Overview of the Contractor Purchasing
System Review (CPSR) Process
Tips for Small and Mid-Sized Contractor Survival
During the CPSR Process
Overview – What Will We Cover?
• What is a CPSR?
• Current CPSR Environment
• CPSR Process and Potential Outcomes
• Common Significant Deficiencies and Strategic Approaches
2
Your Presenter
• Founder of ProcureLinx LLC
• ProcureLinx Assisted with Nine (9) CPSRs in 2014 (Two in 2015)
• Creator of ProcureLinx Pro™ CPSR Audit Application
• Former …
• Subject Matter Expert, Federal Procurement Compliance
• General and Corporate Counsel
• Director of Compliance
• Director of Purchasing
• Sub/Contracts Administrator
3
CPSR Background
• FAR 44.3 and DFARS 252.244-7001 outline and enable the
Contractor Purchasing System Review Process ($25M+ in annual
revenue)
• Traditionally DCMA reviewed “Major Contractor Systems” with
DCAA reviewing smaller contractor systems.
• DCMA was given sole authority to perform CPSRs in Feb 2012
4
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.
5
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 can wait as long as 13 months for final reports.
• 90%+ of Contractors failed their CPSR if reviews were not completed
within 5 years of their last review.
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What Has Changed In The Last Five Years?
• JAN 2009: Senate Committee on Wartime Contracting Created
• 2010: Jean Labadini Named New CPSR Director
• 2010-2011: Public Laws Revised and Tightened; CPSR Environment Changes …
• FEB 2012: DFARS 252.242.7005; 252.244-7001 Enacted
• FEB-JUNE 2012: Lockheed Martin Hit With 2% Withhold on the F-35 Program
• AUG 2012: Jean Labadini Retires. SEP 2012: Aggression Mandate rescinded.
• JAN 2014: Day of Award Certifications Implemented
• MAY 2014: DFARS 252.246-7007 Enacted; 252.244-7001(19)(20)(21) modified
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What Happens During a CPSR? (FAR 44.303)
DCMA reviews three (3) main aspects of Contractor Purchasing Systems:
I.
Purchasing/Procurement Manual (How You Say You Manage the Supply
Chain)
II. Procurement Files (How You Actually Manage the Supply Chain)
III. Enterprise-Wide Supply Chain Management Initiatives (How Your System
is Administered and Maintained)
• Includes reviews of 60 purchasing manual elements, 24 compliance
elements and 40 individual file elements
These are Government Deliverables Subject to Inspection and Acceptance
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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
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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
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CPSR Process
•
First, DCMA finds you on their radar. How?
•
DCMA sends Risk Assessment Letter; Results put the contractor “in the queue”
•
Contractor is selected for CPSR. Date is set and Notice is sent to Contractor
•
60 days before review begins, Team Lead will send CPSR Questionnaire with
request for production of documents (including YOUR MANUAL).
•
Prior to commencement, DCMA will “check in” with other agency reps (Property,
SB, etc.) to get their impressions of contractor (including weak points to look for).
•
Review will take 2 weeks with 2-3 analysts.
•
CPSR Team will review files while onsite. Generally DCMA reviews 100% of files
with ceiling values >$500K with deceasing review volume within lower categories
($100-$500K; $25-$100K; $3K-$25K; <$3K)
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CPSR Process
•
30+ days after review, CPSR Team will submit Draft Report to contractor and
cognizant ACO. Draft Report will provide all significant and minor deficiencies as
well as team recommendations regarding system development.
•
Contractor will have 30 days to respond to Report. Corrective Actions should not
be proposed during this phase. What does that mean? What do you do during this
phase?
•
30+ days after response, ACO will make Final Determination on purchasing system
status. If significant deficiencies remain, 5% withhold will be recommended.
•
Contractor has 45 days to propose CAP. Acceptance of CAP reduces withhold to
2%.
•
System may be approved during follow-up CPSR.
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Potential Outcomes
• Approval. System approval without significant deficiencies means no followup CPSR for 3+ years. How long can a CPSR status remain Approved without
CPSR?
• Approval with Negotiated Deficiencies. If deficiencies remain but ACO
approves system, follow-up CPSR (and potential quarterly reporting) may be
implemented.
• Reduction to Unassessed. Contractors may be able to negotiate a “do
over” on CPSR depending on outcome of review. When is this available?
• 2% Withhold with Reporting and Follow-Up Review
• 5% Withhold with Reporting and Follow-Up Review
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What is a significant deficiency? [DFARS 252.244-7001(c)]
• One Significant Deficiency will fail a purchasing system.
• A significant deficiency is a deficiency that leads the government to doubt the
reliability of purchasing system output and/or system conformance with 24 system
requirements set forth in 252.244-7001(c)
• Common Significant Deficiencies:
• EEO
• TINA
• CAS
• SBSP
• Lack of Competition
• Inadequate Price Analysis / Source Justifications / Negotiations
• Usurpation of Procurement Authority / Lack of Lead Time / No Letter Subcontract
• Day of Award Certs (Debarment, DPAS, Payments to Influence)
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Usurpation of Procurement Authority
What Does “Usurpation of Procurement Authority” Mean?
• The Procurement Department must maintain Sole Authority to Bind the
Company to Performance within the Supply Chain.
• Operations May Not Impinge Procurement Authority in an Approved
Purchasing System.
• Evidence of Operational Impingement (“Usurpation”) of Procurement
Authority May Preclude Purchasing System Approval.
• Why?
• What counts as “evidence?”
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Usurpation of Procurement Authority
What Constitutes Evidence of Usurpation?
