A contractor purchasing system review (CPSR) is a formal audit conducted by the Defense Contract Management Agency (DCMA) to assess whether a contractor's purchasing and subcontracting practices comply with federal regulations and use government funds effectively. This guide explains what a CPSR involves, when it's triggered, and how to prepare.
Why it matters: A failed CPSR can result in increased government oversight, withheld purchasing authority, and greater compliance risk — making proactive preparation essential for government contractors.
Key Takeaways
- CPSRs evaluate your entire purchasing system: The DCMA examines how contractors select vendors, negotiate prices, place orders, and administer subcontracts against federal regulatory standards.
- Reviews are triggered by contract value thresholds: Contractors are generally subject to a CPSR when their negotiated subcontracting or purchasing volume reaches the applicable DoD threshold.
- Purpose-built GovCon ERP supports audit readiness: Deltek Costpoint provides the audit trails, cost controls, and procurement documentation government contractors need to demonstrate a compliant purchasing system.
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:
“Purchasing system” means the Contractor’s system or systems for purchasing and subcontracting, including 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."
When and Why is a CPSR Performed?
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.
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 provides early cost accounting standard data to support decision-making on source selection and negotiating fees and profit.
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.
What Happens During a CPSR?
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 market research conducted 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 a method exists 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 the ability of contractors to manage the planning, award, and post-award efforts of major subcontract programs.
- Ensuring compliance with the Cost Accounting Standards when 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 its findings and recommendations. Contractors will need to take action to address any non-compliance or inefficiencies identified during the CPSR process.
CPSR Compliance
A CPSR review is an essential part of ensuring compliance with government regulations. The DCMA will review the contractors' purchasing system, evaluate its effectiveness and efficiency, and identify 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 includes new language on subcontracts and on counterfeit electronic parts detection and avoidance systems.
DFARS 252.244-7001 is a necessary clause that ensures contractors comply with government regulations and use resources efficiently. 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 a plan to monitor and control costs associated with equipment, labor, materials, and administrative activities. By implementing this clause, contractors can ensure compliance 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 do not overspend on any of these items and help them stay within budget.
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Ten Tips to Prepare for a Possible CPSR Audit
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 grounded in fair and reasonable pricing 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 requires additional evidence of a fair and reasonable price, record how your organization chose to engage in 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 at both the pre- and post-award stages. To build trust with the CPSR team, demonstrate to DCMA that you are vigilantly monitoring the system and proactively addressing any issues.
8. Educate Your Employees
Ensure training is provided to new hires, the entire department, and all company divisions involved in the purchasing process each year. Whenever purchasing issues are uncovered, it is an opportunity to reassess your training procedures and ensure that everyone who supports the purchasing operations maintains a certain level of certification. Furthermore, conduct training sessions to update personnel on any changes to rules, laws, and Government expectations 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 its award requirements.
10. Provide Accurate Data and Documentation
Contractors can 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) enable tracking, distinguishing, and providing the necessary data in the CPSR Data Calls, including award value, current value, contract type, and subcontract type.
How Proposal Pricing Affects a CPSR Project
Effective proposal pricing not only influences a contract's financial performance but also plays a dynamic role in meeting the requirements set forth by government CPSR audits.
Here's how strategic proposal pricing can align with CPSR standards, ensuring your contract process can withstand scrutiny.
Compliance Through Pricing
The foundation of CPSR-friendly proposal pricing lies in its precision. Pricing that accurately reflects market conditions and direct costs will demonstrate your firm's commitment to fair and reasonable procurement practices. This involves conducting thorough market research before submitting a proposal.
Cost analysis is also key. Accurate cost data supports the legitimacy of your pricing structure, which is critical during a CPSR, where transparency in procurement processes is always under review.
Risk Management
Devise a pricing strategy that includes appropriate contingencies by identifying and addressing potential risks associated with contract performance and cost overruns.
Documentation of Decisions
Comprehensive records that justify pricing establishment are essential. These records should include cost breakdowns, rationale for chosen suppliers, and the basis for negotiations with vendors and subcontractors.
The right software streamlines proposal pricing compliance. Deltek ProPricer saves every piece of information related to your proposal costs and pricing, for every proposal iteration. The ability to store, report on, and later access your historical data at every level leaves little room for misunderstandings between your estimators, pricers, and CPSR certification auditors.
Streamline Operations Across the Entire Project Lifecycle
Government contractors must work hard to find and manage project resources effectively. As a result of the complexity of managing, training, and documenting the procurement process, it is not unusual for businesses to spend 40 or 50 percent of their budget on project management resources. Not only do government contractors typically coordinate with various subcontractors throughout the project lifecycle, but also with direct and indirect materials suppliers.
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.
