C ONGRES S -.,- -- 2016 --- W E L C O M E T O ,,\,\ 1I ' I/ / -.,- '\ \ • II,I / / ' --- '/.,. ...... ............ . -... _ -- 2016 --- C ONGRES S O R LA N D O • J U LY 2 4 - 2 7

CPSR Expectations – Before, During and After Review Breakout Session #: C04 Andrew C. Obermeyer, Director, Business Operations Center, Defense Contract Management Agency Karen M. Ouellette, Procurement Analyst, Contractor Purchasing System Review Group, Defense Contract Management Agency Date: Monday, July 25 Time: 4:00pm–5:15pm

Business Operations Center Ensure that suppliers’ have purchasing systems in Ensure that contractors’ property management systems control, use, preserve, protect, repair and maintain the Government property (GP) in their possession. place that contribute to effective subcontract management. Evaluation of the efficiency and effectiveness with which the contractor spends Government funds and complies with Government policy when subcontracting. Perform Property Management System Analysis (PMSA) and investigate Property Loss to determine liability CONTRACTOR PROPERTY GROUP PURCHASING SYSTEM REVIEW (CPSR) GROUP The CPSR Group’s recent focus has been on improving supplier sourcing practices and promoting intelligent pricing decisions. Set to conduct over 130 reviews in FY16. PMSAs performed FY15 – 1025 Total acquisition cost of GP - $138,121,543,421 DCMA employs 244 of the 368 1103s in DoD Total Personnel Authorized: 394 Negotiate settlements for Contracts terminated for the convenience of the Government. Provide timely, cost effective disposal of excess government property in the possession of contractors. Facilitate the reutilization of Government Property saving time and money that might otherwise be expended in re-procurements. Assure Government Property is disposed of properly and demilitarized when required. TERMINATIONS GROUP PLANT CLEARANCE GROUP Provide technical assistance and guidance to Buying Activities by facilitating policy and procedures and technical support • Conduct post-termination briefings. • Selling surplus Government Property returning proceeds from sales to the Government Approve contractors’ settlements with subcontractors. Clearing Plant Clearance cases while maintaining data integrity in our case files and PCARSS. FY15 cleared 17K cases; Acquisition Cost - $5.9B Approve interim payments prior to final settlement. Currently have over 700 actions valued at $26.6B in process. CPSR Group – travel cost savings of $56k in FY15 as a result of remote access to contractor records Benefits to DOD Customers Property Administrators investigate losses of Government property, and when contractually appropriate, recommend that the contractor be held liable. In FY15, this resulted in the recoupment of $2,982,624. Terminations had negotiated savings of $78.1M in FY15 and has saved $11.8M to date in FY16. Plant Clearance reutilized $500M in Gov’t Property and returned $6.8M to the U.S. Treasury through sales of Surplus Gov’t Property in FY15. FY16 YTD reutilized $185M and sales $2.3M.

CPSR Mission Ensure that suppliers have purchasing systems in place that contribute to effective subcontract management. Effective subcontract management includes development of, as well as performance to; internal policy and procedures, public laws and adequacy of cost and price analyses performed on subcontractors.

Types of Contractor Purchasing System Reviews (CPSRs) Initial - System not yet evaluated and Contractor meets FAR 44.302 (CPSRs) dollar threshold requirement – Review addresses all 24 system criteria in DFARS 252.244- 7001, Contractor Purchasing System Administration Comprehensive - System previously approved and usually conducted 3 years after initial or previous review Review addresses all 24 system criteria in DFARS 252.244- 7001, Contractor Purchasing System Administration Follow-up - Validation of Correction Action Plan (CAP) on a disapproved purchasing system Review addresses previously identified deficiencies Special - Evaluation of specific risk areas Review addresses one or more of the 24 system criteria in DFARS 252.244-7001, Contractor Purchasing System Administration

Who determines the need for a CPSR? ACO identifies the need and requests a CPSR – Contractors do not request CPSRs The ACO determines the need for a CPSR based on the prime award and subcontract volume – Also considered are: subcontract types, program complexity, and past performance The ACO is responsible for determining approval, disapproval, or withholding of approval of the contractor’s purchasing system