• Inadequate Lead Time – Requisitions are “held” by requesters to
increase pressure on Procurement to release noncompliant files
AND/OR
• Requisitions are submitted with both sole source justifications and
quote(s) from the sole sourced vendor AND/OR
• Inadequate Competition / Price Analysis / Negotiations PLUS
• Negative Lead Times.
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Avoiding Potential Findings – Public Law Compliance
•
EEO Pre-Award Clearance:
$10M + Performance is either by an American
Contractor and/or will be performed in the United States. Compliance = PreAward Clearance/Registry
•
TINA: $700K + 52.215-13 FD + TINA applied to Prime + Noncompetitive SUBK +
Noncommercial SUBK. Compliance = Cost Analysis + Cert of Current Cost or
Pricing + FD
•
CAS: $700K + 52.230 FD + Noncommercial + Award to LB. Compliance =
Disclosure +FD + Notice to ACO within 30 days of SUBK Award.
•
SBSP: $650K + 52.219-9 FD + Noncommercial + Award to LB with subs.
Compliance = SBSP
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Avoiding Potential Findings – Public Law Compliance
•
Berry Amendment / Specialty Metals: $150K with FD. Compliance = FD +
Documentation of Sub Cert of Compliance (when applicable)
•
Day of Award Cert 1 – Anti-Lobbying Act: $150K. Compliance = Cert
•
DPAS: $75K + Rated Order. Compliance = Rating + 52.211-15 in Full Text + Written
Acknowledgement (10 working days for DX; 15 for DO)
•
Day of Award Cert 2 – Debarment: $30K non-COTS. Compliance = Cert
•
Executive Comp Reporting: $25K + 52.204-10 FD + Sub not Exempt.
Compliance = fsrs.gov upload
•
Counterfeit Parts Compliance: All electronic parts procurements under prime
contracts with DFARS 252.246-7007 FD. Compliance = P&P. For now. File Reqs?
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Avoiding Potential Findings – Source Selection and Competition
•
DCMA expects 40-70% competition within contractor supply chain
•
FAR 52.244-5 NOT FAR PART 6 controls contractor competition.
•
Technically Qualified Contractor + Competitive Price Analysis = Documented
Competition under 52.244-5. How is that different than FAR Part 6?
•
When are you “supposed to” document competition?
•
When market research shows two or more qualified contractors. You did
market research, right?
•
Generally available commercial items. Does the OEM have resellers? Impact
to Counterfeit Parts compliance?
•
ID/IQ Team Competitions. How do we document?
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Avoiding Potential Findings – Noncompetitive Source Justifications
•
If there is no competition, DCMA expects a GREAT source justification.
•
Great Source Justification (SJ) = Correct Selection of Compliant Justification +
Compelling Narrative + Clear Supporting Documentation.
•
What is the effect of 52.244-5 applying vs. FAR 6.3?
•
Justifications that REQUIRE market research: “Only Contractor Qualified;”
“Unique Qualifications;” and “Engineering Directed.”
•
Who is the Customer in “Customer Direction?”
•
What impact does incumbency have on available competition?
•
What is a TRUE “Unusual and Compelling Urgency/ Emergency” procurement?
•
What isn’t? Hint – Who caused the urgency?
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Avoiding Potential Findings – Price Analysis and Negotiations
•
Competition is the first and highest priority price analysis technique [FAR 15.404-
1(b)(2)(i)].
•
Formal price analyses and documented source justifications are required for
noncompetitive procurements [DFARS 252.244-7001(c)(9)].
•
Lack of competition creates need for tight source justifications and convincing
price analysis. Lack of either creates additional findings when competition not
present.
•
Contractors are charged with following the workflow set forth in FAR 15.4041(b)(2) when selecting a price analysis technique. What does that mean?
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Avoiding Potential Findings – Price Analysis and Negotiations
•
DCMA expects several components in a formal price analysis including:
•
Background of Procurement
•
Summary of Price Analysis Technique Selected
•
Explanation of Analysis
•
Determination that either (a) pricing was F&R or (b) Negotiation Required.
•
Price Analysis Algorithm: (P)rice / (C)omparison ≤ 1.0. What does that mean?
•
Supporting Documentation Supporting the Comparison is required. The lower
down the list, the higher the documentation requirements.
•
DCMA expects a certain level of negotiation attempted on noncompetitive
procurement activities. How do you document?
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Avoiding Potential Findings – Commercial Item Determinations
•
There is no such thing as an “obviously commercial item.” If a contractor wants
to take advantage of regulatory efficiencies applicable to commercial item
procurements commerciality must be documented including support.
•
Efficiencies include exemptions from TINA, CAS, SBSP, Foreign Notice and
Debarment Cert (COTS only) requirements. What if no CID in file?
•
•
What are the key inquiries when evaluating commerciality?
•
Who was it made for?
•
What was it made to do?
•
Is there an inventory for order (COTS)?
What is a minor modification?
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Takeaways
•
CPSR Success is not an option (if you want to win and retain large contracts).
•
“Agile Contractors” (e.g. small contractors who can reduce procurement lead
time via avoidance of regulatory requirements) are a disappearing option per
Congressional directive. Why are KOs phasing out this cost-saving approach?
•
DCMA knows during a CPSR if management supports purchasing system
compliance; the files don’t lie.
•
Maintenance of purchasing system approval requires continuous oversight,
including training and internal review [DFARS 252.244-7001(c)(18)]; BUT
•
Maintaining an approved purchasing system will increase effective fee while
simultaneously reducing overall contract proposal cost.
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Thank You!
Questions?