Contractor Purchasing System Reviews (CPSR

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(No Transcript)
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Contractor Purchasing System Reviews (CPSRs) Can
Improve Company Profitability
Breakout Session 707 Name Phil Bail Phil Bail
Associates - (A Center for Veterans Enterprise
(CVE) verified Veteran-Owned Small
Business) Date July 21, 2010 Time 0930-1045
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Outline

• Background
• Unapproved versus Approved Purchasing System
• Benefits
• What is a CPSR?
• Is Your Company a Target for a CPSR?
• Core Elements of a Compliant Purchasing System
• Process
• Purchasing Policies Procedures Manual
• Supply Chain Buyer Training
• Key Compliance Areas / Clause Flow Down
• Summary
• Questions?
• References

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Background

• In 1990 CPSR Audit at my company
• In 1991 wrote an article for Contract
  Management magazine titled Being Audited By the
  Government Can Increase Contractor Profitability
  article received the Charles J. Delaney
  Memorial Award for most outstanding article of
  the year.

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Unapproved Versus Approved Purchasing System
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What if Purchasing System is Not Government
Approved?

• Consent to Subcontract FAR 44.201 and FAR
  52.244-2, Subcontracts (June 2007)
• CR, TM, L-H,
• FP and exceeds
• 100,000 or 5 of the total estimated cost of the
  contract.
• Advance Notification FAR 44.201-2
• CPFF subcontract or FFP Subcontract gt100,000 or
  5 of the total estimated cost of the contract

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What If Purchasing System is Approved by the
Government?

• The level of government administrative oversight
  on prospective contracts is reduced Consent to
  Subcontract and Advance Notification requirements
  are no longer issues unless required by
  52.244-2
• Opportunities for future contracts are increased
  because purchasing system has more creditability
  with customers
• Bottom Line More potential revenue profit
  dollars

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The Definition and Objective of a CPSR

• What is a CPSR?
• What is the objective of a CPSR?

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Definition and Objective of a CPSRFAR 44.3

• Definition CPSR - the complete evaluation of a
  contractors purchasing of material and services,
  subcontracting, and subcontract management from
  development of the requirement through completion
  of subcontract performance.
• Objective to evaluate the efficiency and
  effectiveness with which the contractor spends
  Government funds and complies with Government
  policy when subcontracting.

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Is Your Company a target for a CPSR?

• ACO considers recommending a company for a CPSR
  by performing a risk assessment.
• - Sales to government expected to exceed 25
  Million in next year excluding competitively
  awarded FP contracts and sales of FAR Part 12
  commercial items
• Are there signs of trouble in the contractors
  supply chain?
• Failure to comply with laws, or prime contract
  requirements
• Quality or delivery issues
• Contract mix moving from FFP to CR type contracts
• DCAA audits

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Is Your Company a target for a CPSR? (continued)

• Direct Materials and material overhead as a of
  sales appears out of sync
• Experience, knowledge, and training of the
  companys purchasing personnel is low
• Sales to the government as a percentage of a
  contractors total sales
• A contractors relative position within an
  industry
• Mergers, acquisitions, or divestitures
• Significant increases or decreases in sales

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The Core Elements of a CPSR Compliant Purchasing
System

• Process
• Purchasing Policies and Procedures Manual
• Supply Chain Buyer Training
• Key Compliance Areas / Clause Flow Down

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Process

• Part I
• Purchase Requisition
• Identification of Sources
• Part 2
• Issuance of PO / Subcontracts at Reasonable
  Prices (Buyer Actions)
• Part 3
• Timely Delivery of Quality Products or Services
• Evaluation of Vendors
• Part 4 (really part of entire process)
• Self Inspection of Process
• Management Oversight

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Process - Part 1Purchase Requisition / Source
Selection

• Initiation of Purchase Requests
• By Whom?
• What Information is included?
• Sources?
• Prime Contract Requirements?
• Oversight (Management Review)

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Process - Part 2 Buyer Actions

• Subcontract / PO Selection
• FFP or CR
• Terms Conditions / Clause Flow Down
• Source Selection FAR 52.219-8
• Extent of Competition
• Determining Prices Fair and Reasonable
• Competition
• Price Analysis
• Cost Analysis
• Certified Cost or Pricing Data
• Writing a Price Negotiation Memorandum

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Process - Part 3 Order Administration

• Receipt Acceptance of Products or Services
• Update of Vendor Rating System
• Quality of Products
• Timely Delivery
• Management Oversight

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Process Part 4 Self Inspection

• Internal Audit Program
• Management Oversight

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Purchasing Manual

• Should explain the Purchasing Process for the
  Benefit of ALL Employees, not just the Supply
  Chain
• Should include the 55 separate topics CPSR
  auditors expect in a Purchasing Manual (refer to
  DCMA Guidebook, Appendix B for a list of the
  topics)

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The 55 Topics(examples)

• Advance Notification and Consent
• 10. Commercial Acquisitions
• 19. Make or Buy Program
• 26. Truth In Negotiations
• 43. Single/Sole Source Procurements
• 45. Small Business Program
• 54. Specialty Metals

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The 55 Topics1. Advance Notification and Consent

• FAR 52.244-2, Subcontracts (JUN 2007)
• Is the clause in your contract?
• Is your purchasing system approved by the
  government?
• What kinds of contracts do you have? FFP/CR?

