TABLE OF CONTENTS
1. INTRODUCTION
2. RISK PLANNING
2.1 Consent to Subcontract
2.2 CPSR
3. RISK ASSESSMENT
3.1 Consent To Subcontract
3.2 CPSR
4. RISK HANDLING
4.1 CPSR
Schedule
4.1.1 Developing the CPSR Schedule
4.1.2 Reviewing and Coordinating the CPSR Schedule
4.2 Obtain Data
4.2.1 Timeframes
4.2.2 Information Needed
4.2.2.1 Data from the Contractor
4.2.2.2 Data from Internal
Sources
4.2.2.3 Data from Other
Government Sources
4.3 Plan
the Review
4.3.1 Review Data
4.3.2 Refine the Scope of the Review
4.3.3 Identify the Location(s)
4.3.4 Personnel
4.3.5 Funding
4.3.6 Administration
4.3.7 Security
4.4
Arrange the On-Site Review
4.4.1 Time Line Tasks
4.4.2 Working Space
4.5
Conduct CPSR
4.5.1 Conduct Pre-Review Meeting
4.5.2 Conduct Entrance Conference with Contractor
4.5.3 Review Policies, Procedures, and Forms
4.5.4 Review Sample of Purchase Orders and Subcontracts
4.5.5 Compile and Analyze Statistics
4.5.6 Interview Other Contractor Personnel
4.5.7 Final Review of Team Input
4.5.8 Write Preliminary Observations and Findings
4.5.9 Informal Exit with Contractors Purchasing Staff
4.5.10 Discuss Observations/Findings with the ACO
4.5.11 Formal Exit Conference
4.5.12 Formal Letter
5. RISK MONITORING
6. RISK DOCUMENTATION
6.1
Write Report and Recommendations
6.2
Evaluate Corrective Action Plan
7. Appendixes
7.1 Appendix A CPSR Risk Assessment Form
7.2 Appendix B Contractors Policies and Procedures Checklist
7.3 Appendix C Sample CPSR Recommendations
7.4 Appendix D CPSR Report
7.5 Appendix E Contractor Purchasing System Review Data from Contractor
1. INTRODUCTION
1.1 The
purpose of this Contractor Purchasing System Review (CPSR) guidebook is to
provide assistance for personnel who may be required to perform a CPSR as well
as providing background information for those personnel who use the information
developed during a CPSR.
1.2 This guidebook
provides the framework of the CPSR. It does not provide the detailed procedures
on how to perform a CPSR. Please note that this guidebook is for reference
only, is not directive in nature, and is not to be used as a substitute for the
relevant Federal Acquisition Regulation (FAR) or Department of Defense (DoD) FAR
Supplement (DFARS). Those who are not directly involved in conducting CPSR's, including
contractors, should find that the CPSR guidebook should help increase their
understanding of the CPSR process. The CPSR guidebook may be used as a training
tool and as a desk reference.
2. RISK PLANNING
2.1 Consent to
Subcontract - The ACO, in consultation with the CMO operations team or
functional specialists should review the contract and any modifications to
understand the customer's needs and the requirements of the contract regarding
subcontracts.
2.1.1
2.1.1 Key processes are those which, if not properly controlled, can
adversely affect contract performance, cost, or schedule. Key processes should
include:
2.1.1.1 Advance
Notification
2.1.1.2 Request for ACO
Consent
2.1.2 If the level of consent to subcontract is not considered appropriate
the ACO should notify the PCO.
2.2 CPSR
- The ACO, in consultation with the CPSR Team, manages risk associated with
contractor's purchasing systems.
2.2.1 A review is made per FAR 44.302(a) to determine if a contractor qualifies to have a CPSR
performed. The CPSR Team Leader should identify potential qualifying contractors
for CPSR's. The primary sources are contractors currently in the program,
requests from contracting officers, requests from other DoD activities and
requests from the CPSR Center.
2.2.2 When a contractor is qualified to undergo a CPSR, a risk assessment
is conducted to determine the level of risk the contractor poses to the
Government with regards to the contractor's management of their purchasing
systems. The cognizant ACO, in coordination with the CPSR Team Lead and
Procuring Contracting Officers (PCOs), should determine which contractors require a CPSR.
