Essential Elements of a Purchasing System

Jack Hott, CPCM, CFCM, Fellow

Jim Kirlin, CPCM, CFCM, Fellow

Key Take Aways

• Know the Purchasing System responsibilities

• Know the list of essential elements of a Purchasing System

• Know the benefits of each essential element

• Know the best practices for each essential element

Agenda

• Purpose of Purchasing System

• Purchasing System Responsibilities

• Essential Elements of a Purchasing System

• Questions and Answers

Purpose of a Purchasing System

• Best value product or service to the customer

• Maintain the government’s and public’s trust

• Fulfill public policy objectives

Purchasing System Responsibilities

• Determine responsibility

• Ensure ethics and compliance

• Determine fair and reasonable pricing

• Ensure competition

• Use commercial items

• Use small businesses

Determine Responsibility

• The purchasing organization is responsible for determining the responsibility of prospective subcontractors

• Responsibility looks at the qualifications of a subcontractor to do the work

• This includes the resources, skills and capacity of the prospective subcontractor, as well as the subcontractor having a satisfactory record of integrity and business ethics

Ensure Ethics and Compliance

• The purchasing organization establishes the requirements for subcontractor ethics and business compliance

• This is accomplished by flowing down the prime contracts terms and conditions regarding improper business practices

• In addition, the prime contractor usually requires the subcontractor to comply with applicable laws and to adhere to the prime’s code of conduct or the subcontractor’s equivalent

Determine Fair and Reasonable Pricing

• The purchasing organization is responsible for determining that the subcontractor pricing is fair and reasonable

• This requires: • Selecting the appropriate contract type

• Evaluating the subcontractor’s proposal

• Ensuring only allowable costs are accepted

Use Competition

• The purchasing organization is responsible for promoting competition

• Competition guidance is provided in:• FAR 6 Competition

• FAR 13 Simplified Acquisition Procedures

• F AR 44 Subcontracting Policies and Procedures

Use Commercial Items

• The purchasing organization is responsible for maximizing the use of commercial products and services

• Compliance with this mandate calls for: • Market research to identify commercial items

• Making commercial item determinations

• Flowing down only a streamlined set of terms and conditions

Use Small Businesses

• The purchasing organization is responsible for providing maximum practicable opportunities to small businesses

• Compliance with this mandate includes:• Small business set-asides

• Small business plans (meeting goals, reporting, further flow down)

• Reasonably small lots (not less than economic production runs)

• Justify consolidation or bundling

The Elements of a Purchasing System

• The Prime selects elements, which when used together, provide a holistic method for achieving efficiency, effectiveness and compliance

Essential Elements of a Purchasing System

1. Objectives

2. Purchasing Process

3. Policies

4. Procedures

5. Terms and Conditions

6. Forms

7. Templates

8. Controls (compliance, self-assessments, audits)

9. Information Technology (IT) Systems

10. Training

1. Objectives

• Objectives• The efficiency and effectiveness in spending government funds

• Compliance with government policy on subcontracting

• Benefit• Starting with the end in mind drives the design and maintenance of a

responsive purchasing system

• Best Practice• Begin with the end in mind

• State this before selecting the other elements

• Communicate this to purchasing team, requirements makers and subcontractors

2. Purchasing Process

• A purchasing process defines the steps or phases that purchasing owns

• Benefit• The purchasing process is the essential foundation for the rest of the

elements of the system

• Best Practice• Define the basic purchasing process that all purchases must use

Requirements Definition

Acquisition Planning

SolicitationEvaluation and Award

Subcontract Management

3. Policies

• A policy is, "a definite course or method of action selected from among alternatives and in light of given conditions to guide and determine present and future decisions". (Merriam-Webster.com. Merriam-Webster, n.d. Web. 16 Dec. 2017)

• Benefit• The purchasing policies are the capstone documents stating how compliance with terms and

conditions will be assured

• Best Practice• Clear and concise policies

• If you say it, be able to prove it

• Preserve sound business judgement

• Separate policy from all else (procedures, forms, terms and conditions, etc.)

4. Procedures

• A procedure is, "a particular way of accomplishing something or of acting". (Merriam-Webster.com. Merriam-Webster, n.d. Web. 16 Dec. 2017)

• Benefit• Purchasing procedures standardize the purchasing process to obtain uniform and compliant

purchasing actions

• Best Practice• Define the possible ways of buying

• Answer: How am I buying it?

• Answer: • What swimming pool am I in?

• What swimming lane am I in?

5. Terms and Conditions

• Terms and conditions can be generally divided into two groups• Clauses required to flowed down. The flow down of terms and conditions can be described

as transferring and translation of requirements from a prime contract into a subcontract in support of the prime contract.

• Clauses not required to be flowed down but necessary for the subcontract.

• Benefit • Knowing that, when applied in accordance with the "when to use" guidance, all of the terms

and conditions for that purchase are included

• Efficiency

• Familiarity by subcontractors

• Best Practice• Use standard sets of terms and conditions

• Use FAR clause references (not full text) when possible

6. Forms

• Forms frame and standardize the treatment of terms and conditions or documents used to communicate how an issue is addressed

• Benefit• By completing a form, there is certainty that all of the required matters are addressed

• Best Practice• Use forms where the issue must be dealt with comprehensively

• Use forms where a determination must be documented

• Use forms where a certification is required

7. Templates

• Templates provide pro forma or sample structures to address certain terms and conditions where judgement and flexibility is needed

• Benefit• Samples show what a document should look like so we don’t reinvent wheel

• Best Practice• Have templates for the most common documents

• Provide variations to allow flexibility

8. Controls• A control is, "a device or mechanism used to regulate or guide the operation of a

machine, apparatus, or system. (Merriam-Webster.com. Merriam-Webster, n.d. Web. 16 Dec. 2017). Examples of controls:• Personal approval authority

• Unusual risks require the review, coordination or approval of compliance, legal or senior management

• Pre-award and post-award compliance reviews on purchasing actions (compliance checklist)

• Audits

• Benefit• Ensures nothing is missed: “Did we do everything required?” and “Did we do everything

required correctly?”

• Prior compliance is better than discovering a problem later. It is founded on the adage that “an ounce of prevention is worth a pound of cure”

• Best Practice• Risk based controls that balance effectiveness, efficiency and compliance

9. IT Systems

• IT systems are, “the technology involving the development, maintenance, and use of computer systems, software, and networks for the processing and distribution of data.” (Merriam-Webster.com. Merriam-Webster, n.d. Web. 16 Dec. 2017)

• Benefit• Necessary to achieve efficiency and compliance

• Enable management planning, controlling and directing

• Best Practice• Enterprise system that is integrated within the company (all can use and all are on the same

page)

• Easy to use

• People can process workflows (create and approve) on-line

• Status is available in real-time

• People can obtain instant, tailored reports on purchasing actions

10. Training

• A great purchasing system is useless unless people are trained to use it

• Benefit• People are your greatest asset. Invest in them.

• Training is an investment that pays back many times the initial cost

• Best Practice• Training that addresses “Why we do this”

• Training that is risk based

• Training that is specific to what is being bought and how it is being bought

• Basic training couple with recurring training and training that is driven by data: new issues, compliance problems, and changes

Key Take Aways

• Know the Purchasing System Responsibilities

• Know the list of essential elements of a Purchasing System

• Know the benefits of each essential element

• Know the best practices for each essential element

QUESTIONS&

ANSWERS

THANK YOU!