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The 55 Topics10. Commercial Items

• Definition of commercial item at FAR 2.101
• Who determined a vendor purchase was for a
  commercial item? How was the decision made?
• Government may look at a sample of commercial
  item Purchase Orders / Subcontracts

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The 55 Topics19. Make or Buy Program

• FAR 15.408 is a make-or-buy program
  incorporated into any of your contracts?
• FAR 52.215-9, Changes or Additions to Make-or-Buy
  Program

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The 55 Topics26. Truth In Negotiations

• Public Law 87-653
• FAR 15.403-4, Requiring Cost or Pricing Data
• FAR 52.215-12, Subcontractor Cost or Pricing Data
  (OCT 1997)
• Threshold?

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The 55 Topics43. Single/Sole Source Procurements

• CPSR Auditor will look at single/sole source
  purchase orders to determine if sole source is
  justified
• Price reasonableness assessment will be performed
  on single/sole source Purchase Orders and
  single/sole source Subcontracts

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The 55 Topics45. Small Business Program

• FAR 19.7 The Small Business Subcontracting
  Program
• FAR 52.219-8, Utilization of Small Business
  Concerns (MAY 2004)
• FAR 52.219-9, Small Business Subcontracting Plan
  (APR 2008)
• Thresholds?

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The 55 Topics54. Specialty Metals

• DFARS 225.7003-5(a)(1)
• What clause applies to your contract?
• DFARS 252.225-7014, Preference for Domestic
  specialty Metals (JUN 2005) (Deviation) Alternate
  1 (OCT 2007) or
• DFARS 252.225-7008, Restriction on Acquisition of
  Specialty Metals
• DFARS 252.225-7009, Restriction on Acquisition of
  Certain Articles Containing Specialty Metals
• DFARS 252.225-2010, Commercial Derivative
  Military Article Specialty Metals Compliance
  Certificate

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Buyer Training

• At a minimum the Supply Chain Buyer should
  receive training on the following subjects
• Overview of the Federal Acquisition Regulation
  (FAR)
• Negotiation Techniques
• Price Analysis / Cost Analysis
• Writing a Price Negotiation Memorandum (PNM)
• Truth in Negotiation Act (P.L 87-653)
• Cost Accounting Standards (CAS) (P.L. 100-679)
• DPAS (Title I of Defense Production Act of 1950)
• Small Business Program (P.L. 95-507 of 1978)
• Selecting Contract Types (FAR Part 16)
• Commodity Specific Education
• Ethics Training

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Key Compliance Areas / Clause Flow Down
but first
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How should a government contractor flow Federal
Acquisition Regulation (FAR) and Department of
Defense FAR Supplement clauses to its vendors?

• Identifying them in full text on the Purchase
  Order?
• Identifying them by reference on the Purchase
  Order?
• By referring vendors to a FAR and DFARS clause
  list on their web site?
• Dont bother, just include company standard
  terms and conditions on Purchase Orders?
• Answer Refer to FAR 52.102 and 52.301
• National Defense Industrial Association (NDIA),
  [phone] or http//www.ndia.org 50.00

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Key Compliance Areas / Clause Flow DownSource
Document

• A Study of the Applicability of Federal
  Acquisition Regulation (FAR) Clauses to
  Subcontracts Under Prime Defense and NASA
  Contracts, including Defense FAR Supplement
  (DFARS) and NASA FAR Supplement (NFS)
• National Defense Industrial Association (NDIA),
  [phone] or http//www.ndia.org 50.00

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Key Compliance Areas / Clause Flow Down
(examples)

• What clauses are included in the prime contract ?
• For exampleall values
• 52.244-2, Subcontracts
• 52.211-15, Defense Requirements and Allocation
  Requirements
• Greater than 30,000
• 52.209-6, Protecting the Governments Interest
  When Subcontracting with Contractors Debarred,
  Suspended, or Proposed for Debarment
• Greater than 100,000
• 52.203-11, Certification and Disclosure Regarding
  Payment to Influence Certain Federal Transactions
• 52.219-8, Utilization of Small Business Concerns
• EO 13496 Duty of Federal Contractors,
  Subcontractors to Notify Employees of Their Right
  to Form and Join Unions

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Key Compliance Areas / Clause Flow Down

• Greater than 550,000
• 52.219-9, Small Business Subcontracting Plan
• Greater than 650,000
• 552.230-2, Cost Accounting Standards (P.L 100-679
  CAS Applicability and Disclosure Statement
  Determination)
• P.L 87-653 Truth in Negotiation Act (TINA)

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Summary

• Establish a Process from PR initiation to PO
  issuance to receipt and acceptance or rejection
  of products or services, and FOLLOW IT
• Rate vendors so you dont keep buying from poor
  providers
• Allow the Supply Chain to focus on purely buying
  activities, emphasizing a need to negotiate with
  vendors
• Justify single/sole source procurements and price
  reasonableness determinations
• Track negotiated savings

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References

• FAR Subpart 44.3 Contractors Purchasing Systems
  Reviews
• Http//guidebook.dcma.mil/26/guidebook_process.htm
  
• DCAA Internal Control Matrix for CPSR/Purchasing
  System Audit

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Questions?
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