How is a CPSR scheduled? CPSR group uses the term “Emerging System” to identify a contractor who is eligible for an initial review The ACO and contractor complete a Risk Assessment form to request a CPSR when: The $25M Threshold is met Risk factors have been identified Consent to subcontract* requests are increasing in volume *Consent to subcontract is required if the prime does not have an approved purchasing system and the Government is assuming a large portion of contract risk

How is a CPSR scheduled? CPSR group uses the term “Existing System” to identify a contractor who has an approved purchasing system CPSR group sends out an Annual Tasker to DCMA ACOs reminding them of the need to reevaluate the approved purchasing systems Reasons for reevaluations: 3 years or greater since last approval Risk factors identified Contractor not reviewed under current business system criteria (Final Rule 2012)

CPSR Pre-Review Once an ACO request for CPSR is received, review is assigned to a team based on contractor geographic location (CPSR team locations; Boston, Atlanta, Phoenix and Dallas) The lead Procurement Analyst will contact the Contractor to confirm dates & request the following information: PO’s/subcontracts issued during a one year period Contractor’s policies and procedures Contractor’s terms and conditions CPSR will identify specific contract requirements using Government databases such as; EDA, MOCAS, EITS, FPDS

CPSR Pre-Review CPSR team will also request input from the following DCMA functional specialists: ACO Quality Assurance Small Business Supply Chain Management CPSR team utilizes a random based sampling tool to select the purchasing instruments to be reviewed CPSR in-brief is scheduled for the first day of the on- site review 1

How long is an On-Site Review? Initial or Comprehensive 1-2 weeks with 2-3 analysts (based on sample size) Follow-up 1 week with 2 analysts Special 11

Review Elements CPSR evaluates your files for compliance with 34 review elements See CPSR Guidebook for details (www.dcma.mil) The 34 review elements are based on: FAR/DFARS clauses that flow-down from your prime awards to subcontracts The 24 Criteria identified in DFARS 252.244-7001(c) 12

CPSR On-Site Activities Entrance briefing with Contractor & Government personnel Physical review of selected sample based on the 24 criteria listed in DFARS 252.244-7001(c) Discussion on policies and procedures Utilization of question sheets to allow the contractor to provide clarity or additional information as issues arise Conduct buyer interviews Conduct daily briefs to keep the Contractor and ACO informed of arising concerns or issues Exit briefing conducted to provide contractor with preliminary findings (compilation of the daily briefs)

CPSR Post Review Analyze data and develop statistics Prepare a report addressing the contractor’s policy and practice for each of the review elements Report released to ACO within 30 business days of exit briefing When deficiencies are identified, the Procurement Analyst will initiate a Corrective Action Request (CAR) as appropriate

ACO System Determination Contracting Officer determines whether a purchasing system is approved or disapproved If no significant deficiencies exist, the ACO will issue a final determination approving the system (within 10 days of receipt of CPSR report) If the ACO suspects one or more significant deficiencies exist, the ACO will issue an Initial Determination identifying significant deficiencies (within 10 days of receipt of CPSR report) The contractor has 30 days to respond to the ACO If the ACO determines the contractor response to be adequate, the ACO will make a final determination of system approval

ACO System Determination If the contractor response is not adequate, the system is disapproved and the ACO issues a Level III CAR identifying the significant deficiencies The ACO requests a Corrective Action Plan (CAP) from the Contractor The Contractor has 45 days to either correct the deficiencies or provide an acceptable CAP Follow up reviews are conducted on disapproved systems within 90 days of notification by the contractor and ACO that corrective actions have been completed For deficiencies that may not rise to the level of significant, the CPSR Procurement Analyst issues a Level II CAR and the contractor works with the PA to resolve the Lev II CAR

Preparing for a CPSR Review the criteria (DFARS 252.244-7001) for an acceptable system Review CPSR Guidebook (www.dcma.mil) Assure your policies & procedures align with FAR/DFARS requirements Assure your files are compliant with your policies and procedures and FAR/DFARS requirements Files should be stand-alone and tell the whole acquisition story 17

