Contractor Purchasing Systems Reviews (CPSR) The Current CPSR Environment. Bryan Felber, Director of Purchasing & Compliance

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1 Contractor Purchasing Systems Reviews (CPSR) The Current CPSR Environment Bryan Felber, Director of Purchasing & Compliance

2 Cautions This will not be a complete CPSR primer If you are new to CPSRs, get fully immersed and trained in all aspects of CPSR 98% of companies fail their first CPSR There are lots of companies and consultants that offer training and CPSR prep assistance 2

Cautions (continued) Expectations and requirements change over time New guidance from DCMA HQ Different auditors and interpretations Changes in

3 Cautions (continued) Expectations and requirements change over time New guidance from DCMA HQ Different auditors and interpretations Changes in regs Different people have different opinions as to requirements/expectations Contractors Auditors Consultants Imperative to keep current and monitor 3

4 Resources LinkedIn Contractor Purchasing System Review (CPSR) Forum CPSR Helps and Hints FAR & DFARS Discussions Various training opportunities Webinars Seminars 4

5 CPSR Who is Impacted Even if not on the CPSR radar all are subject to the regs in their contracts. READ YOUR CONTRACT!! If , Subcontracts, is in your contract, consent, notification, etc., apply If , Business Contractor Business Systems, You must establish and maintain acceptable business systems in accordance with the terms and conditions of the contract. If , Contractor Purchasing System Administration, your system must be CPSR compliant DCMA usually goes by the $25M threshold, but can mandate a CPSR ANYTIME!!! 5

6 CPSR It s a brave new world! Expectations in the past very different than Review is much more formal and rigorous Companies doing the same thing under successful CPSRs 3 or 4 years ago are failing Questionable Review Team interpretations/application of regs 6

7 What to Expect Generally 2 weeks duration, with 2 or more analysts Data call comes about two months prior to the review Important to be able to segregate POs properly to exclude those not subject to review Template Selected POs provided ~1 week in advance of arrival Electronic files 7

8 What to Expect (Cont) Entrance conference Questionnaires provided before or upon arrival: Training Procurement Authority Purchase requisition through purchase order Internal Audit Parts Management Receiving Vendor Rating System Close out process Written questions/observations on purchase files, response required within 24 hrs 8

9 What to Expect (Cont) Interviews of Buyers Daily debriefs of observations, concerns Exit conference Report promised to ACO about a month after conclusion of CPSR Please don t hold your breath 9

10 What They Look For Policies: Cover all the bases Emerging expectation: split awards Public law compliance TINA certs must be in the form at FAR , including FAR references CAS notification within 30 days of award DPAS: written acceptance in required time Price/cost analysis Reps and certs SAM 10

11 What They Look For (Cont) Debarment SAM? Day of award cert Actual cert In forms, agreements, POs To be valid, agreements/orders must be signed or accepted in writing Evidence of written acceptance of small bus plans 11

12 What They Look For (Cont) Source Justifications Adequate support Customer directed: attach evidence Teammate: Attach teaming agmt and/or contract proposal identifying teammates Economically justified: Have analysis Only known source: explain, document market research 12

13 What They Look For (Cont) Commerciality Com l Item Determination form not enough Need support to prove commerciality Your own market research Proof vendor has sold or offered for sale commercially If not adequately supported, vendor to be treated non-commercially If $750K, TINA cert required 13

14 What They Look For (Cont) Misc. DCMA does not accept the use of GSA schedules for price analysis (based on MAR 2014 DoD directive). Subcontractor Financing - especially progress payments and financing on FFP awards Policy on Split Awards Negotiation of all noncompetitive awards. You might diplomatically push back, but be SURE to have clean and effective price analyses 14

15 Buyer Interviews How long have you been a buyer with company? Who does your cost/price analysis? Who does your source justifications? Who s responsible for reps/certs (review, location)? Who does expediting reports and how often? How do you do best value? How do you validate commercial item determinations? During RFP, do you check Ts & Cs, reps/certs before sending? Do you have adequate time to process PRs? Does management support me? 15

16 Buyer Interviews (cont) What is the extent of competition? How well does Purchasing work with other depts? How often have I been told to go to a specific vendor? Policies & procedures. Do you have a policy on counterfeit avoidance? How do you avoid counterfeits? How often do we do training? Do we have waste, fraud, abuse signs in our building? Do I get what I need from management? If I was a manager, what type of training would I see the need for? 16

17 Questionable Application Intercompany orders DCMA expected: TINA and CAS applicability Small bus plans Anti-lobbying and Exec Comp Make/buy analysis Explanation why intercompany transaction is in the best interest of the government Price/cost analysis 17

