1. Overview of the Contractor Purchasing System Review (CPSR) Process
Tips for Small and Mid-Sized Contractor Survival During the CPSR Process

2. Overview – What Will We Cover?
What is a CPSR?
Current CPSR Environment
CPSR Process and Potential Outcomes
Common Significant Deficiencies and Strategic Approaches

3. Your Presenter Founder of ProcureLinx LLC
ProcureLinx Assisted with Nine (9) CPSRs in 2014 (Two in 2015)
Creator of ProcureLinx Pro™ CPSR Audit Application
Former …
Subject Matter Expert, Federal Procurement Compliance
General and Corporate Counsel
Director of Compliance
Director of Purchasing
Sub/Contracts Administrator

4. CPSR Background
FAR 44.3 and DFARS outline and enable the Contractor Purchasing System Review Process ($25M+ in annual revenue)
Traditionally DCMA reviewed “Major Contractor Systems” with DCAA reviewing smaller contractor systems.
DCMA was given sole authority to perform CPSRs in Feb 2012

5. Previous CPSR Environment (Prior to 2009)
CPSRs were a collaborative process between CPSR Team Leads and Contractors.
The Selection of CPSR Team Leads based on geographic placement led to long-standing relationships between DCMA and Contractors.
Generally 1-2 person CPSR Teams performed onsite reviews for 1-2 weeks (depending on contractor size) with final reports within 30 days after conclusion of review.
75-92% of Contractors failed their CPSR if reviews were not completed within 5 years from last review.

6. Current CPSR Environment (Post 2009)
CPSR Teams are rotated amongst all DCMA Branch Offices.
Generally 2-4 person CPSR Teams performing onsite reviews for at least two weeks with occasional participation of DCAA (cost/price analysis)
CPSR Team findings are evaluated by a Review Board.
Contractors can wait as long as 13 months for final reports.
90%+ of Contractors failed their CPSR if reviews were not completed within 5 years of their last review.

7. What Has Changed In The Last Five Years?
JAN 2009: Senate Committee on Wartime Contracting Created
2010: Jean Labadini Named New CPSR Director
: Public Laws Revised and Tightened; CPSR Environment Changes …
FEB 2012: DFARS ; Enacted
FEB-JUNE 2012: Lockheed Martin Hit With 2% Withhold on the F-35 Program
AUG 2012: Jean Labadini Retires. SEP 2012: Aggression Mandate rescinded.
JAN 2014: Day of Award Certifications Implemented
MAY 2014: DFARS Enacted; (19)(20)(21) modified

8. What Happens During a CPSR? (FAR 44.303)
DCMA reviews three (3) main aspects of Contractor Purchasing Systems:
Purchasing/Procurement Manual (How You Say You Manage the Supply Chain)
Procurement Files (How You Actually Manage the Supply Chain)
Enterprise-Wide Supply Chain Management Initiatives (How Your System is Administered and Maintained)
Includes reviews of 60 purchasing manual elements, 24 compliance elements and 40 individual file elements
These are Government Deliverables Subject to Inspection and Acceptance

9. Impact of a CPSR [FAR ]
DCMA Acceptance of System Deliverables Means:
No “Significant Deficiencies”
Elimination/Significantly Reduction of AN&C
Higher Win Rate on Contracts
Lower Cost / Higher Effective Fee
Ability to bid on Contracts requiring an approved system

10. Impact of a CPSR [DFARS 252.242-7005(d)]
DCMA Rejection of System Deliverables Means:
One or More “Significant Deficiencies”
Significant Oversight and Monitoring (AN&C; Repeat CPSRs; Quarterly Reports)
Preliminary Disqualification from Bidding on Prime Contracts
5-10% Withhold on Payments Due under DoD Prime Contracts
ACO advance consent or approval could cause significant delays in meeting customer requirements

