A Guide to CPSR
A contractor's purchasing system must be reviewed in accordance with FAR Part 44.302 when it is anticipated that sales to the government will exceed $25 million over the following 12 months. The barrier was increased to $50 million under DFARS 244.302.
It is crucial for your business to be organized. This Guide to CPSR and Federal Procurement Compliance will assist you and your business in getting ready if this is your first CPSR.
A CPSR is what?
A purchasing system review is the procedure by which DCMA (Defense Contract Management Agency) reviews and evaluates how your company is spending government money and how compliant your company is with all relevant rules, regulations, policies, and laws. This is done in accordance with FAR 44.3 and DFARS 252.244-7001. In the end, it is your duty as the contractor to manage the government's funds responsibly.
The Administrative Contracting Officer, or ACO, receives all the important information from DCMA's evaluation in order to approve, deny, or withdraw approval of your purchasing system. The future of your company depends on your ability to prepare for the CPSR process and understand it.
The Purchasing Approval System
The term "system" or "S" in the contractor buying system review (CPSR) refers to the entire team of individuals, procedures, and equipment utilized to spend government funds and, by extension, taxpayer funds.
Policies and procedures, ethics, documentation, training, personnel, software tools, signing authority, and self-assessments are crucial elements of a good "system". The system includes all steps in the purchasing process, including requisition, supplier search, pricing analysis and negotiation, purchase orders, receipts, payment, and much more. The CPSR looks at the entire framework and procedure of purchasing goods and services. Your purchasing system is regarded as approved if it has passed the CPSR.
What makes the CPSR essential
If your business passes a CPSR, the government will view it as more trustworthy. If your organization has a purchasing system that has been approved, it complies with all applicable laws and guidelines. In this already crowded and competitive government contractor market, having CPSR approval might set your business apart from the competition.
Also, you can have contracts that stipulate that your business must have a recognized purchasing system.
When does a CPSR take place?
A CPSR audit is not requested by businesses. Instead, the Administrative Contracting Officer conducts a risk assessment if your company has qualifying sales to the government that are anticipated to surpass the threshold in the following 12 months (ACO). To decide if a review is necessary, the ACO considers a number of variables, including historical performance, contract complexity, and subcontractor value. If the ACO determines that a CPSR is warranted in terms of both time and expense, they will recommend it.
Variety of CPSRs
There are four different types of reviews, it is necessary to note before going into more depth about the CPSR procedure. They are listed below:
Initial Review: If your purchasing system has never been reviewed, you will get an initial review. This evaluation of a contractor's purchasing system is new.
Comprehensive Review—Subsequent reviews of your purchasing system will be of the comprehensive review type if they have previously been approved by the CPSR Group. These reviews are ongoing and are carried out every three (3) years.
A particular review will be conducted on purchasing systems that have discovered certain flaws. This kind of examination looks at areas that could use improvement.
Follow-up reviews are carried out if it is found that your purchasing system has serious flaws or if the ACO disapproves of it. This assessment confirms that all necessary remedial steps have been carried out.
How Can I Predict When a CPSR Will Arrive?
A pre-review questionnaire and notice of the imminent review, normally 60 to 90 days in advance, will be sent to your company by DCMA. The questionnaire will request details pertaining to the last 12 months, such as:
Identification of prime contracts containing FAR 52.244-2, information on government sales, different contract types, and the proportion of sales to the government in overall sales;
Amount of purchase orders and subcontracts, valued in dollars, over the previous year (the "Universe").
It is significant to highlight that acquiring this information can be a highly challenging and time-consuming task if you do not have a mechanism for producing the "world" of subcontracts and purchase orders at any one time.
You could have an in-person or online CPSR review. All correspondence and documents for virtual CPSRs must be moved online using services like DoD SAFE or another secure website. The analysts will need a space to operate from because in-person reviews will take place there.
On the first day of the review, there is an entrance briefing for all CPSR kinds. During the entrance briefing, each team member is introduced, and initial conversations take place. During these conversations, there will be a review of the future schedule of activities, an introduction to the review's components, and an explanation of the procedure to remedy any shortcomings found. The CPSR procedure as a whole is intended to be as upfront and open as feasible.
