Preparing for the CPSR - A Practical Guide


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Preparing for the CPSR - A Practical Guide

  1. 1. Preparing for the CPSR – A Practical Guide Mark Hijar, Founder, ProcureLinx LLCRich Wilkinson, Director, Watkins Meegan LLC
  2. 2. Session Content Session Content• Background B k d• Where to Start (And, It’s Not Where You Think)• Procurement Policies and Procedures• The Process  The Process• A Look Forward• Questions Q ti Proprietary and Confidential           2
  3. 3. Background
  4. 4. Background• 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  Major Contractors (>$50M of ADV) since 1990 (DCAA did  M j C t t ( $50M f ADV) i 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?Cost Analysis, 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) Proprietary and Confidential           4
  5. 5. The Business Systems Rule The Business Systems Rule• DFARS defines six (6) contractor systems subject to DFARS defines six (6) contractor systems subject to  determination of adequacy (subject to applicability)• Three are audited by DCAA – Accounting(1) – Estimating(1) – Material Management Accounting System (MMAS)(2)• Th The remaining three are reviewed (not audited) by DCMA i i th i d ( t dit d) b DCMA – Purchasing(3) – Government Property(2) – Earned Value Management(2) (1) Always applicable (2) Applicable only when system is required ( ) pp (3) Applicable, but reviewed only above a threshold or on request , y q Proprietary and Confidential           5
  6. 6. More on Business Systems More on Business Systems• Authority for adequacy determinations vested solely in the Authority for adequacy determinations vested solely in the  ACO g ,• DCMA issues findings and can recommend, but not  determine• DCMA will report findings in subsequent reports as if it was  making a determination – nearly the same effect ki d t i ti l th ff t• 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) Proprietary and Confidential           6
  7. 7. How Do Contractors Get Selected for a  CPSR?• They Make the News (Good or Bad)• Upon Contracting Officer Request• Prime Contract Requirement Prime Contract Requirement• You Had a CPSR More Than Three Years Ago• By Contractor Request B C t t R t Proprietary and Confidential              7
  8. 8. Where to StartWhere to Start
  9. 9. The Adequacy Criteria The 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  p purchasing systems in order for a purchasing system  g y p g y to 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 Proprietary and Confidential           9
  10. 10. General Company Policies General 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 files  support for vendor selected price paid and files which are subject to Government review;• Internal audits or reviews training and policies Internal audits or reviews, training, and policies  for the purchasing department to ensure the  g y y integrity of the system Proprietary and Confidential           10
  11. 11. General Procurement Policies General Procurement Policies• S t System description including policies, procedures,  d i ti i l di li i d and purchasing practices that comply with the  requirements of the FAR and DFARS i t f th FAR d DFARS• Organizational and administrative structure to  ensure effective and efficient procurement of  requirements at the best value from responsible  and reliable sources Proprietary and Confidential           11
  12. 12. Procurement Policies and  Procedures
  13. 13. DFARS Adequacy Criteria Deep Dive DFARS 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) Proprietary and Confidential           13
  14. 14. Procurement Planning/Market ResearchProcurement Planning/Market Research• A l Apply a consistent make‐or‐buy policy that is in  it t k b li th t i i 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) Proprietary and Confidential           14
  15. 15. COI/Misconduct/Subcontractor Quals (FAR Part 9) (FAR P 9)• E f Enforce adequate policies on conflict of interest,  d t li i fli t f i t t gifts, and gratuities, including the requirements  of the Anti‐Kickback Act f th A ti Ki kb k A t• Procurement is the Sole Authority to Bind the  Company• Proactive Review / Reporting• Reps and Certs, EPLS, OCI Cert, Financial  Responsibility Proprietary and Confidential           15
  16. 16. Competition• U Use competitive sourcing to the maximum extent  titi i t th i t t 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 Proprietary and Confidential           16
  17. 17. Price Analysis Price Analysis• D Documenting pricing as fair and reasonable to  ti i i f i d bl t 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 Negotiation If Z  1.0, then X is subject to Negotiation Proprietary and Confidential           17
