CPSR: Review Topics Inside and Outside The
Procurement File
Examining Common Contractor Mistakes
Exploring Innovative Pre-Review Solutions
Introductions
Your Instructor
• Founder of and Lead Consultant for ProcureLinx LLC
• Creator of ProcureLinx Pro™ Web-Enabled CPRS Solution
• Former …
• Subject Matter Expert, Federal Procurement Compliance
• General and Corporate Counsel
• Director of Compliance
• Director of Purchasing
• Sub/Contracts Administrator
Introductions
Overview – What Will We Cover?
• What is a CPSR?
• Recent Changes in the CPSR Process and Environment
• Four Common “File” Findings and Remedies
• Three Common “Enterprise” Findings and Remedies
Introductions
What is a CPSR?
A Contractor Purchasing System Review (CPSR) is a comprehensive
review of a contractor’s enterprise system for purchasing goods and
services on the open market for performance under certain types of
contracts issued under the authority of FAR Part 15 by agencies of the
federal government.
CPSR Background
• FAR 44.3 and DFARS 252.244-7001 outline and enable the
Contractor Purchasing System Review Process ($25M+ in annual
revenue)
• Early on, DCMA reviewed “Major Contractor Systems” with DCAA
reviewing smaller contractor systems.
• DCMA was given sole authority to perform CPSRs in Feb 2012
5
Introductions
What Happens During a CPSR? (FAR 44.303)
DCMA reviews three (3) main aspects of Contractor Purchasing Systems:
• Purchasing/Procurement Manual (How You Say You Manage the Supply
Chain)
• Procurement Files (How You Actually Manage the Supply Chain)
• Enterprise-Wide Supply Chain Management Initiatives (How Your System is
Administered and Maintained)
These are Government Deliverables Subject to Inspection and Acceptance
The Process
Impact of a CPSR [FAR 52.244-2]
DCMA Acceptance of System Deliverables Means:
• No “Significant Deficiencies”
• Elimination/Significantly Reduction of AN&C
• Higher Win Rate on Contracts
• Lower Cost / Higher Effective Fee
• Ability to bid on Contracts requiring an approved system
7
The Process
Impact of a CPSR [DFARS 252.242-7005(d)]
DCMA Rejection of System Deliverables Means:
• One or More “Significant Deficiencies”
• Significant Oversight and Monitoring (AN&C; Repeat CPSRs; Quarterly
Reports)
• Preliminary Disqualification from Bidding on Prime Contracts
• 5-10% Withhold on Payments Due under DoD Prime Contracts
• ACO advance consent or approval could cause significant delays in meeting
customer requirements
8
Previous CPSR Environment (Prior to 2009)
• CPSRs were a collaborative process between CPSR Team Leads and
Contractors.
• The Selection of CPSR Team Leads based on geographic placement led to
long-standing relationships between DCMA and Contractors.
• Generally 1-2 person CPSR Teams performed onsite reviews for 1-2 weeks
(depending on contractor size) with final reports within 30 days after
conclusion of review.
• 75-92% of Contractors failed their CPSR if reviews were not completed within
5 years from last review.
9
Current CPSR Environment (Post 2009)
• CPSR Teams are rotated amongst all DCMA Branch Offices.
• Generally 2-4 person CPSR Teams performing onsite reviews for at least
two weeks with occasional participation of DCAA (cost/price analysis)
• CPSR Team findings are evaluated by a Review Board.
• Contractors currently wait as long as 13 months for final reports.
• >98% of Contractors failed their CPSR if reviews were not completed
within 5 years of their last review.
10
Current Environment
What Has Changed In The Last Three Years?
• JAN 2009: Senate Committee on Wartime Contracting Created
• 2009: Senate Committee on Wartime Contracting Interim Commission Report
• 2010: Jean Labadini Named New CPSR Director
• 2010-2011: Public Laws Revised and Tightened; CPSR Environment Changes …
• FEB 2012: DFARS 252.242.7005 Enacted
• FEB-JUNE 2012: Lockheed Martin Hit With 2-5% Withhold on the F-35 Program
• AUG 2012: Jean Labadini Retires; New Acting CPSR Director …
Introductions
Incredibly Common File Findings
What Is DCMA “Finding” During CPSRs?
• Lack of Competition
• Inadequate/Insufficient Price Analysis
• “Missing” File Documentation (That Cause Public Law Trouble)
(Inadequate Process for Awarding Other Than FFP Subcontracts)
First File Finding: Competition
• DCMA expects 60-70% competitive procurements.
• Manufacturing Contractors average 40-70%
• Service Contractors average 3-25%
• Lack of Competition Can Lead to Several Additional Findings
• Price Analysis – Why?