2.2.3 The Contractor Risk Assessment form in Appendix A should be used to
assess the contractor's risk level. Based on the level of risk, the CPSR
Center, in agreement with the cognizant ACO, determines whether or not to
schedule the contractor for a CPSR.
2.2.4 The CPSR Team Captain identifies the key processes and rationale
that support the completion of a CPSR. Key processes are those which if not
properly controlled, can adversely affect contract performance, cost, or
schedule.
2.2.4.1 Key processes should
include:
2.2.4.1.1
Source Selection
2.2.4.1.2 Price/Cost Analysis &
Negotiations,
2.2.4.1.3
Cost Accounting Standards,
2.2.4.1.4
Compliance to Public Law requirements, and
2.2.4.1.5
Contractors Terms and Conditions (review by DCMA Legal Counsel)
2.2.4.2 In addition, the
following processes may be considered:
2.2.4.2.1 Contractor
Vendor Rating Process,
2.2.4.2.2 Contractor
Make/Buy Process, and
2.2.4.2.3 Contractor
Internal Purchasing System Audit Process.
3. RISK ASSESSMENT
3.1
Consent to Subcontract - During the post award review the ACO should: (1)
consider how new work affects the contractor's subcontracting process and
other contracts currently in process in the contractor's facility; and (2)
review the criteria in the contract to determine how many and which subcontracts
need consent. The ACO can then assess the risk presented. If the level of
consent to subcontract is not considered appropriate the ACO should notify the
PCO.
3.2 CPSR
- The considerations listed in FAR 44.202-2 for consent evaluation of particular subcontracts also should be
used to evaluate the contractor's purchasing system.
3.2.1 Those contractors eligible for a CPSR
should be given a risk
assessment to determine if a CPSR is to be performed.
3.2.2 Risk, as used in this context, means the Government's financial,
quality and delivery exposure posed by contractor operations. The first step in
conducting a risk assessment is to collect certain data pertaining to the
contractors purchasing system. Each decision on each item should be documented
in the file. As listed in Appendix A, The Contractor Risk Assessment Form, the
following factors have a bearing on the risk posed to the Government.
3.2.2.1 Approval status history.
For a contractor where a CPSR has not been performed, there is no approval
status history. Where this data is available, review of it gives a good picture
of the Governments risk. Does the contractor have a history of having an
approved purchasing system or does its history show a record of bouncing back
and forth between approved and disapproved? Clearly, a contractor with a history
of a repeatedly approved purchasing system poses a smaller risk than the
contractor with a history of approval being withheld.
3.2.2.2 CPSR recommendations and
repeat recommendations to the contractor. For contractors whose purchasing
systems have been reviewed before, the criticality of recommendations and repeat
recommendations, when viewed over time, gives an indication as to the direction
the contractor is moving with its purchasing system. Decisions to perform a
CPSR should be based on the significance of the recommendations. Are they major
or minor recommendations? A trend pattern of major recommendations is an
indication of high risk. Minor recommendations that are not repeat
recommendations may not pose much of a risk at all. Consider the impact the
failure to implement the recommendations has on the contractor's purchasing
system. Major recommendations pertain to compliance with public laws, and high
cost practices and others as may be determined by the contracting officer.
3.2.2.3 Dates of previous CPSRs
and other reviews. These dates let you know how long a contractor has been in
the CPSR program and how frequently it has been subjected to CPSRs. The longer
the time spans between CPSRs, the greater the risk that the contractors
purchasing system may have deteriorated. What other reviews have been made of
the contractors various systems? The results of various internal purchasing
system reviews, for example, can add to your risk assessment
3.2.2.4 Government contract mix:
cost-type, firm fixed price (FFP), etc. A factor of risk is a type of contract
or the mix of contract types that the contractor has. Cost reimbursement
contracts pose the most risk to the government whereas FFP contracts pose the
least risk to the government.
3.2.2.5 Direct material and
material overhead as a percentage of total cost. More material purchased for a
contract implies greater cost to receive, store and handle that material. A
high material handling cost to material cost ratio is an indicator of higher
risk.