  18. 18. Negotiations• A A practice of documenting negotiations  ti fd ti ti ti (when Z > 1.0) in accordance with the FAR  requirements for neg memo (FAR 52.244‐2) i t f (FAR 52 244 2)• CPSR Teams assume Noncompetitive  Procurements Will Be Negotiated• Successful Negotiation = Lower Price or Revised  and Validated Basis of Estimate Proprietary and Confidential           18
  19. 19. Truth In Negotiations Act & CAS Truth 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 CAS Exempt from CAS Proprietary and Confidential           19
  20. 20. Source Selection Source 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 award• E l t Evaluate price, quality, delivery, technical capabilities, and  i lit d li t h i l biliti d 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 y priced and from sources that meet quality requirements• Small Business Participation / Plans Proprietary and Confidential           20
  21. 21. Contract Formation and Content Contract Formation and Content• E Ensure purchase orders and subcontracts contain  h d d b t t t i all flowdown clauses, including terms and  conditions, and any other clauses needed to carry  diti d th l d dt out the requirements of the prime contract• Selection of Contract Type / Determination of  Accounting System Adequacy• Flowdowns for DPAS Rated Contracts /  Acknowledgement Proprietary and Confidential           21
  22. 22. Notice and Consent Notice and Consent• Ad Advance Notice and Consent – FAR 52 244 2 N ti dC t FAR 52.244‐2  (Rules)• Advance Notice and Consent – Prime Contract• EEO Pre‐Award Clearance• Foreign Subcontractor Reporting (2 Notices)• CAS Notice CAS Notice Proprietary and Confidential           22
  23. 23. Foreign Purchasing and PerformanceForeign Purchasing and Performance• E Ensure compliance with all relevant domestic  li ith ll l td ti preference requirements• Ensure compliance with export control  regulations• Ensure agreements are not executed with  prohibited parties• Notification Proprietary and Confidential           23
  24. 24. Procurement Administration Procurement 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  delivery, quantity, or price d li i i• Document and justify reasons for subcontract  changes that affect cost or price changes that affect cost or price• Maintain a Vendor Rating System• Establish and maintain procedures to timely notify Establish and maintain procedures to timely notify  the Contracting Officer, in writing, of excessive pass‐ through concerns Proprietary and Confidential           24
  25. 25. The ProcessThe Process
  26. 26. Process Basics Process 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 unannounced Should 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  two or more people (based on recent experience) t l (b d t i )• One of the participants is often from DCAA Proprietary and Confidential           26
  27. 27. Proprietary and Confidential           27
  28. 28. Proprietary and Confidential           28
  29. 29. Proprietary and Confidential           29
  30. 30. Proprietary and Confidential           30
  31. 31. Proprietary and Confidential           31
  32. 32. Process Results Process Results• Draft report to the ACO on findings Draft 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  reponse – ACO will sometimes permit follow‐up review before issuing final• Once issued, DFARS Business Systems Rule controls “clocks” for  the process the process• Pass Rate for First Time CPSR: <1% Proprietary and Confidential           32
  33. 33. Typical CPSR Findings Typical CPSR Findings• File Findings File Findings – Inadequate Price Analysis – High Dollar Value Public Law Violations High Dollar Value Public Law Violations – Selection of Subcontract Type• Enterprise Findings Enterprise Findings – Organizational Structure – L d Ti Lead Time – Accuracy of Data Call Response Proprietary and Confidential           33
  34. 34. Typical File Findings Typical File FindingsInadequate Price AnalysisI d t Pi A l i• Competition = Adequate Price Analysis. Lack of  Competition = Inadequate Price Analysis• Noncompetitive Procurements Should Be  Negotiated.• Everything Should Be Documented Everything Should Be Documented Proprietary and Confidential           34
  35. 35. Typical File Findings Typical File FindingsInadequate Price AnalysisI d t Pi A l i• 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 Proprietary and Confidential           35
  36. 36. Typical File Findings Typical File FindingsHigh Dollar Value Public Law ViolationsHi h D ll V l P bli L Vi l ti • 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 requirement. cost or pricing data is independent requirement • Noncommericial + Noncompetitive + >$700,000.00 +  52.215‐12/13 flowdown = Certificate of Current Cost or  Pricing Data Requirement Proprietary and Confidential           36
