Preparing for the CPSR - A Practical Guide

Preparing for the CPSR –A Practical Guide

Mark Hijar, Founder, ProcureLinx LLCRich Wilkinson, Director, Watkins Meegan LLC

Session ContentSession Content

B k d• Background• Where to Start (And, It’s Not Where You Think)• Procurement Policies and Procedures• The ProcessThe Process • A Look ForwardQ ti• Questions

Proprietary and Confidential 2

BackgroundBackground

BackgroundBackground

• The Contractor Purchasing System Review (CPSR) has been• The Contractor Purchasing System Review (CPSR) has been around since the early days of DCAA

• DCMA has had primary responsibility for the review at M j C t t ( $50M f ADV) i 1990 (DCAA didMajor 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 (Price?CostAnalysis, Other‐Than‐FFP awards, etc.)Analysis, Other Than FFP awards, etc.)

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


The Business Systems RuleThe Business Systems Rule

• DFARS defines six (6) contractor systems subject toDFARS defines six (6) contractor systems subject to determination of adequacy (subject to applicability)

• Three are audited by DCAAAccounting(1)– Accounting(1)

– Estimating(1)– Material Management Accounting System (MMAS)(2)

Th i i th i d ( t dit d) b DCMA• 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( ) pp , y q


More on Business SystemsMore on Business Systems

• Authority for adequacy determinations vested solely in the• Authority for adequacy determinations vested solely in the ACO

• DCMA issues findings and can recommend, but not g ,determine

• DCMA will report findings in subsequent reports as if it was ki d t i ti l th ff tmaking a determination – nearly the same effect

• Threshold for Purchasing System review currently set at $25M in qualified purchasing volume on Federal contracts$25M in qualified purchasing volume on Federal contracts (administrative and subject to revision without notice)


How Do Contractors Get Selected for a CPSR?CPSR?

• They Make the News (Good or Bad)• Upon Contracting Officer Request• Prime Contract RequirementPrime Contract Requirement• You Had a CPSR More Than Three Years AgoB C t t R t• By Contractor Request


Where to StartWhere to Start

The Adequacy CriteriaThe Adequacy Criteria

• The Business Systems Rule sets forth 24 system• The Business Systems Rule sets forth 24 system criteria that must be present in all contractor purchasing systems in order for a purchasing system p g y p g yto be “acceptable” (see DFARS § 252.244‐7001(a))

• DCMA CPSR “checklist” contains 61 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


General Company PoliciesGeneral Company Policies

• Organization plan that establishes clear lines of• Organization plan that establishes clear lines of authority and responsibility;

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

• Internal audits or reviews training and policiesInternal audits or reviews, training, and policies for the purchasing department to ensure the integrity of the systemg y y


General Procurement PoliciesGeneral Procurement Policies

S t d i ti i l di li i d• System description including policies, procedures, and purchasing practices that comply with the

i t f th FAR d DFARSrequirements 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


Procurement Policies and Procedures

DFARS Adequacy Criteria Deep DiveDFARS Adequacy Criteria Deep Dive

• Procurement Planning/Market Research (2 Criteria)• Procurement Planning/Market Research (2 Criteria)• Conflict of Interest/Misconduct (1 Criterion)• Competition (2 Criteria)Competition (2 Criteria)• Negotiated Procurement (1 Criterion)• Cost or Pricing Data and Price Reasonableness (5 Criteria)g ( )• Source Selection (3 Criteria)• Contract Formation and Content (3 Criteria)• Foreign Purchasing and Performance (3 Criteria)• Procurement Administration (4 Criteria)


Procurement Planning/Market ResearchProcurement Planning/Market Research

A l i t t k b li th t i i• 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

• Compete to the Maximum Extent Practicable (FAR 52.244‐5)


COI/Misconduct/Subcontractor Quals(FAR P 9)(FAR Part 9)

E f d t li i fli t f i t t• Enforce adequate policies on conflict of interest, gifts, and gratuities, including the requirements f th A ti Ki kb k A tof the Anti‐Kickback Act

• Procurement is the Sole Authority to Bind the Company

• Proactive Review / Reporting• Reps and Certs, EPLS, OCI Cert, Financial ResponsibilityResponsibility


CompetitionCompetition

U titi i t th i t t• Use competitive sourcing to the maximum extent practicable

• Subcontractor Competition is documented via Adequate Price Competition

• Require management level justification and adequate price analysis, with negotiations, for any sole or single source award


Price AnalysisPrice Analysis

D ti i i f i d bl t• Documenting pricing as fair and reasonable to the Government