3.2.2.6 Sales to the Government
as a percent of the contractors total sales. It is generally thought that a
contractor with sales to the Government as a relatively minor part of Its total
sales poses a lesser risk than a contractor whose sales to the Government are a
predominant portion of its total business. This thought is base on the concept
that the highly commercial contractor is more driven towards cost effectiveness
and efficiency than are contractors whose business base is primarily sales to
the Government. However, a contractor whose sales to the Government are a
relatively minor part of its total sales may become careless in performing to
Government requirements. Contractors selling commercial products tend to be
driven by the competitive marketplace towards cost effectiveness and
efficiency. This may not apply, however, for contractors in sole source
situations, and when the Government is a relatively minor part of their total
sales.
3.2.2.7 DCAA audit reports. The
DCAA performs "cost, systems, and functional reviews per the Contract Audit
Manual (CAM). DCMA uses portions and information from those reviews in order to
determine the impact of risk associated with the contractors' purchasing
systems.
3.2.2.8 Input from the
contracting officer and other members of the contracting officer's team. The
primary source of information about a contractor is the ACO. The ACO is
responsible for coordinating the efforts of all members (i.e., Quality,
Industrial Specialist, Engineers, Pricing, Small Business, Property, etc.) of
the field contract administration team and should be cognizant of the strengths
and weaknesses of the contractor.
3.2.2.9 Education, training, and
experience of the contractor’s purchasing personnel. A well trained procurement
staff poses a smaller risk than an inexperienced, untrained staff.
3.2.2.10 The contractor’s self
assessment and internal auditing efforts. Some contractors perform self
assessments and internal audits of their purchasing activity. A contractor who
has an effective and aggressive self assessment and/or internal auditing program
generally poses less risk to the Government. Often the contractor shares
the results of its internal audit programs with the Government. The
Contractor's data/results and self audit methods should be validated before
being used.
3.2.2.11 The contractor's relative
position in Its Industry. A determination should be made as to whether the
contractor is the only source, or is one of many, in its relative position
within that industry. Generally, a sole source contractor poses the greatest
risk. Ultimately, competition drives the contractor to be cost conscious in
order to improve its share of the market. Industry leaders and well-established
contractors generally pose a lesser risk.
3.2.2.12 Reorganizations, mergers
and divestitures. Reorganizations, mergers, and divestitures can impact a
contractor's purchasing performance, without regard to previous purchasing
system status. Changes resulting from these activities can be expected but are
not necessarily predictable. Purchasing personnel, policies, and procedures may
be changed. New people may be brought in. Experienced people may be moved out
or moved around. Purchasing policies and procedures may be changed.
3.2.2.13 Significant fluctuations in
sales. Large or unexpected fluctuations in sales, if not effectively managed
may adversely affect the contractor's purchasing system.
3.2.3 Although the rating criteria shown on The Contractor Risk Assessment
Form in Appendix A results in an objective numerical score, there is no
established scoring system that provides the "right answer" when performing a
risk assessment. The evaluation of the collected data depends on the judgment
of the CPSR specialist and that of the ACO. There are times when the data
discussed above is not available. The Contractor Risk Assessment Form
should be used, if possible, as a benchmark.
4. RISK HANDLING
4.1 CPSR Schedule. The CPSR Center Lead Analyst should develop a master schedule of
CPSR Risk Assessments to be conducted during the next twelve months.
Copies of the master schedule are to be provided to the CPSR Center and Analysts, DCAA,
HQ NASA, the cognizant ACOs and others as deemed necessary. The Master CPSR
schedule should be coordinated with the above to ensure that the schedule is
prioritized and the duplication of effort is kept to a minimum
4.1.1 Developing the CPSR Schedule.
4.1.1.1 The CPSR Center Lead
Analyst develops a master annual schedule for conducting reviews. Some
factors to be considered in developing the schedule include the type of review,
(i.e., initial, subsequent or follow-up); the date the contractor's approval was
granted (if currently approved); whether PCOs are considering new awards, and
other relevant factors (i.e., follow-up review tailored to specific ACO
concerns, etc.)
4.1.1.2 When a contractor has
corporate wide/business unit wide purchasing procedures, consideration should be
given to using established procedures (establishing procedures if needed) for a
single review of corporate wide business unit wide procedures. This corporate
wide approach should be reviewed and approved by the CACO/DACO, coordinated with
cognizant ACOs, affected CPSR Teams and affected CMO Commanders, and assigned to
a Lead DCMA CPSR Analyst. Results of the review should be shared with all
cognizant CPSR Teams. Any procedural recommendations made as a result of a
review that affect corporate wide business unit written procedures should be
addressed to the cognizant CACO/DACO and the CPSR Center.