  37. 37. Typical File Findings Typical File FindingsInadequate Documentation of Selection of qSubcontract Type / Determination of Accounting Adequacy• FAR 16.104 Considerations Must Be Taken Into Account FAR 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 Proprietary and Confidential           37
  38. 38. Typical Enterprise Findings Typical Enterprise Findings• O Organizational Structure That Supports  i ti l St t Th t S t Procurement Autonomy / Authority – The Procurement Structure Must Retain Structural  Integrity and Autonomy – OOrganizational Structure Protects Autonomy i i lS P A – Question – Can An Operational Employee Fire a  Procurement Professional Without Oversight? P tP f i l With t O i ht? Proprietary and Confidential              38
  39. 39. Typical Enterprise Findings Typical Enterprise FindingsShared Service ModelPreferred Proprietary and Confidential           39
  40. 40. Typical Enterprise Findings Typical Enterprise FindingsDotted Line ModelAcceptable Proprietary and Confidential           40
  41. 41. Typical Enterprise Findings Typical Enterprise FindingsOperational SubsetDiscouraged Proprietary and Confidential           41
  42. 42. Typical Enterprise FindingsLead Time Lead TimeWhat 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? Proprietary and Confidential           42
  43. 43. Typical Enterprise FindingsLead Time: ASR Model Lead Time: ASR Model Proprietary and Confidential           43
  44. 44. Typical Enterprise FindingsLead Time:  Fixing  The Patchwork ApproachLead Time: Fixing “The Patchwork Approach”• Replace Informal RFQ Requests With Purchasing  System Requisition (PSR)• Document and Capture Lead Time• Add Efficiency to Requisition Process Add Efficiency to Requisition Process Proprietary and Confidential           44
  45. 45. Typical Enterprise FindingsLead Time:  PSR ModelLead Time: PSR Model Proprietary and Confidential           45
  46. 46. Typical Enterprise Findings Typical Enterprise Findings• A Accuracy of Data Call Responses f D t C ll R – CPSR Requires Accurate, Timely, Reliable Responses to  DCMA (Government) Requests for Information DCMA (G t) R t f I f ti – Effectively Include AND Exclude – Too Much  Information Is a BAD THING Information Is a BAD THING Proprietary and Confidential              46
  47. 47. Typical Enterprise Findings Typical Enterprise Findings• H D Mi t k H How Do Mistakes Happen?  “The Patchwork  ? “Th P t h k Approach” – Accounting System Reports Used for Data Call – Accounting System Is Not Required to Track  Purchasing System Data Points P h i S D P i – Manual Edits + 1000’s Lines of Data + Tight  Deadline/Panic = Mistakes  D dli /P i Mi t k Proprietary and Confidential              47
  48. 48. Typical Enterprise Findings Typical Enterprise Findings• 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.” Proprietary and Confidential              48
  49. 49. Typical Enterprise Findings Typical Enterprise Findings• D t C ll A Data Call Accuracy: H t Fi “Th P t h How to Fix “The Patchwork  k Approach” – Track Purchasing System Data Points In Accounting  System – R i PO/S b Revise PO/Subcontract Numbering Process N b i P – Track PSRs Proprietary and Confidential              49
  50. 50. A Look ForwardA Look Forward
  51. 51. Near Term Outlook Near Term Outlook• DCMA h DCMA has undertaken a large number of CPSRs in  d t k l b f CPSR i 2012• DCAA is participating heavily, but may not  continue given agency workload• DCMA current backlog estimated at more than  one year Proprietary and Confidential           51
  52. 52. Longer Term Outlook Longer Term Outlook• Purchasing System status now tracked by DCMA in Purchasing System status now tracked by DCMA in  Business Systems database g• Contractors meeting threshold for review will be shown  with a (purchasing) system status of “Unassessed” if… – Never reviewed –L t d Last adequacy determination more than 3 years old d t i ti th 3 ld• Status of unassessed may adversely affect eligibility for  contracts that require an  approved purchasing system contracts that require an “approved” purchasing system• Growing backlog of CPSRs may put many contractors in  exactly that position Proprietary and Confidential           52
  53. 53. ResourcesCPSR Flowchart (Word)CPSR Flowchart (Word)Procurement Policies Checklist (Excel)Procurement Policies Checklist (Excel)DCMA CPSR Checklist (Excel) ( ) or www.DCMA.milDCMA CPSR Review Guide or Proprietary and Confidential              53
  54. 54. Questions?
  55. 55. Contact Us Contact Us8000 Towers Crescent Drive, Suite 950 Vienna, VA  22182 www.WatkinsMeegan.comRich Wilkinson, Director(703) 847‐4435(703) 847 4435Rich.Wilkinson@WatkinsMeegan.comMark Hijar(202) 288‐5405