11. CPSR Process First, DCMA finds you on their radar. How?
DCMA sends Risk Assessment Letter; Results put the contractor “in the queue”
Contractor is selected for CPSR. Date is set and Notice is sent to Contractor
60 days before review begins, Team Lead will send CPSR Questionnaire with request for production of documents (including YOUR MANUAL).
Prior to commencement, DCMA will “check in” with other agency reps (Property, SB, etc.) to get their impressions of contractor (including weak points to look for).
Review will take 2 weeks with 2-3 analysts.
CPSR Team will review files while onsite. Generally DCMA reviews 100% of files with ceiling values >$500K with deceasing review volume within lower categories ($100-$500K; $25-$100K; $3K-$25K; <$3K)

12. CPSR Process
30+ days after review, CPSR Team will submit Draft Report to contractor and cognizant ACO. Draft Report will provide all significant and minor deficiencies as well as team recommendations regarding system development.
Contractor will have 30 days to respond to Report. Corrective Actions should not be proposed during this phase. What does that mean? What do you do during this phase?
30+ days after response, ACO will make Final Determination on purchasing system status. If significant deficiencies remain, 5% withhold will be recommended.
Contractor has 45 days to propose CAP. Acceptance of CAP reduces withhold to 2%.
System may be approved during follow-up CPSR.

13. Potential Outcomes
Approval. System approval without significant deficiencies means no follow-up CPSR for 3+ years. How long can a CPSR status remain Approved without CPSR?
Approval with Negotiated Deficiencies. If deficiencies remain but ACO approves system, follow-up CPSR (and potential quarterly reporting) may be implemented.
Reduction to Unassessed. Contractors may be able to negotiate a “do over” on CPSR depending on outcome of review. When is this available?
2% Withhold with Reporting and Follow-Up Review
5% Withhold with Reporting and Follow-Up Review

14. What is a significant deficiency? [DFARS 252.244-7001(c)]
One Significant Deficiency will fail a purchasing system.
A significant deficiency is a deficiency that leads the government to doubt the reliability of purchasing system output and/or system conformance with 24 system requirements set forth in (c)
Common Significant Deficiencies:
EEO
TINA
CAS
SBSP
Lack of Competition
Inadequate Price Analysis / Source Justifications / Negotiations
Usurpation of Procurement Authority / Lack of Lead Time / No Letter Subcontract
Day of Award Certs (Debarment, DPAS, Payments to Influence)

15. Usurpation of Procurement Authority
What Does “Usurpation of Procurement Authority” Mean?
The Procurement Department must maintain Sole Authority to Bind the Company to Performance within the Supply Chain.
Operations May Not Impinge Procurement Authority in an Approved Purchasing System.
Evidence of Operational Impingement (“Usurpation”) of Procurement Authority May Preclude Purchasing System Approval.
Why?
What counts as “evidence?”

16. Usurpation of Procurement Authority
What Constitutes Evidence of Usurpation?
Inadequate Lead Time – Requisitions are “held” by requesters to increase pressure on Procurement to release noncompliant files AND/OR
Requisitions are submitted with both sole source justifications and quote(s) from the sole sourced vendor AND/OR
Inadequate Competition / Price Analysis / Negotiations PLUS
Negative Lead Times.

17. Avoiding Potential Findings – Public Law Compliance
EEO Pre-Award Clearance: $10M + Performance is either by an American Contractor and/or will be performed in the United States. Compliance = Pre-Award Clearance/Registry
TINA: $700K FD + TINA applied to Prime + Noncompetitive SUBK + Noncommercial SUBK. Compliance = Cost Analysis + Cert of Current Cost or Pricing + FD
CAS: $700K FD + Noncommercial + Award to LB. Compliance = Disclosure +FD + Notice to ACO within 30 days of SUBK Award.
SBSP: $650K FD + Noncommercial + Award to LB with subs.
Compliance = SBSP

18. Avoiding Potential Findings – Public Law Compliance
Berry Amendment / Specialty Metals: $150K with FD. Compliance = FD + Documentation of Sub Cert of Compliance (when applicable)
Day of Award Cert 1 – Anti-Lobbying Act: $150K. Compliance = Cert
DPAS: $75K + Rated Order. Compliance = Rating in Full Text + Written Acknowledgement (10 working days for DX; 15 for DO)
Day of Award Cert 2 – Debarment: $30K non-COTS. Compliance = Cert
Executive Comp Reporting: $25K FD + Sub not Exempt.
Compliance = fsrs.gov upload
Counterfeit Parts Compliance: All electronic parts procurements under prime contracts with DFARS FD. Compliance = P&P. For now. File Reqs?