4.1.1.3 The CPSR Center
Team Captain assigned determines the scope and duration of the reviews to be
conducted and the resources needed in coordination with the Lead Analyst and/or
Division Director. The Team Captain should determine what
other Government personnel may be required, and the role of contractor personnel
assisting the audit.
4.1.1.4 When planning the
schedule, the Lead Analyst should allow enough flexibility so that the schedule
can be adjusted during the year.
4.1.1.5 CPSR Teams should respond
to requests for assistance from engineers and program managers who may need
purchasing system status and information.
4.1.2 Reviewing and Coordinating the CPSR Schedule.
4.1.2.1 CPSR teams and CMO
personnel who perform CPSRs should coordinate their schedules to minimize
disruption to contractor operations, and to ensure that no duplication of effort
occurs. Although the criteria and frequency of these reviews differs,
successful coordination eliminates significant review preparation cost for
contractors.
4.1.2.2 Schedules should be
shared among CPSR team members, cognizant ACO, Property, Transportation,
Engineering, Legal Office, Small Business, Terminations, and NASA in coordinated
reviews. Where schedules do not match, copies of the most recent compliance
reviews should be requested. CPSR teams may negotiate with Small Disadvantaged
Businesses (SADBU's) on what information to provide which might be helpful for
them (degree of competition, outreach efforts) in determining a small business
program rating.
4.1.2.3 Schedules are to be
shared and coordinated with DCAA. Where schedule conflicts arise the CPSR Team
Lead should revise the CPSR schedule to ensure maximum DCAA participation and to
minimize the number of audit/reviews to a contractor.
4.1.2.4 Funding issues should be
decided early in the planning cycle.
4.1.2.5 When the schedule has
been reviewed and coordinated the contractors should be notified as to when the
review is to be conducted.
4.2
Obtain Data. It is the responsibility of the CPSR Team Captain to make
decisions on pertinent information required by the team per FAR 44.303 and FAR
44.202-2, in order to efficiently perform the CPSR. The amount of data
accumulated should maximize the team knowledge and minimize the time to digest
it.
4.2.1 Timeframes
4.2.1.1 For reviews conducted for DCMDI (OCONUS) the requests for data should be forwarded to the ACO at least 90
days prior to the start of the review to allow for translation of the documents.
4.2.1.2 For reviews in the CONUS
the requests for data should be forwarded to the ACO 45 to 60 days prior to the
start of the review.
4.2.2 Information Needed - Items on the list
below are intended as memory joggers to Team Leaders and are neither all
inclusive nor is all of the information needed for each CPSR.
4.2.2.1 Data to be obtained from
the Contractor. (In addition to that required by FAR. See also Appendix
E.)
4.2.2.1.1
Copies of the contractors organization chart(s), showing the
corporate management structure, down to at least the procurement department-head
level.
4.2.2.1.2
Copies of the contractors procurement organization chart down to at
least the first level of supervision. Either the chart itself or an accompanying
table should show the number and job classification (or assignment) of personnel
reporting to each first-level and higher tier supervisor.
4.2.2.1.3
Summary of Contractor sales and purchasing data. (See Appendix E,
Contractor Purchasing System Review)
4.2.2.1.4 List of major open contracts (prime and subcontract) as
of a selected cut off date, broken out by project name or description, face
value, and Unliquidated Obligation (ULO).
4.2.2.1.5 Copies of management reports such as shortage reports,
weekly or monthly workload and work backlog reports, scrap/salvage reports, and
repetitive reports to company management and/or the Government.
4.2.2.1.6 List of affiliates, autonomous or semiautonomous
departments, and divisions indicating total amount of business awarded to each
during current year.
4.2.2.1.7
Contractor self evaluations. Based on the specific review, the CPSR team leader
should request contractor self evaluation of the following processes (usually
requested in background data requests forwarded through ACOs prior to on-site
visits).