There are daily briefings held at the conclusion of each day. Daily inquiries and requests for information will be made by email. You have 24 hours to respond to those demands for supporting documents. Nonetheless, the DCMA analysts will be able to do that particular action more quickly the sooner you can give them the information. On the last day of the review, there is an exit briefing, also known as an out brief. The exit brief should recapitulate the information that was covered in the daily out briefs and offer some initial suggestions that will be included in the comprehensive report that is delivered to the ACO.
The analyst will submit their CPSR report to the ACO after the review. The ACO will publish a final determination if there are no flaws. In the event that defects are discovered, the ACO will send the contractor a Level II Correction Action Request (CAR), to which the contractor has 30 days to reply with a Corrective Action Plan (CAP). The ACO will close the Level CAR and make its final determination approving your purchasing system if the CAP sufficiently addresses the corrections.
The ACO will issue an Initial Decision Letter listing any open defects, giving the contractor an extra 30 days to correct them, if the CAP does not sufficiently address the deficiencies. The ACO will either accept or disapprove the contractor's purchasing system depending on how the contractor responds to the First Determination Letter.
The contractor has 45 days more from the date of the Final Decision Letter to fix any remaining issues or submit a Corrective Action Plan (CAP) that the ACO would accept, including milestones and steps to fix the issues. The CPSR team will carry out a special or follow-up review if the CAP is approved by the ACO to make sure it has been put into practice.
Prerequisites for CPSR
A "acceptable purchasing system" is one that satisfies the requirements outlined in DFARS 252.244-7001. (c). Although the CPSR Handbook currently lists thirty (30) items, DFARS 252.244-7001(c) lists twenty-four (24). These are what they are:
have a sufficient system description that complies with the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), including rules, processes, and purchasing practices;
Be certain that all applicable purchase orders and subcontracts include all flow-down clauses, such as terms and conditions and other clauses required to fulfill the obligations of the prime contract;
maintain a structure that outlines responsibilities and power clearly;
To support vendor selection, price paid, and the documentation of subcontract/purchase order files that are subject to government scrutiny, make sure that all purchase orders are based on authorized requisitions;
Create and maintain sufficient records to offer a thorough and accurate history of purchasing transactions to back up the choice of vendors and the costs incurred;
adopt a consistent "make-or-buy" approach that serves the government's interests;
As much as possible, use competitive sourcing, and make sure to correctly exclude suspended or barred companies from contract awards;
To ensure fair and reasonable prices, compare the price, quality, delivery, technological capabilities, and financial capabilities of rival vendors;
Each solo or single source award must be supported by proper cost or pricing analysis and rationale from management;
To ensure fair and acceptable subcontract prices, do timely and adequate cost or price analysis and technical evaluation for each subcontractor and supplier proposal or quote;
discussions for documents in line with FAR 15.406-3;
Look for, accept, and record all feasibly priced discounts on purchases, including cash rebates, trade discounts, quantity discounts, rebates, freight allowances, and company-wide volume discounts;
Make sure the right contract type is chosen, and forbid issuing cost-plus-a-percentage-of-cost subcontracts;
Continually monitor subcontracts to guarantee timely delivery of a quality product and follow protocols to alert the government to any potential issues that might affect delivery, quantity, or pricing;
Reasons for subcontract adjustments that influence cost or price should be documented and justified;
Inform the government of the award of any subcontract that has a clause allowing government auditing under the FAR and DFARS and make sure that audits are carried out;
Implement appropriate rules against conflicts of interest, gifts, and gratuities, including those outlined in 41 U.S.C. chapter 87, "Kickbacks";
To protect the integrity of the purchasing system, conduct internal audits or management reviews, provide training, and maintain rules and procedures for the purchasing department;
To ensure that purchase orders and subcontracts contain mandatory and applicable flow down clauses, as required by the FAR and DFARS, including terms and conditions required by the prime contract and any clauses required to carry out the requirements of the prime contract, including the requirements of 246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, if applicable; establish and maintain policies and procedures for this purpose;
Include the requirements of 246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, if applicable, and provide an organizational and administrative structure that ensures effective and efficient procurement of required quality materials and parts at the best value from responsible and reliable sources;
Establish and maintain selection procedures to guarantee the most dependable and responsible sources for supplying the necessary high-quality parts and materials, and to encourage competitive sourcing among reputable suppliers so that purchases are affordable and made from sources that satisfy contractor quality requirements, including those of 246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, and the item marking requirements of 252.211-7003
Create and maintain procedures to guarantee accurate price or cost analysis is performed while making purchases;
Create and uphold policies to assure the selection of the appropriate subcontracts and the existence of subcontracting controls, such as oversight and surveillance of subcontracted work;
Establish and maintain procedures to ensure that the Contracting Officer is promptly notified in writing if— (i)The Contractor increases the amount of subcontract effort after award to a level that exceeds 70% of the total cost of the work to be done under the contract, task order, or delivery order. Or (ii) Any subcontractor changes the amount of lower-tier subcontractor effort after award such that it exceeds 70% of the total cost of the work to be performed under its subcontract. The notification shall identify the revised cost of the subcontract effort and shall include verification that the Contractor will provide added value. The notification must include verification that the subcontractor will add value in relation to the work to be done by the lower-tier subcontractor, as well as the revised cost of the subcontract effort (s).