• Insufficient Noncompetitive Justifications
• Lead Time
• Usurpation of Procurement Authority
First File Finding: Competition
How does DCMA define Competition During a CPSR?
• ADEQUATE PRICE COMPETITION
WHY?
• FAR 6.3 vs. 52.244-5
• FAR Part 6 and CICA
• FAR 52.244-5 Limitations on Competition
First File Finding: Competition
Result of Application of 52.244-5 as Competition Metric:
• Technical “Competition” Without Price
Competition
PROCUREMENT IS CONSIDERED NONCOMPETITIVE
• No Technical “Competition” With Price
Competition
PROCUREMENT IS CONSIDERED COMPETITIVE
First File Finding: Competition
How Does This Concept Impact Your Procurements?
1. ID/IQ Teams Negotiated Against Target Rates
• Subcontractor Rates are Compared to Contractor “Target
Rate” Developed as an Estimated “Price to Win”
•
Price Analysis – 15.404-1(b)(2)(v) (Noncompetitive)
•
All Team Member Subcontract Rates analyzed using this
technique will likely be determined Noncompetitive Awards by
CPSR Team
First File Finding: Competition
What’s the Remedy?
Incorporate Target Rates Into A Competitive Rate
Analysis
•
If Target Rate Lower Than Range – “Competitive Plus” Analysis
•
If Target Rate Within Range – Pre-Negotiation Position
•
Target Rate Higher Than Range?
First File Finding: Competition
2.
Noncompetitive SME Procurements
• Subcontractor Selected on Noncompetitive Basis Per COTR
“Direction”
•
Check the Source Justification
• “Customer Direction,” “Only Contractor Qualified,”
“Expert Services”
• No/Weak Market Research
First File Finding: Competition
How Do You Fix it?
Best Value / Technical Trade-Off Procurement
• Develop the SOW based on Customer Requirements
• Source Amongst Technically Qualified Offerors
• Valid “No Bid”
• Evaluating Technical Qualifications vs. Price – What
Constitutes a “Substantial Factor?”
• Best Value or LPTA w PQ?
First File Finding: Competition
3. “Noncompetitive” Part Procurements
• Parts Sourced Without “Functional Equivalent” Option
Provided to Offerors
•
FAR 6.302-1(c) says this is Noncompetitive Procurement
•
So What?
•
Compete in accordance with 52.244-5 and Get Credit for a
Competitive Procurement During Your CPSR
Second File Finding: Price Analysis
•
Often Accompanies “Lack of Competition” Finding
•
Where Does the “Price Analysis Requirement” Come From?
•
Why is it SO IMPORTANT?
•
What is DCMA Looking For?
• Correct Use of Price Analysis Technique
• Detailed Narrative
• Analysis NOT Justification
• Effective Negotiations
The Mathematics of Price Analysis
The Price Analysis Algorithm
Just A Little Bit of Algebra …
Okay … So What Do Those Letters Mean?
Input (Subcontractor Proposal)
Constant (Evaluation Criteria)
Dependent Variable (Delta)
Learning to Love Algorithms
Hold On … How the @$#*& Does This Work?
Learning to Love Algorithms …
You Didn’t Even Know You Were Doing Algebra, Did
You?
Price Analysis Requirements
“Tell the Story” by Including the Following:
• Summary Background of the Procurement
• Summary of Analysis Technique and Selection Process
• Narrative Description of Basis of Comparison
• Bid / Comparison Matrix (SHOW YOUR WORK)
• Conclusion (F&R / Subject to Further Negotiation)
Climbing the Decision Tree
• The FAR Provides Criteria: 15.404-1(b)(2)
• Criteria is Prioritized [15.404-1(b)(3)]
• Decision Tree vs. Checklist
• Why It Matters
Price Analysis vs. Price Justification
• Price Justifications are not permitted by the FAR, DCMA or
DCAA. What is a Justification?
• During a Justification, the Price Proposed is Accepted
Before the Evaluation is Performed. As a result, Fair and
Reasonable Pricing Has Not Been Established.
A Little More Algebra …
The Price Justification Algorithm
A Little Bit More Algebra …
Okay … So What Do THOSE Letters Mean?