4.2.2.1.7.1 Standard purchasing and subcontract terms and
conditions. Contractor legal counsel should review these clauses and certify
that they are acceptable for use with the current FAR requirements. Contractor
legal counsel should cite any changes that need to be made, and certify that the
clauses are acceptable upon their revision. Some companies contract out for
legal support, and certification from these attorneys is acceptable.
4.2.2.1.7.2 Standardization program
4.2.2.1.7.3 Value analysis/value engineering program
4.2.2.1.7.4 Major subcontract administration
4.2.2.1.7.5 Purchasing reports to higher management
4.2.2.1.7.6 Purchasing cost saving reporting
4.2.2.1.7.7 Supplier evaluation and rating methods
4.2.2.1.7.8 Advance purchase planning
4.2.2.1.7.9 Comparative sales and purchasing data
4.2.2.1.7.10 Implementation of corrective action on previously
identified deficiencies, and
4.2.2.1.7.11 Any deterioration in the purchasing system since the last CPSR, and corrective action taken to date.
4.2.2.1.8 Metrics. Many companies use health
indicators and metrics to measure and report performance against predetermined
tolerance levels. Such indicators are acceptable means for contractors to
demonstrate effective purchasing systems, and to justify the continuance of
purchasing system approval. They may not be used, however, to waive a risk
assessment. Contractors should take the lead in establishing and reporting
their metrics to the local CMO. CPSR teams should assist ACOs and these
contractors to select the most important health indicators, and to evaluate the
resulting metrics reports. There should be a zero tolerance level for
noncompliance with public laws. ACOs should request CPSR teams to review any
out of tolerance conditions to validate the contractor's findings and
conclusions, and/or determine whether withdrawing purchasing system approval is
warranted to protect the Government's interests. Some indicators for contractor
metrics are:
4.2.2.1.8.1 Maximizing the incidence of competitive subcontracting
(including price and other factors)
4.2.2.1.8.2 Justifying and documenting the need for legitimate
single and sole source purchases
4.2.2.1.8.3 Obtaining cost or pricing data and information other
than cost or pricing data from prospective subcontractors and flowing down the
correct FAR clauses to awardees
4.2.2.1.8.4 Performing effective cost analyses of cost data
4.2.2.1.8.4 Obtaining cost accounting standards disclosure
statements or valid exemption forms, and flowing down correct FAR clauses
4.2.2.1.8.5 Performing effective price analyses of supplier
quotations and proposals
4.2.2.1.8.6 Performing effective negotiation with potential
suppliers
4.2.2.1.8.7 Providing advance notification to the contracting
officer of intent to subcontract, and obtain ACO consent prior to award
4.2.2.1.8.8 Definitizing letter subcontracts within 180 days or
before 40% of the work is completed
4.2.2.1.8.9 Maximizing on time supplier deliveries to protect prime
contract schedules and
4.2.2.1.8.10 Maintaining a satisfactory small business program rating.
4.2.2.1.9 Copies of contrac 4.2.2.2 Data to be obtained from
Internal Sources. The CPSR Team Captain should request copies of the most
recent CMO QDR's, progress reports, and other pertinent documents. Although
CPSR reports may describe deficiencies from Quality Assurance CPSR reports, they
should not duplicate recommendations already made. Deficiencies wholly
unrelated to the purchasing system should not be factors in the purchasing
system approval decision. Other sources of information include: Engineering,
Production, Property, Small Business, Legal, and Transportation & Packaging from
cognizant CMOs. Any risk assessment or CPSR data should also be gathered.
4.2.2.3 Data to be obtained form
Other Government sources. The CPSR Team Captain should determine the extent of
data that is needed from other Government sources and send out the request
letters at the same time as the letter requesting the data from the contractor.
Some sources of information are: DCAA, General Accounting Office (GAO),
inspector General (IG), Defense Criminal Investigative Services (DCIS).
4.3 Plan
The Review - After the data is gathered the CPSR Team Captain, in conjunction
with the customer, should refine the scope and the location (s) of the review
and decide what assets are required. Funding issues should be decided early in
the planning cycle.
4.3.1 Review Data. The CPSR Team
Captain Is to review the data gathered
and decide if it is adequate for the review. If more information is required
the Team Captain should request it. When reviewing the collected data the CPSR
Team Captain and ACO should consider the following:
4.3.1.1 Contractor sales data including the
number of subcontracts issued during the review period.