• Seven (7) FAR approved price analysis techniques [FAR 15.404‐1(b)(2)]

• X / Y = Z; If Z ≤ 1.0, then X is Fair and Reasonable• If Z > 1.0, then X is subject to NegotiationIf Z 1.0, then X is subject to Negotiation


NegotiationsNegotiations

A ti f d ti ti ti• A practice of documenting negotiations (when Z > 1.0) in accordance with the FAR

i t f (FAR 52 244 2)requirements for neg memo (FAR 52.244‐2)• CPSR Teams assume Noncompetitive Procurements Will Be Negotiated

• Successful Negotiation = Lower Price or Revised and Validated Basis of Estimate


Truth In Negotiations Act & CASTruth In Negotiations Act & CAS

C tif S b t t C t P i i D t t• Certify Subcontractor Cost or Pricing Data to Avoid Defective Pricing

• Submit Required Notices for CAS covered subcontracts

• Commercial Item Procurements are Exempt from CAS and TINA

• Competitive Procurements And Small Businesses Exempt from CASExempt from CAS


Source SelectionSource Selection

• Use competitive sourcing to the maximum extent• Use competitive sourcing to the maximum extent practicable, and ensure debarred or suspended contractors are properly excluded from contract awardE l t i lit d li t h i l biliti d• 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 p g p ypriced and from sources that meet quality requirements

• Small Business Participation / Plans


Contract Formation and ContentContract Formation and Content

E h d d b t t t i• Ensure purchase orders and subcontracts contain all flowdown clauses, including terms and

diti d th l d d tconditions, and any other clauses needed to carry out the requirements of the prime contract

• Selection of Contract Type / Determination of Accounting System Adequacy

• Flowdowns for DPAS Rated Contracts / Acknowledgement


Notice and ConsentNotice and Consent

Ad N ti d C t FAR 52 244 2• Advance Notice and Consent – FAR 52.244‐2 (Rules)

• Advance Notice and Consent – Prime Contract• EEO Pre‐Award Clearance• Foreign Subcontractor Reporting (2 Notices)• CAS Notice• CAS Notice


Foreign Purchasing and PerformanceForeign Purchasing and Performance

E li ith ll l t d ti• Ensure compliance with all relevant domestic preference requirements

• Ensure compliance with export control regulations

• Ensure agreements are not executed with prohibited parties

• Notification


Procurement AdministrationProcurement Administration

• Maintain subcontract surveillance to ensure timely• Maintain subcontract surveillance to ensure timely delivery and procedures to notify the Government of potential subcontract problems that may impact d li i idelivery, quantity, or price

• Document and justify reasons for subcontract changes that affect cost or pricechanges that affect cost or price

• Maintain a Vendor Rating System• Establish and maintain procedures to timely notifyEstablish and maintain procedures to timely notify the Contracting Officer, in writing, of excessive pass‐through concerns


The ProcessThe Process

Process BasicsProcess Basics

• Begins with a request by the ACO to perform a• Begins with a request by the ACO to perform a review– Should ALWAYS be scheduled, never unannouncedShould 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 t l (b d t i )two or more people (based on recent experience)

• One of the participants is often from DCAA







Process ResultsProcess Results

• Draft report to the ACO on findingsDraft 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– 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 reponsereponse

– ACO will sometimes permit follow‐up review before issuing final• Once issued, DFARS Business Systems Rule controls “clocks” for

the processthe process• Pass Rate for First Time CPSR: <1%


Typical CPSR FindingsTypical CPSR Findings

• File FindingsFile Findings– Inadequate Price Analysis– High Dollar Value Public Law ViolationsHigh Dollar Value Public Law Violations– Selection of Subcontract Type

• Enterprise Findings• Enterprise Findings– Organizational StructureL d Ti– Lead Time

– Accuracy of Data Call Response


Typical File FindingsTypical File Findings

I d t P i A l iInadequate Price Analysis• Competition = Adequate Price Analysis. Lack of Competition = Inadequate Price Analysis

• Noncompetitive Procurements Should Be Negotiated.

• Everything Should Be DocumentedEverything Should Be Documented



I d t P i A l iInadequate Price Analysis• Documenting Competition

• Competition Among Resellers is a Competitive Procurement

• ID/IQ Team Member Rates Must be Competitively Evaluated (Using Target Rates)

• Using Best Value Procurements to Increase Competition on SME, “COTR‐Directed” Procurements



Hi h D ll V l P bli L Vi l tiHigh Dollar Value Public Law Violations• EEO Pre‐Award Clearance – Christian Doctrine• TINA – NOT Christian Doctrine

• If 52.215‐12 & 13 are flowdowns, subcontractor certified cost or pricing data is independent requirementcost or pricing data is independent requirement.