Input (Subcontractor Proposal)
Dependent Variable (Evaluation Criteria)
A Constant Is Not Included In Equation
Negotiations
What Happens when Z > 1.0
A Negotiation Accomplishes One of Two Primary Goals:
• Downward Adjustment of Subcontractor Proposal (XN)to
Conform with Original Evaluation Criteria (Y)
and/or
• Establishment and Documentary Support for
Adjustment(s) to Original Evaluation Criteria (YN)
The Mathematics of Negotiations
The Negotiation Algorithms
Just A Little Bit (More) Algebra …
Negotiated Subcontractor Rate
Constant (Evaluation Criteria / PreNegotiation Position)
Subcontractor Rate
Negotiated Criteria
Third File Finding: “Missing” Compliance
Documentation
• Centralized Representations and Certifications
• Contractor Reasoning: Streamlined Files
• CPSR Risk: CPSR Team does not look “outside of the file”
• Effect: 4+ Public Law Violations
•
Debarment Cert
•
Anti-Lobbying Act
•
Anti-Kickback Act
•
CAS Certification
Third File Finding: “Missing” Compliance
Documentation
•
“Common Sense” Determinations of Commerciality
•
Contractor Reasoning: Reduction of Duplicative Documentation –
Do obviously COTS items REALLY need it?
•
CPSR Risk: ANY Procurement Decision requires documentation.
Obvious Equals Easy, Not Nothing.
•
Effect: Public Law and Regulatory Violations
•
CAS
•
TINA
•
Small Business Subcontracting Plan
•
Foreign Subcontractor Notice
Bonus Finding:
Awarding Other-Than-FFP Subcontracts
•
Where Did The Increased Emphasis on Award of Other-Than-
FFP Subcontracts Come From?
• Fraud, Waste and Abuse Investigations
• Public Law (52.244-2)
• DCAA
• What Do You Need to Know?
Conclusion of Part One
Questions?
Introduction
Surprisingly Sneaky Enterprise Findings
What Does DCMA Expect From Your Enterprise System?
• Appropriate Organizational Structure and Authority Matrix
• Adequate Lead Time
• Accurate Data Call Responses
First Enterprise Finding:
Organizational Structure / Signature Authority
What Does DCMA Expect From Your Org Structure?
• The Procurement Structure Must Retain Structural Integrity
and Autonomy
• Organizational Structure Protects Autonomy
• Question – Can An Operational Employee Fire a
Procurement Professional Without Oversight?
First Enterprise Finding:
Organizational Structure / Signature Authority
Shared Service Model
Preferred
CCO / CFO
Subcontracts
Pricing
Purchasing
First Enterprise Finding:
Organizational Structure / Signature Authority
Dotted Line Model
Acceptable
Subcontracts
CCO / CFO
Operational
Division
Pricing
Purchasing
First Enterprise Finding:
Organizational Structure / Signature Authority
Operational Subset
Discouraged
Subcontracts
Operational Division
Purchasing
First Enterprise Finding:
Organizational Structure / Signature Authority
How Does DCMA Review Signature Authority?
• Approval Chain During Requisition Process
• Authority Thresholds for Procurement
Administration
• Documented Increases In Warrant
Second Enterprise Finding: 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?
Second Enterprise Finding: Lead Time
Common Issue – “The Patchwork Approach”
• Contractors Use Accounting System Requisitions
(ASRs) for Procurement File Requisition Requirement
• ASR Commits Funding; Does Not Initiate a
Procurement Action
• 48-72 Hour Processing Goals
Second Enterprise Finding: Lead Time
ASR Model
RFQ Request (Email)
Award Decision
Bid Request/Receipt
Evaluation
Requisition
Award
Second Enterprise Finding: 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
Second Enterprise Finding: Lead Time
PSR Model
PSR
Award Decision
Bid Request/Receipt
Evaluation
ASR
Award
Third Enterprise Finding: Data Call Accuracy
What Does DCMA Expect?
• Accurate, Timely, Reliable Responses to DCMA
Requests for Information
• Effectively Include AND Exclude – Too Much
Information Is a BAD THING
Third Enterprise Finding: Data Call Accuracy
What Can Happen?
• Mistaken / Repeatedly Revised Data Call
Responses Can Lead to a Significant System
Deficiency.
• One Significant Deficiency Fails a Purchasing
System
Third Enterprise Finding: Data Call Accuracy
Significant Finding? How?
Defense FAR Supplement (DFARS) 252.242-7005(b), “Contractor Business
Systems,” provides the following definition:
“‘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.”
Third Enterprise Finding: Data Call Accuracy
What Happens? “The Patchwork Approach”
• Accounting System Reports Used for Data Call
• Accounting System Is Not Required to Track
Purchasing System Data Points
• Manual Edits + 1000’s Lines of Data + Tight
Deadline/Panic = Mistakes
Third Enterprise Finding: Data Call Accuracy
How to Fix “The Patchwork Approach”
• Track Purchasing System Data Points In Accounting
System
• Revise PO/Subcontract Numbering Process
• Track PSRs
Conclusion of Part Two
Questions?
Thank You!
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