Tips for Small and Mid-Sized Contractor Survival During the CPSR Process

Overview of the Contractor Purchasing System Review (CPSR) Process

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Overview – What Will We Cover?

• What is a CPSR?

• Current CPSR Environment

• CPSR Process and Potential Outcomes

• Common Significant Deficiencies and Strategic Approaches

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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

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CPSR Background

• FAR 44.3 and DFARS 252.244-7001 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

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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.

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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.

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What Has Changed In The Last Five Years?

• JAN 2009: Senate Committee on Wartime Contracting Created

• 2010: Jean Labadini Named New CPSR Director

• 2010-2011: Public Laws Revised and Tightened; CPSR Environment Changes …

• FEB 2012: DFARS 252.242.7005; 252.244-7001 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 252.246-7007 Enacted; 252.244-7001(19)(20)(21) modified

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What Happens During a CPSR? (FAR 44.303)

DCMA reviews three (3) main aspects of Contractor Purchasing Systems:I. Purchasing/Procurement Manual (How You Say You Manage the Supply

Chain)II. Procurement Files (How You Actually Manage the Supply Chain)III. 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

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Impact of a CPSR [FAR 52.244-2]

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

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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

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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)

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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.

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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

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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 252.244-7001(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)

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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?”

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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.

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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 + 52.215-13 FD + TINA applied to Prime + Noncompetitive

SUBK + Noncommercial SUBK. Compliance = Cost Analysis + Cert of Current

Cost or Pricing + FD

• CAS: $700K + 52.230 FD + Noncommercial + Award to LB. Compliance =

Disclosure +FD + Notice to ACO within 30 days of SUBK Award.

• SBSP: $650K + 52.219-9 FD + Noncommercial + Award to LB with subs.

Compliance = SBSP

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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 + 52.211-15 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 + 52.204-10 FD + Sub not Exempt.

Compliance = fsrs.gov upload

• Counterfeit Parts Compliance: All electronic parts procurements under

prime contracts with DFARS 252.246-7007 FD. Compliance = P&P. For now.

File Reqs?

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Avoiding Potential Findings – Source Selection and Competition

• DCMA expects 40-70% competition within contractor supply chain

• FAR 52.244-5 NOT FAR PART 6 controls contractor competition.

• Technically Qualified Contractor + Competitive Price Analysis = Documented

Competition under 52.244-5. 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?

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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 52.244-5 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?

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Avoiding Potential Findings – Price Analysis and Negotiations

• Competition is the first and highest priority price analysis technique [FAR

15.404-1(b)(2)(i)].

• Formal price analyses and documented source justifications are required for

noncompetitive procurements [DFARS 252.244-7001(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 15.404-

1(b)(2) when selecting a price analysis technique. What does that mean?

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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?

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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?

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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 252.244-7001(c)(18)];

BUT

• Maintaining an approved purchasing system will increase effective fee

while simultaneously reducing overall contract proposal cost.

Questions?

Thank You!