18 Questionable Application (Cont) Intercompany orders useful definitions: Contractor means the total contractor organization or a separate entity of it, such as an affiliate, division, or plant, that performs its own purchasing Subcontractor means any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor Make item,... means an item or work effort to be produced or performed by the prime contractor or its affiliates, subsidiaries, or divisions (b) Affiliates means associated business concerns or individuals if, directly or indirectly-(1) Either one controls or can control the other; or (2) A third party controls or can control both Subcontract (except as used in ) also includes a transfer of commercial items between divisions, subsidiaries, or affiliates of a contractor or a subcontractor (10 U.S.C. 2306a(h)(2) and 41 U.S.C. 3501(a)(3))

19 Questionable Application (Cont) Intercompany TINA and Small Business Plans: DCAA Memorandum PSP / , March 2, 2010, excludes TINA applicability to interorganizational transfers. DCMA Small Business analyst confirmed in 2014:, The affiliate/other division, does NOT do a plan for you as the prime 19

20 Questionable Application (Cont) Intercompany make/buy and price/cost analysis: Make/Buy analysis only done if doing out of the ordinary, e.g., buying something we usually make, vice versa only applies Part 15 requirements to transfers of commercial items Just as purchasing does not do a make/buy analysis on items normally proposed as make items by the awarded entity, we would not do a make/buy analysis for items made by an affiliate Just as purchasing doesn t perform price/cost analysis on the make portions of the contract awarded to the contractor, it also does not perform price/cost analysis of an affiliate 20

21 Questionable Application (Cont) Orders below micro-purchase threshold Selected a good number (28%) Recommend procurement files include documentation supporting the vendor selected and a fair and reasonable price. DFARS (c)(4) 21

22 Questionable Application (Cont) Orders below micro-purchase threshold FAR (a) Solicitation, evaluation of quotations, and award. (1) To the extent practicable, micro-purchases shall be distributed equitably among qualified suppliers. (2) Micro-purchases may be awarded without soliciting competitive quotations if the contracting officer or individual appointed... considers the price to be reasonable. (3) The administrative cost of verifying the reasonableness of the price for purchases may more than offset potential savings from detecting instances of overpricing. Therefore, action to verify price reasonableness need only be taken if -(i) The contracting officer... suspects that the price may not be reasonable, or (ii) Purchasing a supply or service for which no comparable pricing information is readily available (b) Documentation. If competitive quotations were solicited and award was made to other than the low quoter, documentation to support the purchase may be limited to identification of the solicited concerns and an explanation for the award decision. 22

Questionable Application (Cont) Ts & Cs They faulted us for having terms that restrict subcontractor/vendor contact with our customer Privity of contract Prime contractor is the one responsible for

23 Questionable Application (Cont) Ts & Cs They faulted us for having terms that restrict subcontractor/vendor contact with our customer Privity of contract Prime contractor is the one responsible for performance Unrestricted contact can create problems the subcontractor saying or providing something with which we disagree and on which the government relies duplication of effort where the sub provided something that the prime also supplied constructive changes adopted by the subcontractor without our knowledge and which we might have prevented Order of precedence: Some teams say FAR should be 1st, though says otherwise AND orders with subs are commercial transactions, even if not com l items. 23

24 Questionable Application (Cont) Consultants Analyst said anything charged directly to a govt contract One consultant has seen the following in data calls in several CPSRs this year: "Purchases excluded from the universe:... Consulting Agreements (where the consultant is a contract hire, acting as an employee of the company, under the direct supervision of company personnel)" Past Team Lead and Jeff White have same application Subcontract means any agreement (other than one involving an employer-employee relationship) entered into by a Government prime contractor or subcontractor calling for supplies and/or services required for performance of the contract, contract modification, or subcontract. (FAR ) 24

Hints Ensure emails have clear references to attachments, approval requests, etc.

25 Hints Ensure s have clear references to attachments, approval requests, etc. Interviewees should not guess at answers, but if they don t know, say they know where to go to find answers (policies, procedures, regulations, management). Be sure POs are carefully reviewed before they go out Especially for things not manually entered in PO, but which come from other inputs that appear on the PO 25

26 Additional Expectations When a file review is requested, any and all underlying agreements must also be provided, e.g.,: SubK, ICA, BOA, IDIQ, TO/DO, Mod The final award documents of any award with a total anticipated award value $750K should be reviewed by management before it is issued and follow up review within 30 days. Keep up with closeouts 26

Penalties for Failure 5% to 10% payment withholds for one or more business system failures Inability to bid on contracts that require approved system Competitive disadvantage in bidding

27 Penalties for Failure 5% to 10% payment withholds for one or more business system failures Inability to bid on contracts that require approved system Competitive disadvantage in bidding on contracts which consider system approval in evaluation Requirement for prior consent to subcontract Additional oversight by other agencies Corrective action plan Impact to reputation 27

28 Questions? 28

29 Bryan Felber, CPCM, CFCM 29

Purchasing System (Including Counterfeit Parts)

Purchasing System (Including Counterfeit Parts) Steven M. Masiello Joseph G. Martinez April 26, 2016 McKenna Government Contracts, continuing excellence at Dentons Agenda Purchasing system overview Contractor