPSR “checklist” contains 61 items to be
examined (specific policies) with space to indicate
presence (or absence) and adequacy
• The system criteria of the DFARS and the review
checklist have NOT YET BEEN RECONCILED
Proprietary and Confidential 9

10. General Company Policies
General Company Policies
• Organization plan that establishes clear lines of
Organization plan that establishes clear lines of
authority and responsibility;
• Policy to ensure that all purchases are based on
Policy to ensure that all purchases are based on
authorized requisitions and include documentary
support for vendor selected, price paid, and files
support for vendor selected price paid and files
which are subject to Government review;
• Internal audits or reviews training and policies
Internal audits or reviews, training, and policies
for the purchasing department to ensure the
g y y
integrity of the system
Proprietary and Confidential 10

11. General Procurement Policies
General Procurement Policies
• S t
System description including policies, procedures,
d i ti i l di li i d
and purchasing practices that comply with the
requirements of the FAR and DFARS
i t f th FAR d DFARS
• Organizational and administrative structure to
ensure effective and efficient procurement of
requirements at the best value from responsible
and reliable sources
Proprietary and Confidential 11

12. Procurement Policies and
Procedures

13. DFARS Adequacy Criteria Deep Dive
DFARS Adequacy Criteria Deep Dive
• Procurement Planning/Market Research (2 Criteria)
Procurement Planning/Market Research (2 Criteria)
• Conflict of Interest/Misconduct (1 Criterion)
• Competition (2 Criteria)
Competition (2 Criteria)
• Negotiated Procurement (1 Criterion)
• Cost or Pricing Data and Price Reasonableness (5 Criteria)
g ( )
• Source Selection (3 Criteria)
• Contract Formation and Content (3 Criteria)
• Foreign Purchasing and Performance (3 Criteria)
• Procurement Administration (4 Criteria)
Proprietary and Confidential 13

14. Procurement Planning/Market Research
Procurement Planning/Market Research
• A l
Apply a consistent make‐or‐buy policy that is in
it t k b li th t i i
the best interest of the Government
• Ensure proper type of contract selection and
prohibit issuance of cost‐plus‐a‐percentage‐of‐
cost subcontracts
• Compete to the Maximum Extent Practicable
(FAR 52.244‐5)
Proprietary and Confidential 14

15. COI/Misconduct/Subcontractor Quals
(FAR Part 9)
(FAR P 9)
• E f
Enforce adequate policies on conflict of interest,
d t li i fli t f i t t
gifts, and gratuities, including the requirements
of the Anti‐Kickback Act
f th A ti Ki kb k A t
• Procurement is the Sole Authority to Bind the
Company
• Proactive Review / Reporting
• Reps and Certs, EPLS, OCI Cert, Financial
Responsibility
Proprietary and Confidential 15

16. Competition
• U
Use competitive sourcing to the maximum extent
titi i t th i t t
practicable
• Subcontractor Competition is documented via
Adequate Price Competition
• Require management level justification and
adequate price analysis, with negotiations, for
any sole or single source award
Proprietary and Confidential 16

17. Price Analysis
Price Analysis
• D
Documenting pricing as fair and reasonable to
ti i i f i d bl t
the Government
• Seven (7) FAR approved price analysis techniques
[FAR 15.404‐1(b)(2)]
• X / Y = Z; If Z ≤ 1.0, then X is Fair and Reasonable
• If Z > 1.0, then X is subject to Negotiation
If Z 1.0, then X is subject to Negotiation
Proprietary and Confidential 17

18. Negotiations
• A
A practice of documenting negotiations
ti fd ti ti ti
(when Z > 1.0) in accordance with the FAR
requirements for neg memo (FAR 52.244‐2)
i t f (FAR 52 244 2)
• CPSR Teams assume Noncompetitive
Procurements Will Be Negotiated
• Successful Negotiation = Lower Price or Revised
and Validated Basis of Estimate
Proprietary and Confidential 18

