Understanding Contractor Purchasing System Reviews

Breakout Session # B03 Andrew C. Obermeyer Director, Business Operations Center Thursday, March 17 2:00pm–3:15pm

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Specialized Business Capabilities

Functions: Evaluate contractor’s purchasing systems and provide expert recommendations whether to approve or withhold/withdraw approval of the system. Arrange timely and cost effective reutilization, sale, and disposal of excess government property in the possession of contractors. Settle contracts terminated for the convenience of the Government. Evaluate the adequacy of contractor’s property management system to ensure Government Property in the hands of contractors is appropriately managed.

Business Operations Center

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CPSR Organizational Structure

DCMA-AQBCA Northeast Team (Boston, MA)

John Foley Supervisory Procurement Analyst

DCMA-AQBCB Southeast Team (Smyrna, GA)

Randy Shelby Supervisory Procurement Analyst

9 - Procurement Analysts, GS-12 1 – Procurement Analyst, GS-11

11 - Procurement Analysts, GS-12 1 - Procurement Analyst, GS-11

DCMA-AQB

Andrew C. Obermeyer Director

Business Operations Center Ft. Lee, VA

DCMA-AQBC

Elizabeth Alicea Director

CPSR Group Boston, MA

Management Assistant

GS-0303-07

DCMA-AQBCC

Northwest Team (Phoenix, AZ) Richard Seals

Supervisory Procurement Analyst

DCMA-AQBCD Central Team (Dallas, TX)

Karen Zinn Supervisory Procurement Analyst

8 - Procurement Analysts, GS-12 1– Procurement Analyst, GS-11

8- Procurement Analysts, GS-12 1 – Procurement Analyst, GS-11

Boston, MA Smyrna, GA

Dallas, TX Phoenix, AZ

Fort Lee, VA

Management Analyst GS-0343-11

Procurement Analyst

GS-1102-12

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What is the 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.

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What is the purpose of a CPSR? • Contractor Purchasing System Reviews

• Evaluation of the efficiency and effectiveness with which the contractor spends Government funds and complies with Government policy when subcontracting

• Complete evaluation of a contractor’s purchasing of material and services, subcontracting, and subcontract management from development of the requirement through completion of subcontract performance

• Report findings to Contracting Officer providing a basis for granting, withholding, or withdrawing approval of the purchasing system

• Review corrective action plan for effectiveness and validate implementation

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What are the review categories?

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Who determines the need for a CPSR?

• Annual FY Eligibility Tasker includes Risk Assessments Reference FAR 44.302(a)

• Qualifying Sales of $25 million • Subcontracting volume, complexity and dollar amount • Contractor past performance • ACO identification of risk

• ACOs solicit input by the Contractors and perform RA using DCMA form

• Eligibles determined by CPSR team with ACO input and coordination

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How does the CPSR Group schedule reviews?

• CPSR Group develops the annual schedule based on:

• Risk Assessments received from ACOs from the annual tasker, • Any other risk assessment received from an ACO throughout the year, • DCMA’s Contract Business Analysis Repository (CBAR) etool for:

• Not Yet Evaluated Systems (Who meet the criteria for a CPSR) • Disapproved Systems who may require a Follow-up review • Approved Systems with a system approval date of 3 years or greater

• Required reviews are then prioritized based on risk to the Government.

• Reviews are assigned to a regional CPSR team based on most cost effective travel costs.

• Teams coordinate final review dates with the Contractor and ACO.

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What is the cycle time for a CPSR? • CPSR Timeline

• R-120 Final Schedule Agreement • R-90/60 CPSR Data Questionnaires to CO • R-90/60 CPSR Data Questionnaires to Contractor POC • R-30 Policy and Universe Reviews • R-30 Request T&Cs, Purchasing/Procurement forms from Ktr • Review – Entrance Brief, Daily Outbrief, Exit Conference • R+20 CPSR Report due to CPSR Management • R+30 Management review, Report to CO • R+40 CO approval if no deficiencies, or initial determination • R+70 Ktr response to initial determination • R+100 CO issues final determination • R+145 Corrective Action Plan if requested, due to CO

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FY15 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)

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FY15 Significant Deficiencies • Based on FY15 completed 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) (52/101)

