What is a CPSR?

The Department of Defense has many regulations in place when it comes to government contracts and how contractors should manage their subcontracts. One way to ensure compliance with these regulations is through a contractor purchasing system review (CPSR). 

The Defense Contract Management Agency (DCMA) leverages the CPSR process to evaluate the efficiency and effectiveness of a contractor's spending on government funds and compliance with government policy when subcontracting. 

In short, a CPSR examines a contractor's complete purchasing system and process.

What Is A Contractor Purchasing System?

Before we look at this review more closely, let's first define how the government defines a contractor purchasing system:

A contractor purchasing system is the contractor defined procedures that detail how they purchase and/or subcontract for goods or services bought as part of their contract. These processes cover how they handle make-or-buy decisions, the selection of vendors, analysis of quoted prices, negotiation of prices with vendors, placing and administering of orders, and expediting delivery of materials.

Improve Procurement Efficiency

A Contractor Purchasing System Review gives governmental contracting officers the information they need to accept a contractor's purchasing system. When using an approved purchasing system, the contracting officer can waive the need for subcontracting notifications or support subcontract actions. The CPSR also offers early cost accounting standard data for decision-making about source selection and negotiating fees and profit.

A CPSR is typically performed when a contractor has been awarded a new contract or when the Government wants to ensure that the contractor complies with existing regulations. The DCMA will review the contractor's purchasing system and evaluate its effectiveness and efficiency. This review includes examining the contractor's internal processes, policies, and procedures for managing equipment, labor, materials, and administrative costs.

The DCMA will also look for any areas of non-compliance with government regulations, such as the Federal Acquisition Regulation (FAR) and make recommendations for improvement. The CPSR process ensures contractors use their resources effectively and efficiently while ensuring compliance with government regulations.

As previously noted, during a CPSR, the DCMA will review the contractor's purchasing system and evaluate its effectiveness and efficiency. Specifically, the DCMA examines three main aspects of contractor purchasing systems and processes:

• Purchasing and procurement review on supply chains and subcontractors: How the business articulates its supply chain process.
• Review of procurement files, documents, and data: How the business manages the supply chain.
• Enterprise-wide supply chain management initiatives and governance: How a business procurement system and procedures are administered and maintained.

As noted in aquisition.gov and the FAR 44.3 documentation, special attention is paid to the following:

• The outcomes of marketresearch accomplished by the contractor.
• The degree of price competition obtained for subcontractors.
• Evaluation of pricing policies and techniques, including obtaining certified cost or pricing data.
• Ensuring Method exist for evaluating subcontractor responsibility, partnerships, and protecting government interests.
• Evaluation of close partnerships with established contractors. 
• Review of established policies and procedures supporting small business matters, including small disadvantaged, women-owned, veteran-owned, HUBZone, service-disabled, and veteran-owned.
• Review of ability of contractors to manage the planning, award, and post-award efforts of major subcontract programs.
• Ensuring there is compliance with the Cost Accounting Standards in awarding any subcontracts.
• Review of factors included and the proper use of the many contract types (16.103).
• Review of all procurement and project management systems, including audit controls, invoice, and payment systems, etc.

Finally, the DCMA will provide the contractor with a report of their findings and recommendations. Contractors will need to take action to address any areas of non-compliance or inefficiency identified during the CPSR process.

A CPSR review is an essential part of ensuring compliance with government regulations. The DCMA will review the contractors' purchasing system and evaluate its effectiveness and efficiency while also looking for any areas of non-compliance with government regulations. This audit includes examining internal processes, policies, and procedures for managing equipment, labor, materials, and administrative costs.

DFARS 252.244-7001 

The Department of Defense has released clause 252.244-7001, which contains new language regarding subcontracts and counterfeit electronic parts detection and avoidance systems.

DFARS 252.244-7001 is a necessary clause that ensures compliance with government regulations and efficient use of resources by contractors. It requires contractors to have an effective and efficient purchasing system in place and to detect and avoid counterfeit electronic parts. The clause also requires contractors to have the plan to monitor and control costs associated with equipment, labor, materials, and administrative activities. By implementing this clause, contractors can ensure that they comply with government regulations and use their resources efficiently.

The contractor must also provide the DCMA access to their purchasing system records for review and evaluation. This access allows the DCMA to ensure that the contractor is meeting all requirements of the clause and that their purchasing system is effective and efficient. 

Additionally, this clause requires contractors to have a system for monitoring and controlling costs associated with equipment, labor, materials, and administrative activities. Detailed monitoring will ensure contractors are not overspending on any of these items and help them to stay within budget.