19. Truth In Negotiations Act & CAS
Truth In Negotiations Act & CAS
• C tif S b t t C t P i i D t t
Certify Subcontractor Cost or Pricing Data to
Avoid Defective Pricing
• Submit Required Notices for CAS covered
subcontracts
• Commercial Item Procurements are Exempt from
CAS and TINA
• Competitive Procurements And Small Businesses
Exempt from CAS
Exempt from CAS
Proprietary and Confidential 19

20. Source Selection
Source Selection
• Use competitive sourcing to the maximum extent
Use competitive sourcing to the maximum extent
practicable, and ensure debarred or suspended contractors
are properly excluded from contract award
• E l t
Evaluate price, quality, delivery, technical capabilities, and
i lit d li t h i l biliti d
financial capabilities of competing vendors to ensure fair
and reasonable prices
• Establish and maintain selection processes to ensure the
most responsive and responsible sources and to promote
competitive sourcing so that purchases are reasonably
p g p y
priced and from sources that meet quality requirements
• Small Business Participation / Plans
Proprietary and Confidential 20

21. Contract Formation and Content
Contract Formation and Content
• E
Ensure purchase orders and subcontracts contain
h d d b t t t i
all flowdown clauses, including terms and
conditions, and any other clauses needed to carry
diti d th l d dt
out the requirements of the prime contract
• Selection of Contract Type / Determination of
Accounting System Adequacy
• Flowdowns for DPAS Rated Contracts /
Acknowledgement
Proprietary and Confidential 21

22. Notice and Consent
Notice and Consent
• Ad
Advance Notice and Consent – FAR 52 244 2
N ti dC t FAR 52.244‐2
(Rules)
• Advance Notice and Consent – Prime Contract
• EEO Pre‐Award Clearance
• Foreign Subcontractor Reporting (2 Notices)
• CAS Notice
CAS Notice
Proprietary and Confidential 22

23. Foreign Purchasing and Performance
Foreign Purchasing and Performance
• E
Ensure compliance with all relevant domestic
li ith ll l td ti
preference requirements
• Ensure compliance with export control
regulations
• Ensure agreements are not executed with
prohibited parties
• Notification
Proprietary and Confidential 23

24. Procurement Administration
Procurement Administration
• Maintain subcontract surveillance to ensure timely
Maintain subcontract surveillance to ensure timely
delivery and procedures to notify the Government of
potential subcontract problems that may impact
delivery, quantity, or price
d li i i
• Document and justify reasons for subcontract
changes that affect cost or price
changes that affect cost or price
• Maintain a Vendor Rating System
• Establish and maintain procedures to timely notify
Establish and maintain procedures to timely notify
the Contracting Officer, in writing, of excessive pass‐
through concerns
Proprietary and Confidential 24

25. The Process
The Process

26. Process Basics
Process Basics
• Begins with a request by the ACO to perform a
Begins with a request by the ACO to perform a
review
– Should ALWAYS be scheduled, never unannounced
Should ALWAYS be scheduled, never unannounced
– Should be reasonably convenient for both parties
– Unless you KNOW you are well prepared, get as much lead
time as you can
• Plan on one to two weeks on‐site (your facility) for
two or more people (based on recent experience)
t l (b d t i )
• One of the participants is often from DCAA
Proprietary and Confidential 26

27. Proprietary and Confidential 27

28. Proprietary and Confidential 28

29. Proprietary and Confidential 29

30. Proprietary and Confidential 30

31. Proprietary and Confidential 31

32. Process Results
Process Results
• Draft report to the ACO on findings
Draft report to the ACO on findings
– Report is a DCMA document, NOT DCAA
– Does NOT come under the DCAA Rules of Engagement
– DCMA usually cooperative on getting contractor input
DCMA usually cooperative on getting contractor input
• No set time frame for issuance of determination by ACO
– Often issued first as a formal draft report with a request for a
reponse
– ACO will sometimes permit follow‐up review before issuing final
• Once issued, DFARS Business Systems Rule controls “clocks” for
the process
the process
• Pass Rate for First Time CPSR: <1%
Proprietary and Confidential 32