4.3.1.2 Contractor's internal audits
conducted prior to the scheduled review.
4.3.1.3 Customer input from ACOs, PCO's, and
other cognizant Government personnel
4.3.1.4 Reports generated under CRAG or other
applicable reviews.
4.3.1.5 The last CPSR report.
4.3.1.6 Any DCAA audits that impact the
purchasing system that were conducted since the previous CPSR, or if this is an
initial review, audits conducted during the previous 12 months.
4.3.2 Refine the Scope of the Review.
4.3.2.1 In most cases, an initial
review should constitute a complete appraisal of the contractor's purchasing
system. Subsequent reviews may, if considered appropriate, constitute a complete
appraisal of the contractor's purchasing system or be limited to those areas
that the customer and the CPSR Team Captain determine necessary for adequate
system analysis. Some circumstances that should be considered when determining
the extent of the review follow:
4.3.2.1.1 The past review resulted in
withholding or withdrawing system approval.
4.3.2.1.2 A major change in the contractor's
purchasing organization.
4.3.2.1.3 The contractor has been awarded a
prime contract involving system management responsibility.
4.3.2.1.4 The contractor has no contracts
that require production deliveries.
4.3.2.2 Any new responsibility
that affects the contractor's purchasing organization and its coordination with
other departments could be a situation where the ACO would want to be assured
that the contractor's purchasing system is adequate for the purpose of dealing
with the new responsibilities.
4.3.2.3 When a complete appraisal
is not required, the review should be limited to those areas that have been
identified as an area of weakness or of special interest/importance. For
example, a GAO or IG report may indicate the need for a review limited to the
particular area (s) under criticism, Similarly, if a deterioration in part of
the contractor's system is discovered, such as in the performance of price/cost
analysis or single/sole source justifications, only a review of those particular
areas of the contractor's purchasing activities may be necessary.
4.3.3 Location - Identify the location to be included in the review. If
the contractor's purchasing system covers multiple locations, then the ACO and
the CPSR Team Captain need to determine which locations to include in the
review.
4.3.4 Personnel.
4.3.4.1 The Team Captain chooses the members of the team based upon the type of review, the length of
on-site review time anticipated and the material/areas to be reviewed. In order
to utilize team member expertise in the most efficient manner and minimize
disruption of contractor operations the CPSR Team Captain should give
consideration to the background and skills of the team members. A versatile
team is able to take a broad view of the contractor's operations and
appropriately distribute emphasis. The roles of various potential team members
are discussed below.
4.3.4.1.1 DCMA
Technical Specialists: Technical specialists may be requested to contribute to CPSR's in their assigned areas, with no duplication of effort. CPSR Team
Captain should give any contractor self audit reports to the appropriate
technical specialist for validation.
4.3.4.1.2 DCAA:
When participating on CPSR teams, DCAA should be assigned the following topics:
4.3.4.1.2.1 Material Estimating - DCAA auditors can extract
information from existing Contractor Estimating System reports and flash audit
records from individual prime contract proposal reviews.
4.3.4.1.2.2 Prompt payment discounts - Auditors usually know
contractor accounting practices and their record keeping systems and techniques.
4.3.4.1.2.3 Interdivisional transfers - Contractors often purchase
from other corporate segments.
4.3.4.1.2.4 Customers: The CPSR Team Captain should request, through
the ACO, participation by buying office personnel.
4.3.4.1.2.5 Contractors:
4.3.4.1.2.5.1 Coordinated audits. Team Captains should give
consideration to inviting contractors to participate, either as run team
members, or to some lesser degree, as seen fit by contractor management and the
Team Captain. To ensure objectivity, contractor participants should be internal
audit personnel, or otherwise outside the materiel/purchasing span of control. CPSR teams should not duplicate the efforts of its contractor team members,
except as may be necessary to validate findings. The degree of contractor participation should not be a
factor in the ACO's decision to grant purchasing system approval.
4.3.4.1.2.5.2 Self Governance. Contractors may increase their
participation in CPSRs by volunteering to participate in self governance
purchasing reviews. This option is not appropriate for first time contractors
because there would be no Government base line to use in the validation
process. Contractors may submit their self governance reports to their ACOs at
any time. When ACOs and CPSR team captains conduct the risk assessment, they
should consider using the self governance report to determine the scope of
validation necessary, the scope of the overall review, and the desired degree of
contractor involvement in the next review. (Note: Self Governance objectives by
themselves do not constitute a set of standards or a checklist for determining
whether reduced oversight is warranted.)
