GC-208 Preparing for the CPSR – A Practical Guide Christine Williamson, Member, Watkins Meegan LLC Rich Wilkinson, Director, Watkins Meegan LLC

Background

Where to Start (And, It’s Not Where You Think)

Procurement Policies and Procedures

The Process

A Look Forward

Questions

Session Content

Background

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 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

Purchasing System adequacy determination is the sole purview of the Administrative Contracting Officer (ACO)

Background

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)

The remaining three are reviewed (not audited) by DCMA Purchasing(3)

Government Property(2)

Earned Value Management(2)

(1) Always applicable (2) Applicable only when system is required (3) Applicable, but reviewed only above a threshold or on request

The Business Systems Rule

Authority for adequacy determinations vested solely in the ACO

DCAA issues findings and can recommend, but not determine

DCAA will report findings in subsequent reports as if it was making a determination – nearly the same effect

Threshold for Purchasing System review currently set at $25M in ADV (administrative and subject to revision without notice)

“Review on request” (by PCO) very common in recent experience

More on Business Systems

Where to Start

The Business Systems Rule sets forth 24 system criteria that must be present in all contractor purchasing systems in order for a purchasing system to be “acceptable”

(see DFARS § 252.244-7001(a))

DCMA CPSR “checklist” contains 55 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

The Adequacy Criteria

Organization plan that establishes clear lines of authority and responsibility;

Policy to ensure that all purchases are based on authorized requisitions and include documentary support for vendor selected, price paid, and files which are subject to Government review;

Internal audits or reviews, training, and policies for the purchasing department to ensure the integrity of the system

General Company Policies

System description including policies, procedures, and purchasing practices that comply with the requirements of the FAR and DFARS

Organizational and administrative structure to ensure effective and efficient procurement of requirements at the best value from responsible and reliable sources

General Procurement Policies

Procurement Policies and Procedures

Procurement Planning/Market Research (2 Criteria)

Conflict of Interest/Misconduct (1 Criterion)

Competition (2 Criteria)

Negotiated Procurement (1 Criterion)

Cost or Pricing Data and Price Reasonableness (5 Criteria)

Source Selection (3 Criteria)

Contract Formation and Content (3 Criteria)

Foreign Purchasing and Performance (3 Criteria)

Procurement Administration (4 Criteria)

Adequacy Criteria Deep Dive

Apply a consistent make-or-buy policy that is in the best interest of the Government

Ensure proper type of contract selection and prohibit issuance of cost-plus-a-percentage-of-cost subcontracts

Procurement Planning/Market Research

Enforce adequate policies on conflict of interest, gifts, and gratuities, including the requirements of the Anti-Kickback Act

Conflict of Interest/Misconduct

Use competitive sourcing to the maximum extent practicable, and ensure debarred or suspended contractors are properly excluded from contract award

Require management level justification and adequate cost or price analysis, as applicable, for any sole or single source award

Competition

A practice of documenting negotiations in accordance with the FAR requirements for negotiation memoranda

Negotiated Procurement

Evaluate price, quality, delivery, technical, and financial capabilities of competing vendors to ensure fair and reasonable prices Perform cost or price analysis and technical evaluation for each proposal or quote to ensure fair and reasonable subcontract prices Document negotiations in accordance with FAR 15.406-3 Take discounts, including cash discounts, trade discounts, quantity discounts, rebates, freight allowances, and company-wide volume discounts Establish and maintain procedures to ensure performance of adequate price or cost analysis on purchasing actions

Cost or Pricing Data and Price Reasonableness

Use competitive sourcing to the maximum extent practicable, and ensure debarred or suspended contractors are properly excluded from contract award

Evaluate price, quality, delivery, technical capabilities, and 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 priced and from sources that meet quality requirements

Source Selection

Ensure purchase orders and subcontracts contain all flowdown clauses, including terms and conditions, and any other clauses needed to carry out the requirements of the prime contract

Notify the Government of the award of all subcontracts that contain flowdown clauses that allow for Government audit of subcontracts, and ensure the performance of audits of those subcontracts

Ensure purchase orders and subcontracts contain mandatory and applicable flowdown clauses, as required by the FAR and DFARS

Contract Formation and Content

Ensure compliance with all relevant domestic preference requirements

Ensure compliance with export control regulations

Ensure agreements are not executed with prohibited parties

Foreign Purchasing and Performance

Maintain subcontract surveillance to ensure timely delivery and procedures to notify the Government of potential subcontract problems that may impact delivery, quantity, or price Document and justify reasons for subcontract changes that affect cost or price Ensure that proper types of subcontracts are selected, and that there are controls over subcontracting, including oversight and surveillance of subcontracted effort Establish and maintain procedures to timely notify the Contracting Officer, in writing, of excessive pass-through concerns

Procurement Administration

The Process

Begins with a request by the ACO to perform a review 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)

One of the participants is often from DCAA

Process Basics

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

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

No one “passes” on the first try

Process Results

A Look Forward

DCMA has undertaken a large number of CPSRs in 2012

DCAA is participating heavily, but may not continue given agency workload

DCMA current backlog estimated at more than one year

Near Term Outlook

Purchasing System status now tracked by DCMA in Business Systems database

Contractors meeting threshold for review will be shown with a (purchasing) system status of “Unassessed” if… Never reviewed Last adequacy determination more than 3 years old

Status of unassessed may adversely affect eligibility for contracts that require an “approved” purchasing system

Growing backlog of CPSRs may put many contractors in exactly that position

Longer Term Outlook

CPSR Flowchart (Word)

DCMA CPSR Checklist (Excel) www.DCMA.gov or

Procurement Policies Checklist (Excel)

CPSR Review Guide www.DCMA.gov or

Resources

Questions?

10/2/2012

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8000 Towers Crescent Drive Tysons Corner, VA 22182 www.WatkinsMeegan.com Christine Williamson, Member (703) 847-4412 Christine.Williamson@WatkinsMeegan.com Rich Wilkinson, Director (703) 847-4435 Rich.Wilkinson@WatkinsMeegan.com

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