• Cost/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) • Certified Cost or Pricing Data, Truth-In-Negotiations Act (TINA) (27/101) • Documentation (24/101) • Negotiations (22/101) • Cost Accounting Standards (21/101)

(All of the above deficiencies have been identified to the ACO as deficiencies that may materially affect the ability of DoD officials to rely upon information produced by the system)

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Who decides if a System is approved? • Business System Determinations are made by ACOs

• And in some case PCOs • But not by Business Operations Center personnel

• ACO decisions recorded in the DCMA Contractor Business Analysis Repository (CBAR) by CAGE Code • 28 Disapprovals • 739 Approvals • 39 Not Evaluated • 3,864 Marked as “N/A” (Contractor Purchasing System Status as of 07 Mar 2016)

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CPSR Report to ACO System Determination • CPSR Team provides Contracting Officer a report identifying deficiencies and offers an opinion as

to whether those deficiencies may rise to a level that materially affect the ability of DOD officials to rely upon information produced by the system

• Contracting Officer makes the determination of the significance of the deficiencies and whether a purchasing system is granted approval or disapproval

• If ACO determines 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 • ACO will make a final determination within 30 days of receipt of Ktr response to Initial

Determination • If the system is disapproved, the ACO issues a Level III CAR identifying the deficiencies and

requests a Corrective Action Plan from the Contractor • The Contractor has 45 days to either correct the deficiencies or provide an acceptable CAP • For deficiencies that may not rise to the level of significant, the CPSR Functional Specialist issues

a Level I or Level II CAR

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Corrective Action Plan • For Level II and Level III CARs, CAP requirements

• Root cause of noncompliance • Corrective Action taken or planned to eliminate and prevent

reoccurrence • Actions taken to correct specific noncompliance • Determination of whether other processes are affected by identified root

cause • Target date for implementation of planned actions

• CPSR Timeline for validation of CAP, upon notification by ACO and Contractor that deficiencies have been corrected, goal 90 days

• References • DCMA Instruction 1201, dated 08 Sep 2015, Corrective Action Process • DCMA Instruction 131, dated 06 Nov 2013, Contractor Business Systems • DCMA Instruction 109, change 1 dated 09 Jan 2014, CPSRs

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Actions post CPSR and System approval • ACO Surveillance Performed Annually

• ACO performs annual surveillance IAW DCMA Inst. 109 of a Contractor’s purchasing system based on criteria in DFARS 252.244-7001 for an acceptable purchasing system.

• The ACO completes a Risk Assessment and requests a CPSR Review when:

• Contractor’s policy or practice in regards to their purchasing system criteria appear to not be in compliance with the FAR, DFARS, or public laws based on ACO surveillance.

• At least every three years, the ACO shall determine whether a purchasing system review is necessary (the Risk Assessment is a DCMA tool that is used to guide the ACO and CPSR Procurement Analyst through the decision process).

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Add’l functions performed by the CPSR Group • Consent to Subcontract CPSR Group Desk Audits

• Advance notification and consent required if the prime does not have an approved purchasing system and Government is assuming a large portion of the contract risk

• DCMA Instruction 143 addresses Consent to Subcontract • Established policies, assigns roles and responsibilities and outlines

procedures for ACOs to gain insight into prime contractor’s subcontracting actions

• ACO submits a request for support to the CPSR team • Procurement Analyst reviews and provides recommendation • Averaging 34 reviews per month for CY16

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0

50

100

150

200

250

FY10 FY11 FY12 FY13 FY14 FY15 FY16

RA

Eligible

Scheduled

Completed

Carried Over

Overview FY10 FY11 FY12 FY13 FY14 FY15 FY16 Risk Assessments 113 85 226 219 145 166 232 Eligible 100 66 100 105 107 126 129 Scheduled 97 66 70 118 126 134 133 Completed 78 40 43 57 103 101 133 (est) Carried Over 3 16 27 32 23 33 15 (est)

Authorized/Onboard 30/26 44/24 44/31 44/35 46/32 45/41 50/42

CPSR Performance and Staffing

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• Risk Assessments Received • Larger number of reviews completed in FY10 resulted in decrease in RAs in FY11 • In FY12 and FY13 the number of RAs sharply increased after the New Business