4.3.5 Funding:
4.3.5.1 Funding, in general
terms, should be discussed at the CMO level and determined in conjunction with
developing the Annual and Quarterly CPSR schedules.
4.3.5.2 Requests from DoD or NASA
activities for CPSRs on contractors under DCMA cognizance that meet the criteria
for a CPSR are to be provided at no cost to the recipient.
4.3.5.3 Requests from DoD or NASA
activities for CPSRs on contractors not under DCMA cognizance should be honored
when manpower is available, with per diem and travel costs provided by the
requesting activity.
4.3.5.4 Requests from non-DoD
Federal activities for CPSRs should be honored when assets are available, on a
cost-reimbursable basis.
4.3.5.5 Requests from non-Federal
activities for CPSRs should be referred to the CPSR Center.
4.3.6 Overall Administration - The Team Captain serves as the overall
administrative chief for the team, coordinating its efforts with those of the
contract administration offices. Responsibilities should include arranging
meeting times and places, determining any special facilities needed and assuring
the security of all the material made available to the team during the review.
The Team Captain may delegate any of these administrative duties as necessary.
4.3.7 Security
4.3.7.1 Restricted access to a
contractor’s facility may slow the progress of the CPSR team. When required,
it is recommended that the Team Captain arrange with the contractor to have
non-escort badges available to the CPSR team members from the first day of the
on-site review. Any Government property (e.g., laptop computers) brought into
the contractor's facility may require registration with the contractor’s
security office. The Team Captain should inquire about this, and restrictions
on removing audit records from the plant, before starting the on-site review.
4.3.7.2 When planning a review in
a foreign country, it is necessary to request and obtain country clearance. The
required procedures are somewhat unique to each country. Guidelines are
published in the DoD Foreign Clearance Guide, DoD 4500.64G. Country clearance
usually serves as security clearance to enter the contractor’s facility allowing
the team members access to relevant production plants as well as administrative
offices. It is not always required, but it is recommended that CPSR
analysts frequently traveling abroad on business obtain a Government passport.
4.4 Arrange the On-site Review - After the scope of the CPSR has been determined, planning the actual effort begins. The following
sections provide a general guide to the extent and type of planning activities
required.
4.4.1 Time Line Task.
4.
4.4.1.1 Initial/In-depth CPSR
4.4.1.1.1 6-8 weeks prior
to scheduled review contact ACO and team members to reconfirm review dates,
arrange logistics.
4.4.1.1.2 4-6 weeks prior
to scheduled review mail request for data to the contractor and the other
Government specialists. Request copy of policy and procedure manual
from contractor 4-6 weeks prior to review.
4.4.1.1.3 2-4 weeks prior
to scheduled review the Team Captain receives list of purchase orders and selects
sample. Review Policy and Procedure manual and inform contractor of
missing or inadequate areas.
4.4.1.1.4 1 week prior to
scheduled review the Team Captain reviews all data received on-site visit from
the contractor and the Government specialists and prepares entrance conference
notes and arranges meetings as necessary. It may be necessary for the Team
Captain to conduct meetings with ACO, DCAA, and/or DCMA Technical Specialists
prior to the start of the on-site review in order to resolve outstanding issues
and discuss recommendations offered by other Team members.
4.4.1.2 Other than
Initial/In-depth Reviews
4.4.1.2.1 2-4 weeks prior
to scheduled on-site visit the Team Leader determines which steps are required
to accomplish the review
4.4.1.2.2 1 week prior
to on-site visit the Team Leader selects sample, if necessary, and prepares
entrance conference notes.
4.4.2 Adequate Working Space – A room adjacent to, or close by, the
purchasing department should be provided to serve as the team's on-site
location. Normally contractors provide CPSR teams with hard copy purchase order
folders that it used in its own internal approval cycle, supplemented with
working folders if they are requested. Therefore, the team's working room
should contain enough tables or desks to seat all the members and to permit them
to spread out the folders to be reviewed. The room should be large
enough to hold interviews of contractor personnel. It should be adequate for
writing draft report paragraphs covering their respective topic areas. The
extent of the contractor’s participation in the review should be described.