33. Typical CPSR Findings
Typical CPSR Findings
• File Findings
File Findings
– Inadequate Price Analysis
– High Dollar Value Public Law Violations
High Dollar Value Public Law Violations
– Selection of Subcontract Type
• Enterprise Findings
Enterprise Findings
– Organizational Structure
– L d Ti
Lead Time
– Accuracy of Data Call Response
Proprietary and Confidential 33

34. Typical File Findings
Typical File Findings
Inadequate Price Analysis
I d t Pi A l i
• Competition = Adequate Price Analysis. Lack of
Competition = Inadequate Price Analysis
• Noncompetitive Procurements Should Be
Negotiated.
• Everything Should Be Documented
Everything Should Be Documented
Proprietary and Confidential 34

35. Typical File Findings
Typical File Findings
Inadequate Price Analysis
I d t Pi A l i
• Documenting Competition
• Competition Among Resellers is a Competitive
Procurement
• ID/IQ Team Member Rates Must be Competitively
Evaluated (Using Target Rates)
• Using Best Value Procurements to Increase
Competition on SME, “COTR‐Directed” Procurements
Proprietary and Confidential 35

36. Typical File Findings
Typical File Findings
High Dollar Value Public Law Violations
Hi h D ll V l P bli L Vi l ti
• EEO Pre‐Award Clearance – Christian Doctrine
• TINA – NOT Christian Doctrine
• If 52.215‐12 & 13 are flowdowns, subcontractor certified
cost or pricing data is independent requirement.
cost or pricing data is independent requirement
• Noncommericial + Noncompetitive + >$700,000.00 +
52.215‐12/13 flowdown = Certificate of Current Cost or
Pricing Data Requirement
Proprietary and Confidential 36

37. Typical File Findings
Typical File Findings
Inadequate Documentation of Selection of
q
Subcontract Type / Determination of Accounting Adequacy
• FAR 16.104 Considerations Must Be Taken Into Account
FAR 16.104 Considerations Must Be Taken Into Account
• Documentation Requirements
• Other Than Firm Fixed Price Memorandum (FAR Part 16)
Other Than Firm Fixed Price Memorandum (FAR Part 16)
• Determination of Accounting System Adequacy
• Adequacy Depends of Contract Type Awarded
• Labor Hour Requirements Significantly Less Than Cost Reimbursable
• Flowdown 52.232‐7 and/or 52.216‐7 when appropriate
Proprietary and Confidential 37

38. Typical Enterprise Findings
Typical Enterprise Findings
• O
Organizational Structure That Supports
i ti l St t Th t S t
Procurement Autonomy / Authority
– The Procurement Structure Must Retain Structural
Integrity and Autonomy
– OOrganizational Structure Protects Autonomy
i i lS P A
– Question – Can An Operational Employee Fire a
Procurement Professional Without Oversight?
P tP f i l With t O i ht?
Proprietary and Confidential 38

39. Typical Enterprise Findings
Typical Enterprise Findings
Shared Service Model
Preferred
Proprietary and Confidential 39

40. Typical Enterprise Findings
Typical Enterprise Findings
Dotted Line Model
Acceptable
Proprietary and Confidential 40

41. Typical Enterprise Findings
Typical Enterprise Findings
Operational Subset
Discouraged
Proprietary and Confidential 41

42. Typical Enterprise Findings
Lead Time
Lead Time
What Does DCMA Expect?
• Enterprise Average of 30 Days Per Procurement
• Higher the Dollar Value, the Longer the Lead Time
• Industry Average is 3‐10 days. WHY?
Proprietary and Confidential 42

43. Typical Enterprise Findings
Lead Time: ASR Model
Lead Time: ASR Model
Proprietary and Confidential 43

44. Typical Enterprise Findings
Lead Time: Fixing The Patchwork Approach
Lead Time: Fixing “The Patchwork Approach”
• Replace Informal RFQ Requests With Purchasing
System Requisition (PSR)
• Document and Capture Lead Time
• Add Efficiency to Requisition Process
Add Efficiency to Requisition Process
Proprietary and Confidential 44