System rule, 5/8/11

• Number of Reviews performed has decreased while personnel has increased

• FY10 – 78 completed with 26 Procurement Analysts • One Analyst performed a review in FY10 vs two analysts now • Length of review increased (two weeks on average vs one week) and more in

depth reviews performed now vs FY10 • FY14 Goal was 125 reviews, completed 103 • FY15 Goal was 136 reviews, completed 101 • FY16 Goal 152 reviews, ensures NLT 5 year cycle time for CPSRs

(Goal numbers based on 4 teams fully staffed)

CPSR Management Challenges

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Priorities as we look ahead • Cycle Time Metric – report issued in 30 days

• FY13 metric was 7% vs goal of 85% • FY13 began at 300 days to complete, FY14 at 150, FY15 at 101 • Oct 1, 2014 there were 50 reports delinquent and Sep 30, 2015 there

were 26 reports delinquent • Feb 28, 2016 there were 2 reports delinquent

• Close the system gap between review completion, report issued, and initial determination

• Personnel to support mission

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Priorities as we look ahead • FAR Threshold Adjustments effective 01 Oct 2015 • Align CPSR universe categories to the FAR

• December 2015, required updates in place • Pre-review questionnaires

• March 2016, New review/report format • Transparent to the Ktr

• Initiatives • Better Buying Power • Internal Review Team • DCMA Policy Compliance • Travel Cost Savings

• Remote access to Ktr records, FY15 $56k

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Detection and Avoidance of Counterfeit Parts • Final Rule DFARS Case 2012-D055, Detection and Avoidance of

Counterfeit Electronic Parts issued May 6, 2014 • New DFARS 252.246-7007 clause, “Contractor Counterfeit Electronic

Parts Detection and Avoidance System” • Revised DFARS 252.244-7001, “Contractor Purchasing System

Administration” to add counterfeit system criteria • DFARS 231.205-71 revised to make the costs of counterfeit

electronic parts or suspect counterfeit electronic parts and the cost of rework or corrective action that may be required to remedy the use or inclusion of such parts are unallowable, unless—

1. The contractor has an operational system to detect and avoid counterfeit parts and suspect counterfeit electronic parts that has been reviewed and approved by DoD pursuant to 244.303;

2. The counterfeit electronic parts or suspect counterfeit electronic parts are Government-furnished property as defined in FAR 45.101; and

3. The contractor provides timely (i.e., within 60 days after the contractor becomes aware) notice to the Government

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Further Implementation • DFARS Case 2014-DOOS - Proposed rule published on 09/21/2015. Comments due on or

before November 20, 2015. DoD contractors and subcontractors shall obtain electronic parts from trusted suppliers and are authorized to identify and use additional trusted suppliers subject to certain conditions.

• DFARS 2015-D020 - DoD Use of Trusted Suppliers for Electronic Parts: Establishes qualification requirements to identify trusted suppliers, IA W (c)(3)(C) of NOAA SEC 818.

• DCMA Instructions: • Counterfeit Mitigation Instruction DCMA-INST 1205 dated 06 Jul 2015 --Quality Assurance

will be broadening their surveillance to include all contracts and all potential counterfeit supplies, not just CAS covered contracts and electronic parts

• Updating CPSR DCMA-INST 109 on hold

• Other Actions: • The CPSR Guidebook revised by Contracts to incorporate the policy changes • Training provided to DCMA personnel • DCMA Quality Assurance has been reviewing contractors’ counterfeit detection and

avoidance systems since late 2012, this will continue with risk based surveillance and updated as required based on surveillance results.

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Industry Outreach • DCMA engaged in industry outreach to improve Counterfeit parts

identification processes and issue awareness: • Corporate Management Council (CMC) • Council of Defense and Space Industry Associations (CODSIA) • National Contract Management Association (NCMA) meetings • National Defense Industrial Association (NDIA) meetings

• Discussing current processes to address counterfeit parts and what additional actions may be needed

• Collaboration between DCMA and industry developing strategies to clarify elements and assessment criteria for: • Leverage industry standards for counterfeit prevention • DFARS/FAR rule implementation • Counterfeit Electronic Part Avoidance and Detection System • SAE AS Standards on Counterfeit Mitigation

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Questions?