Preparing for a CPSR Be aware of important dollar thresholds • $750,000 TINA CAS • $700,000 Small Business Subcontracting Plan • $150,000 Payments to Influence (Anti-Lobbying) Advance Notification/Prior Consent Specialty Metals • $75,000 DPAS • $30,000 Debarment Disclosures Executive Compensation

Most Common Deficiencies Based on FY15 CPSR reports Policy and Procedure Manual (90/101) Protecting the Government’s Interest when Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment (77/101) Documentation (69/101) Cost/Price Analysis (64/101) Flow Downs/Terms & Conditions (56/101) Limitation on Use of Appropriated Funds to Influence Certain Federal Contracting and Financial Transactions (Anti-Lobbying) (53/101) Sole Source Selection Justification (53/101) Negotiations (52/101) Defense Priorities and Allocation System (DPAS) Rating (46/101) Internal Reviews/Self Audits (30/101)

Most Common Material Deficiencies Based on FY15 CPSR reports Protecting the Government’s Interest when Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment (70/101) Limitation on Use of Appropriated Funds to Influence Certain Federal Contracting and Financial Transactions (Anti-Lobbying) (51/101) Price Analysis (47/101) Defense Priorities and Allocation System (DPAS) Rating (40/101) Sole Source Selection Justification (35/101) Policy and Procedure Manual ((29/101) Documentation (24/101) Truthful Cost and Pricing Data (TINA) (23/101) Negotiations (22/101) Cost Accounting Standards (CAS) (21/101) 2

CPSR Performance & Staffing Overview FY11 FY12 FY13 FY14 FY15 FY16 Risk Assessments 85 226 219 145 166 232 Eligible 66 100 105 107 126 129 Scheduled 70 118 134 133 Completed 40 43 57 103 101 133 (est) Carried Over 16 27 32 23 33 15 (est) Authorized/Onboard 44/24 44/31 44/35 46/32 45/41 50/44

Continuous Process Improvement Cycle Time Metric – report issued in 30 days Closed the system gap between review completion, report issued, and initial determination Aligned CPSR universe categories to the FAR January 2016, required updates in place Improved report template and Guidebook revisions New report format- reduced elements from 43 to 34 Further streamlining and combining of associated review elements is in the works Development of an excel DATA workbook versus Access database for compiling review data DCMA Strategic Plan Initiative to improve CPSR effectiveness and efficiency Champion assigned to each of the 34 CPSR review elements Job Aids developed, 13 of the 34 complete Training provided on completed Job Aids

Priorities As We Look Ahead Initiatives In support of Better Buying Power, the Agency Director is evaluating the merits of raising the CPSR threshold A DCMA Internal Review Team to perform a review of the CPSR group’s processes and procedures regarding TINA and Cost/Price Analysis, June 2016 DCMA CAR Policy Compliance, January 2016 Remote access to Contractor records has resulted in travel cost savings of $56k in FY15 CPSR Annual Tasker – reducing the burden on the ACO and increasing our reliance on the data available in the DCMA Contractor Business System Analysis Repository (CBAR) e-tool system Evaluating the advantages and disadvantages of changing the DCMA requirement from annual to every three years that the ACOs conduct contractor purchasing system surveillance

Resources FAR and DFARS DFARS 252.244-7001, Contractor Purchasing System Administration DFARS 252.242-7005, Contractor Business Systems CPSR Guidebook (www.dcma.mil) DCMA Instructions DCMA Instruction 109 – CPSR DCMA Instruction 131 – Contractor Business Systems DCMA Instruction 143 – Consent to Subcontract

Contact Information General Mailbox – CPSRCenter@dcma.mil Director, CPSR Group Supervisory Procurement Analyst Supervisory Procurement Analyst Supervisory Procurement Analyst Supervisory Procurement Analyst Betty Alicea Boston Elizabeth.Alicea@dcma.mil 857-268-4503 John Foley 857-268-4733 Boston Northeast John.Foley@dcma.mil Randy Shelby Smyrna Southeast Randy.Shelby@dcma.mil 678-503-6192 Richard Seals 602-594-7919 Phoenix Northwest Richard.Seals@dcma.mil Karen Zinn Dallas Central Karen.Zinn@dcma.mil 214-670-9351