45. Typical Enterprise Findings
Lead Time: PSR Model
Lead Time: PSR Model
Proprietary and Confidential 45

46. Typical Enterprise Findings
Typical Enterprise Findings
• A
Accuracy of Data Call Responses
f D t C ll R
– CPSR Requires Accurate, Timely, Reliable Responses to
DCMA (Government) Requests for Information
DCMA (G t) R t f I f ti
– Effectively Include AND Exclude – Too Much
Information Is a BAD THING
Information Is a BAD THING
Proprietary and Confidential 46

47. Typical Enterprise Findings
Typical Enterprise Findings
• H D Mi t k H
How Do Mistakes Happen? “The Patchwork
? “Th P t h k
Approach”
– Accounting System Reports Used for Data Call
– Accounting System Is Not Required to Track
Purchasing System Data Points
P h i S D P i
– Manual Edits + 1000’s Lines of Data + Tight
Deadline/Panic = Mistakes
D dli /P i Mi t k
Proprietary and Confidential 47

48. Typical Enterprise Findings
Typical Enterprise Findings
• Data Call Mistakes Can Result in a finding of a
Data Call Mistakes Can Result in a finding of a
Significant Deficiency. How?
• Defense FAR Supplement (DFARS) 252.242‐7005(b),
pp ( ) ( ),
“Contractor Business Systems,” provides the
following definition:
• “‘Significant deficiency ’ in the case of a contractor
“‘Significant deficiency,’ in the case of a contractor
business system, means a shortcoming in the system
that materially affects the ability of officials of the
Department of Defense to rely upon information
produced by the system that is needed for
management purposes.
management purposes.”
Proprietary and Confidential 48

49. Typical Enterprise Findings
Typical Enterprise Findings
• D t C ll A
Data Call Accuracy: H t Fi “Th P t h
How to Fix “The Patchwork
k
Approach”
– Track Purchasing System Data Points In Accounting
System
– R i PO/S b
Revise PO/Subcontract Numbering Process
N b i P
– Track PSRs
Proprietary and Confidential 49

50. A Look Forward
A Look Forward

51. Near Term Outlook
Near Term Outlook
• DCMA h
DCMA has undertaken a large number of CPSRs in
d t k l b f CPSR i
2012
• DCAA is participating heavily, but may not
continue given agency workload
• DCMA current backlog estimated at more than
one year
Proprietary and Confidential 51

52. Longer Term Outlook
Longer Term Outlook
• Purchasing System status now tracked by DCMA in
Purchasing System status now tracked by DCMA in
Business Systems database
g
• Contractors meeting threshold for review will be shown
with a (purchasing) system status of “Unassessed” if…
– Never reviewed
–L t d
Last adequacy determination more than 3 years old
d t i ti th 3 ld
• Status of unassessed may adversely affect eligibility for
contracts that require an approved purchasing system
contracts that require an “approved” purchasing system
• Growing backlog of CPSRs may put many contractors in
exactly that position
Proprietary and Confidential 52

53. Resources
CPSR Flowchart (Word)
CPSR Flowchart (Word)
Procurement Policies Checklist (Excel)
Procurement Policies Checklist (Excel)
DCMA CPSR Checklist (Excel)
( )
or www.DCMA.mil
DCMA CPSR Review Guide
or www.DCMA.mil
Proprietary and Confidential 53

54. Questions?

55. Contact Us
Contact Us
8000 Towers Crescent Drive, Suite 950
Vienna, VA 22182
www.WatkinsMeegan.com
Rich Wilkinson, Director
(703) 847‐4435
(703) 847 4435
Rich.Wilkinson@WatkinsMeegan.com
Mark Hijar
(202) 288‐5405
Mark@ProcureLinx.com