Be ready for the CPSR team to investigate other aspects of procurement that aren't covered by the DFARS, like buyer lead time, split awards, and commercial item determinations.
Getting Ready for a CPSR
You must, first and foremost, have policies and procedures that specify guidelines for regular procurement operations and legal and regulatory compliance.
1) Consistently evaluate the policies and procedures of your business.
In order to guarantee that the Government's interests are safeguarded and contracting criteria are followed, your company's policies and procedures should be routinely evaluated and maintained. The majority of the findings during a CPSR will be based on your procurement documentation, which is based on the policies and processes of your firm.
Questions to Ponder
A. Are the P&P's regulatory thresholds up to date and current?
B. Are all 24 of the system requirements properly addressed by the P&Ps?
B. Can employees easily access the P&Ps?
C. Do P&Ps align with daily operations?
2) Verify the implementation of standardized documentation procedures.
Each paperwork related to a procurement is treated independently. The transaction's procurement history should be included in this file. Each procurement transaction will demonstrate consistency and continuity with regard to corporate rules and procedures. The procurement file's lack of consistency will give rise to opportunities for compliance errors and CPSR conclusions. Every procurement professional constantly follows all the requirements thanks to standardized documentation procedures.
Also, this will help your business save time and money.
Questions to Ponder
A. How well do the details in our procurement file correspond to those in our P&Ps?
A. Do our records correspond to the existing thresholds?
C. Does everyone in the firm use the same forms and formats? If not, is there a single location where all procurement forms and templates can be found?
D. Do our price analysis and cost analysis procedures differ?
C. Do we have a list of the kinds of records that must be in the procurement documentation files?
3) Provide Employees with Enough Training
Until every member of your staff has received training on government purchasing rules, you cannot be sufficiently prepared for a CPSR. You will need to design a constant training schedule to keep your personnel up to date because the requirements change frequently. The best method to make sure your employees has all the knowledge they need to perform their duties successfully is to hold annual training sessions.
Training should cover topics including best practices, market trends, and purchasing requirements. Do not forget to record everything of your training, including who attended. Keep track of the annual training schedules, sign-in papers, and other documentation. This will be required of you during a CPSR review.
Questions to Ponder
A. Do staff members receive training on the DFARS's public law requirements?
B. Do we have documentation to support the regularity of employee training?
B. Do we offer instruction when rules change?
4) Clearly delineate the procurement department from other offices.
There should be an organizational structure with distinct lines of authority and responsibility. Program managers, engineers, and other non-procurement employees shouldn't be able to place orders or choose where they should be put. The procurement team is in charge of ensuring the effective and efficient acquisition of goods, components, and services from reputable and trustworthy suppliers at the greatest price. The likelihood of non-compliance is greatly increased when non-purchasing workers can make purchases of products and services. In essence, the government wants to make sure that the fox isn't watching over the henhouse.
- Discussion Questions
A. Are the requisitioner and the purchaser separate parties?
B. Are requisitions delivered in time for the buyer to perform the required due diligence?
D. Are only procurement agents permitted to request and take action on supplier bids?
C. How frequently does the engineering department oversee or even make purchases?
C. Are formal authority delegations that specify the purchase authority according to employee title exist?
5) Make competition the go-to procurement strategy.
Notwithstanding what your technical staff may claim, not every purchase can be a sole/single source. For CPSR auditors, a lack of competitiveness is an early warning sign. While buying a product or service, competition should be the rule and sole/single sources the exception. Subcontractors and suppliers must be chosen "on a competitive basis to the utmost degree practicable," according to FAR 52.244-5.