19. Avoiding Potential Findings – Source Selection and Competition
DCMA expects 40-70% competition within contractor supply chain
FAR NOT FAR PART 6 controls contractor competition.
Technically Qualified Contractor + Competitive Price Analysis = Documented Competition under How is that different than FAR Part 6?
When are you “supposed to” document competition?
When market research shows two or more qualified contractors. You did market research, right?
Generally available commercial items. Does the OEM have resellers? Impact to Counterfeit Parts compliance?
ID/IQ Team Competitions. How do we document?

20. Avoiding Potential Findings – Noncompetitive Source Justifications
If there is no competition, DCMA expects a GREAT source justification.
Great Source Justification (SJ) = Correct Selection of Compliant Justification + Compelling Narrative + Clear Supporting Documentation.
What is the effect of applying vs. FAR 6.3?
Justifications that REQUIRE market research: “Only Contractor Qualified;” “Unique Qualifications;” and “Engineering Directed.”
Who is the Customer in “Customer Direction?”
What impact does incumbency have on available competition?
What is a TRUE “Unusual and Compelling Urgency/ Emergency” procurement?
What isn’t? Hint – Who caused the urgency?

21. Avoiding Potential Findings – Price Analysis and Negotiations
Competition is the first and highest priority price analysis technique [FAR (b)(2)(i)].
Formal price analyses and documented source justifications are required for noncompetitive procurements [DFARS (c)(9)].
Lack of competition creates need for tight source justifications and convincing price analysis. Lack of either creates additional findings when competition not present.
Contractors are charged with following the workflow set forth in FAR (b)(2) when selecting a price analysis technique. What does that mean?

22. Avoiding Potential Findings – Price Analysis and Negotiations
DCMA expects several components in a formal price analysis including:
Background of Procurement
Summary of Price Analysis Technique Selected
Explanation of Analysis
Determination that either (a) pricing was F&R or (b) Negotiation Required.
Price Analysis Algorithm: (P)rice / (C)omparison ≤ 1.0. What does that mean?
Supporting Documentation Supporting the Comparison is required. The lower down the list, the higher the documentation requirements.
DCMA expects a certain level of negotiation attempted on noncompetitive procurement activities. How do you document?

23. Avoiding Potential Findings – Commercial Item Determinations
There is no such thing as an “obviously commercial item.” If a contractor wants to take advantage of regulatory efficiencies applicable to commercial item procurements commerciality must be documented including support.
Efficiencies include exemptions from TINA, CAS, SBSP, Foreign Notice and Debarment Cert (COTS only) requirements. What if no CID in file?
What are the key inquiries when evaluating commerciality?
Who was it made for?
What was it made to do?
Is there an inventory for order (COTS)?
What is a minor modification?

24. Takeaways
CPSR Success is not an option (if you want to win and retain large contracts).
“Agile Contractors” (e.g. small contractors who can reduce procurement lead time via avoidance of regulatory requirements) are a disappearing option per Congressional directive. Why are KOs phasing out this cost-saving approach?
DCMA knows during a CPSR if management supports purchasing system compliance; the files don’t lie.
Maintenance of purchasing system approval requires continuous oversight, including training and internal review [DFARS (c)(18)]; BUT
Maintaining an approved purchasing system will increase effective fee while simultaneously reducing overall contract proposal cost.

25. Thank You! 
Questions?