Contractor Business Systems Series: Part 4 — Contractor Purchasing System: When Is It Required and What Are the Benefits of an Approved System?

Article

August 16, 2024

Contributors: Artan Ivezaj and John Ford

Purchasing (subcontracting) systems are an essential aspect of government contracting that contractors need to pay attention to. With the increasing number of solicitations and requests for proposals (RFPs), including business system requirements or providing additional points for an offeror with an approved purchasing system, it is crucial for companies to develop a system that complies with the regulations and adequately documents procurements on government contracts. Moreover, as contractors grow, an approved purchasing system may eventually become a requirement.

Understanding the Contractor Purchasing System

What is a Contractor Purchasing System?

The purchasing system, described in DFARS 252.244-7001, is one of the three business systems that the Defense Contract Management Agency (DCMA) has the responsibility for evaluating. However, DCMA may utilize other agencies like the Defense Contract Audit Agency (DCAA) to assist it during DCMA’s business system reviews.

Why is an Approved Purchasing System Important?

The primary objective of a purchasing system is to ensure that government contractors have a system in place that contributes to effective subcontract management. An approved purchasing system can relieve contractors of the requirement to obtain consent to subcontract, resulting in time and resource savings. It can also lead to more seamless reviews from DCMA and improve your competitive position, making it easier to win more contract awards. Approval of a contractor’s purchasing system is usually accomplished through a Contractor Purchasing System Review (CPSR).

What is a Contractor Purchasing System Review (CPSR)?

The Contractor Purchasing System Review (CPSR) is an intensive process that evaluates the efficiency and effectiveness of how a contractor spends government funds and complies with the various Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) regulations.

When is a CPSR Required and What are the Consequences of Failing a CPSR?

CPSRs are generally performed every three years. The FAR and DFARS provide different criteria for when a contractor purchasing system review is to occur and different consequences for a contractor that fails such a review.

FAR 44.302

FAR 44.302 states that the administrative contracting officer (ACO) shall determine the need for a CPSR based on, but not limited to, the past performance of the contractor, and the volume, complexity and dollar value of subcontracts. If a contractor’s sales to the Government (excluding competitively awarded firm-fixed-price and competitively awarded fixed-price with economic price adjustment contracts and sales of commercial supplies and commercial services pursuant to part 12) are expected to exceed $25 million during the next 12 months, the ACO is to perform a review to determine if a CPSR is needed.

When a CPSR is deemed necessary, the ACO is required to measure the contractor’s system against the eleven criteria listed in FAR 44.202-2 and the eleven factors listed in FAR 44.303. If a contractor fails a CPSR, the only consequence to the contractor is that it must get consent to subcontract in accordance with FAR 52.244-2.

DFARS 244.302

The threshold for determining the need for a CPSR is $50M. However, DFARS 252.244-7001 is required to be included in all contracts that contain FAR 52.244-1. Thus, that DFARS clause will be included in contracts with contractors, particularly small business concerns, that do not meet the $50M threshold. Significantly, the DFARS clause requires all contractors who have contracts with that clause in them to “establish and maintain an acceptable purchasing system.” In this regard, an acceptable purchasing system is one that complies with the 24 criteria listed in the clause.

If one of those criteria is found to have a significant deficiency, the contractor’s entire system is deemed to be unacceptable. In this case, not only must the contractor obtain consent to subcontract, in accordance with DFARS 252.242-7005, which is required to be included in CAS covered contracts that also include one or more of the DFARS business systems clauses such as 252.244-7001, the government will withhold a portion of future payments to the contractor until the deficiency is corrected. Note that such withholding only applies to CAS covered contracts.

Resources for Preparing for a CPSR

To assist in the performance of CPSRs, DCMA has issued a Contractor Purchasing System Review (CPSR) Guidebook dated Sep. 10, 2021. In addition, DCMA has also issued DCMA Manual 2301-01, Contractor Business Systems, dated April 18, 2019. According to the Guidebook, a “CPSR shall be conducted in accordance with Federal Acquisition Regulation (FAR) Subpart 44, Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 244, DCMA Manual 2301-01, and this Guidebook.” Therefore, it is suggested that you become familiar with the Manual and Guidebook as this will help you in ensuring that your system is designed to pass a DCMA CPSR.

How Can I Prepare for a CPSR?

Preparing Your Purchasing System

If your purchasing system is selected for review, expect DCMA to be thorough. DCMA will review purchasing policy and procedures documents, sales data and all eligible procurement actions awarded during the review period and a sample of purchase orders and subcontracts at various award levels. Documentation is critical to passing any business system review, especially with purchasing systems.

Key Steps for CPSR Preparation

Internal Procurement File Compliance Review: It is essential to have an established internal procurement file compliance review, which determines the risk factors within your organization.
Staff Training: You should also train your staff, establish fair and reasonable pricing metrics, and select subcontractors on a competitive basis to the maximum extent possible.

Developing a Compliant Purchasing System

In preparing for a CPSR, we recommend contractors start developing an approvable purchasing system immediately. Building a compliant system is a long, complex process. It is important to draft written policies and procedures that address the 24 DFARS criteria and extensive DCMA Guidebook advice. In those policies and procedures, be sure to include processes and evidence demonstrating how your system operates and identify team responsibilities.

Also, maintain evidence of annual procurement training such that it is readily available upon request. Finally, you must prepare for the effort associated with supporting a year’s worth of purchasing files, which the government team samples and reviews to evaluate compliance with written purchasing policies and procedures.

Contractor Purchasing System Review Preparation Checklist

Here is a quick checklist for preparation for a CPSR:

Understand your contracts’ clauses.
Brief your prime contracts.
Maintain a robust training program.
Maintain current policies and procedures.
Maintain a strong vendor rating system.
Utilize the internal review process.
Review the CPSR Guidebook.
Maintain a good relationship with DCMA and Government stakeholders.

Summary

In summary, having a strategic, competitive and compliant purchasing system that is configured properly to receive data is essential for government contractors. It is critical to be consistent with procedures, documentation and policies. It is also essential to establish file compliance, procurement filing systems, and train your staff, among other things. By following these steps, contractors can develop an effective purchasing system that complies with the regulations and meets the requirements of the CPSR review team.

Our government contracting consulting professionals are well-versed in business systems requirements and complex control environments. We guide contractors in developing and maintaining compliant business systems, perform assessments, provide audit support and prepare contractors for audits or reviews by DCAA, DCMA, or other cognizant agencies.

If you have any questions specific to your situation, Cherry Bekaert’s GovCon Consultants are available to discuss your situation with you.

Connect With Us