Navigating compliance regulations can be difficult for even the most seasoned of government contractors. Get an overview of top priorities and how Costpoint provides a clear path to compliance.

1. Documentation

A CPSR audit requires thorough documentation. Purchasing policies and procedures are the foundation of the CPSR. To comply with DCMA and FAR regulations and meet the criteria outlined in the DCMA CPSR Policies and Procedures Checklist and DCMA CPSR Guidebook, you need to document policies and procedures that show your compliance and ensure those policies are being implemented correctly in practice.

2. Competition for Project Subcontractors

For the contract to be fulfilled, subcontractors must be selected based on competition to the greatest degree possible while maintaining its goals and requirements. If the CPSR discovers a systemic lack of competition, it's likely to raise red flags and drive more attention from the CPSR auditing organization.

3. Price Analysis

Strengthen your company's competitive advantage through pricing techniques based on fair and reasonable price analysis. These practices will help you avoid any adverse consequences of FAR 15.403-1(c)(1), FAR 15.404-1(b)(2), or FAR 44.303(b).

4. Avoid Price Comparisons

When creating your proposal, be careful of using price comparisons to historical prices paid or to publicly published pricing lists, as stated in FAR 15.404-1(b)(2)(ii) and (iv). Examining the subcontractor's proposed price compared to your company's previous pay for related services or products gives the CPSR Audit Team a chance to investigate their last payments and question their comparative reasoning.

5. Engage in Price Negotiations

If your initial price analysis needs more evidence of a fair and reasonable price, record how your organization chose to engage with and document price negotiations. Moreover, in procurement without competition, the CPSR Team usually expects the parties to engage in price negotiations to reinforce the price reasonableness assessment.

6. Establish, Prove, and Support Outcomes

Establish, document, and support your "commercial product" and "commercial service" determinations based on the wording of the FAR 2.101 commerciality definition. Filling out a form and making a brief statement about commerciality without supporting evidence is unacceptable. Additionally, be aware of the "technical analysis" requirements for types of products and services with minor customizations.

7. Monitor Results with Internal Evaluations 

Effective procurement systems incorporate internal purchasing file reviews based on predetermined risk factors during pre- and post-award stages. To build trust with the CPSR team, demonstrate to DCMA that you are vigilantly monitoring the system and finding solutions to any problems.

8. Educate Your Employees

Ensure training is provided for new hires, the whole department, and all company divisions that are part of the purchasing process every year. Whenever purchasing issues are uncovered, it is an opportunity to reassess your training procedures and ensure everyone that supports the purchasing operations maintains a certain level of certification. Furthermore, conduct training sessions to update personnel on any changes in rules, laws, and expectations from the Government related to your purchasing system.

9. EPLS Method Changing

The Excluded Parties List System (EPLS) 3-check procedure used before awards can no longer satisfy the debarment requirements in FAR 52.209-6. Make sure that you obtain pre-award debarment disclosures from the subcontractors when applicable. DCMA is open to several methods of documentation regarding their award requirement.

10. Provide Accurate Data and Documentation

Contractors better prepare for a CPSR audit by storing and providing accurate subcontract and purchase order data. Additionally, ensure all documents required for compliance with FAR, DFARS, public law, and other relevant CPSR requirements are documented in a secure procurement system. Also, ensure your system(s) make it possible to track, distinguish, and provide the necessary data in the CPSR Data Calls, including award value, current value, contract type, and subcontract type. 

Government Contracting Guide

Government contractors must work hard to find and manage project resources effectively. As a result of the complexity in managing, training, and documenting the procurement process, it is not unusual for businesses to expend 40 or 50 percent of their spending on project management resources. Not only do government contractors typically coordinate with various subcontractors throughout the project lifecycle, but direct and indirect materials suppliers too. 

Additionally, they need to get many internal stakeholders in agreement across different communication networks yet still guarantee that their systems and methods abide by government buying system requirements and MMAS (Material Management and Accounting System) criteria.

Given the many varied elements to consider, it's not difficult to see why procurement can be a significant challenge for many government contractors. The good news is that contractors can save money and become more efficient in respective procurement procedures by investing in Source to Pay (S2P) software designed for their industry.

Source-to-Pay technology increases user adoption and improves spending compliance by providing buyers with a complete and B2C-like purchasing tool. Process and reconcile electronic invoices based on purchase orders. Quickly record all pricing and award information. Approve the budget, then pass along invoices to begin processing payments. All in all, contractors can manage their data and documents effectively to comply with Government purchasing laws while also driving bottom-line savings.

Improve Procurement Efficiency