• Noncommericial + Noncompetitive + >$700,000.00 + 52.215‐12/13 flowdown = Certificate of Current Cost or Pricing Data Requirement



Inadequate Documentation of Selection ofqSubcontract Type / Determination of Accounting Adequacy• FAR 16.104 Considerations Must Be Taken Into AccountFAR 16.104 Considerations Must Be Taken Into Account• Documentation Requirements

• Other Than Firm Fixed Price Memorandum (FAR Part 16)Other Than Firm Fixed Price Memorandum (FAR Part 16)• Determination of Accounting System Adequacy

• Adequacy Depends of Contract Type Awarded• Labor Hour Requirements Significantly Less Than Cost Reimbursable• Flowdown 52.232‐7 and/or 52.216‐7 when appropriate


Typical Enterprise FindingsTypical Enterprise Findings

O i ti l St t Th t S t• Organizational Structure That Supports Procurement Autonomy / Authority– The Procurement Structure Must Retain Structural Integrity and AutonomyO i i l S P A– Organizational Structure Protects Autonomy

– Question – Can An Operational Employee Fire a P t P f i l With t O i ht?Procurement Professional Without Oversight?


Typical Enterprise FindingsTypical Enterprise FindingsShared Service ModelPreferred


Typical Enterprise FindingsTypical Enterprise FindingsDotted Line ModelAcceptable


Typical Enterprise FindingsTypical Enterprise FindingsOperational SubsetDiscouraged


Typical Enterprise Findings

Lead TimeLead 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?



Lead Time: ASR ModelLead Time: ASR Model



Lead Time: Fixing “The Patchwork Approach”Lead Time: Fixing The Patchwork Approach

• Replace Informal RFQ Requests With Purchasing

System Requisition (PSR)

• Document and Capture Lead Time

• Add Efficiency to Requisition ProcessAdd Efficiency to Requisition Process



Lead Time: PSR ModelLead Time: PSR Model



A f D t C ll R• Accuracy of Data Call Responses– CPSR Requires Accurate, Timely, Reliable Responses to DCMA (G t) R t f I f tiDCMA (Government) Requests for Information

– Effectively Include AND Exclude – Too Much Information Is a BAD THINGInformation Is a BAD THING



H D Mi t k H ? “Th P t h k• How Do Mistakes Happen? “The Patchwork Approach”– Accounting System Reports Used for Data Call– Accounting System Is Not Required to Track P h i S D P iPurchasing System Data Points

– Manual Edits + 1000’s Lines of Data + Tight D dli /P i Mi t kDeadline/Panic = Mistakes



• Data Call Mistakes Can Result in a finding of a• Data Call Mistakes Can Result in a finding of a Significant Deficiency. How?

• Defense FAR Supplement (DFARS) 252.242‐7005(b), pp ( ) ( ),“Contractor Business Systems,” provides the following definition:

• “‘Significant deficiency ’ in the case of a contractor• “‘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.”management purposes.



D t C ll A H t Fi “Th P t h k• Data Call Accuracy: How to Fix “The Patchwork Approach”– Track Purchasing System Data Points In Accounting SystemR i PO/S b N b i P– Revise PO/Subcontract Numbering Process

– Track PSRs


A Look ForwardA Look Forward

Near Term OutlookNear Term Outlook

DCMA h d t k l b f CPSR i• 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


Longer Term OutlookLonger Term Outlook

• Purchasing System status now tracked by DCMA in• Purchasing System status now tracked by DCMA in Business Systems database

• Contractors meeting threshold for review will be shown gwith a (purchasing) system status of “Unassessed” if…– Never reviewedL t d d t i ti th 3 ld– Last adequacy determination more than 3 years old

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

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


ResourcesResources

CPSR Flowchart (Word)CPSR Flowchart (Word)

Procurement Policies Checklist (Excel)Procurement Policies Checklist (Excel)

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

DCMA CPSR Review Guideor www.DCMA.mil


Questions?Questions?

Contact UsContact Us

8000 Towers Crescent Drive, Suite 950 Vienna, VA 22182 www.WatkinsMeegan.com

Rich Wilkinson, Director(703) 847 4435(703) 847‐[email protected]

Mark Hijar(202) 288‐5405 [email protected]

Documents

Preparing for the CPSR - A Practical Guide