A severe issue arises if the CPSR review committee finds a systemic absence of competitiveness. Even the withholding of your CPSR certification may result from it. In other areas examined during a CPSR, including as source selection, certified cost or pricing data (also known as TINA), and cost accounting standards, a lack of competition may lead to problems.
- Discussion Questions
A: Can we provide evidence that we compete for 60% or more of our purchases, or provide justification for why a lower price is acceptable?
B: Do we actively look for alternate sources and refrain from mentioning them in drawings and work statements?
C: Do our competition policies adhere to the DFARS' and FAR's definitions of "sufficient competition"?
D: Are the scoring standards for Best Value contests well-defined and impartial?
E: Do we properly and in accordance with the FAR document the reasons why we are unable to compete?
6) Consistently bargain for purchases
The government generally wants to know that you are being responsible with tax dollars. As a result, you must make sure the prices you pay are reasonable and fair for the goods or services you obtain. Use a competitive price analysis technique wherever it is practical. Also anticipated in non-competitive procurement are price negotiations.
Follow the right procedures when negotiating prices, and keep detailed records. This can help you stay clear of several CPSR mistakes, such as inadequate source justifications, negotiating memoranda, and cost and price evaluations.
- Discussion Questions
A: Do our P&Ps require negotiations?
B: Do workers follow P&Ps and FAR 15.406-3 when negotiating and documenting?
C: Do procurement records clearly demonstrate that staff members frequently bargain for the greatest price?
7) Consistent and trustworthy procurement documentation should be produced as a result of a regular internal compliance review procedure.
In order to tell the tale of a specific transaction, a procurement file should be completely recorded. Internal audits and compliance reviews are control processes. This method keeps an eye on adherence to company and governmental policies, regulations, and procedures. The integrity of the purchasing system is confirmed through this method.
Your documentation will serve as proof that you have followed both your company's policies and processes and the twenty-four criteria outlined above. Internal compliance checks make that procurement staff adequately and correctly record each acquisition.
Do our P&Ps call for internal assessments of the purchase documentation?
B: Do we employ a standardized review procedure and rely on the availability of impartial evidence for such reviews?
Flow Down and Conditions, Section 8 Requirements
Essential provisions of the contract between the U.S. Government and the prime contractor are outlined in flow-downs and terms and conditions. Then, when issuing a subcontract or purchase order to a subcontractor or supplier, the prime contractor is required to include a number of specified prime contract provisions. These "required" clauses will typically include language that specifies the requirement, such as "include this clause" or "include the body of this clause". Terms and conditions define the connection between the service provider and the customer and are intended to safeguard both the contractor's and the government's interests.
The outcome of the prime contract is at risk if a subcontract or purchase order is not in line with it through the use of suitable flow-downs and specific terms and conditions. Not all provisions of a prime contract should be passed down to a subcontractor or supplier because they may not apply to them. Contracts should not flow down every clause in a prime contract to a subcontractor or supplier since clauses do not "self-delete" under any circumstances.
- What party is in charge of establishing whether terms apply to a subcontractor or supplier?
B: Do commercial (FAR Part 12) and non-commercial purchases have different flow downs?
C: Are there any links between the flow-downs for each procurement and the particular prime contract?
Surprisingly, there is a misperception in the industry that if you don't have a purchasing system that has been certified or if your sales to the US government above the current threshold, you are exempt from the CPSR standards. Compliance requirements are determined by the specific requirements listed in DFARS 252.244-7001(c), FAR clauses found in your prime contract, as well as Public Laws and other laws.
By creating a set of solid procurement policies and procedures, your company will be able to spend government funds with confidence knowing that it conforms with all applicable laws and regulations. Having an established system of checks and balances will make a review or transition easy after your company has made enough sales to the government to qualify for one or is purchased by a larger company that is already subject to CPSR.
Compliance is crucial in the field of government contracting. So here is our final piece of advice: document, document, document. Only documentation can show that your business is in compliance.
Spending all of your time gathering and compiling your CPSR documentation is unnecessary. Instead, speak with SpendLogic to learn more about our incorporated toolset so you may spend less time on CPSR paperwork. We provide electronic filing of documents, paperless compliance reviews, automated price analysis, source justification, development of commerciality reports, and much more.
SpendLogic has the right documentation solution for you whether you're a prime contractor, subcontractor, or federal agency. Visit SpendLogic today to get started with your procurement compliance process and make it more effective for you and your business at no cost or obligation.