4.5
Conduct the CPSR
4.5.1 Conduct Pre-Review Meeting (Government Personnel Only)
4.5.1.1 On the first day of the
on-site visit, the Team Captain should hold a meeting with all the members of
the team. At this meeting, the Team Leader should state the plan for the
review. If not done earlier, the Team Leader should announce the assignments of
the team members and define their responsibilities.
4.5.1.2 Government personnel
should be invited to share with the team any purchasing system related reviews
and audits, such as operations audits, property system surveys, MMAS audits,
etc., which may have been conducted during the previous 12 months. This may
enable the team to forego duplicative effort.
4.5.1.2 The ACO should be requested to describe briefly the
contractor's major programs, where the work is performed, whether there is
significant research and development work, and the contractor's general attitude
toward the impending review. The ACO should inform the team of specific
topic areas of concern. This meeting should establish the entrance conference
attendees and the spokesperson for the
Government on the various aspects of the review. The Memorandums of Agreement
between DCMDI and the CONUS CPSR Districts should be reviewed in detail before
meeting the overseas contractors.
4.5.2 Conduct Entrance Conference with Contractor - The Team Captain
should open the conference by introducing the Government attendees, beginning
with the ACO, etc., down the chain of command. If the contractor personnel in
attendance are not familiar with CPSRs, the team leader should explain the CPSR
process, function and the benefits accruing to both the Government and
industry. At all conferences, the Team Captain should explain the extent of the
review to be undertaken, the purchasing system sub-processes most important to
gaining system approval, and the timing of events. Inform the contractor that
only the ACO will give official directions and make the final
approval/withholding approval decision in accordance with FAR Part 44.305-1. The contractor may agree to provide a
briefing on their purchasing system at the entrance conference.
4.5.3 Review Policies, Procedures and Forms - The team's first task is to
review the contractor's policies, procedures, and forms in order to know how the
purchasing system should operate. (Appendix B)
4.5.4 Review Sample of Purchase Orders and Subcontracts.
4.5.4.1 Once the team has
familiarized itself with the policies, procedures and forms, the team should
analyze the selected sample of purchase order folders drawn from the
contractor’s files. The team normally reviews the purchase orders using CPSR software. If one or more members of the team use the hard copy form, the
data may be computed manually and entered into CPSR software upon return to the
duty station. The CPSR model software may be shared with outside agency
personnel to use during joint audits or when they participate in CPSRs.
Purchase/subcontract orders awarded by the contractor exclusively in support of
Government contracts awarded to the contractor using competitively awarded firm
fixed price and fixed price with economic price adjustment procedures, or that
are for commercial item contracts pursuant to FAR Part 12, will be excluded from review in accordance with FAR Part 44.303.
4.5.4.2 For contractors who have
"paperless" systems and/or keep records in an automated storage system, CPSR
personnel should access the records in the medium used by company personnel. The
team should also determine the integrity of the contractor's methods for
authenticating internal approval signatures and vendor certifications in
automated systems. Unless FAR or the contracting officer require originals, CPSR teams
should consider as acceptable, vendor certifications, proposals, etc.,
in facsimile form.
4.5.4.3 The Team Captain, in
consultation with the contractor's liaison, determines whether to ask
questions as they come up in the purchase order review, or to save them to ask
several at one time. Any apparent deficiencies should be verified through
interviews with the buyers or liaison personnel before final judgment. If
deficiencies relate to contract clause compliance, the team should check the
contractor's copy of the prime contract to verify applicability.
4.5.4.4 Team members should
conduct their interviews in an objective manner, inviting contractor personnel
to be frank and forthcoming with information. In many cases, CPSR teams educate
new buyers by virtue of their questions/explanations of Government policy. Care
should be taken; however, not to direct contractor personnel to take specific
actions which may incur constructive change problems for the customer. Team
members should not criticize company management or discuss possible legal
violations (e.g., acceptance of subcontractor kickbacks) in the presence of
contractor personnel.
4.5.4.5 CPSR teams should custom
tailor the sample size of purchase orders and subcontracts where contractors
conduct their own internal audits, including CRAG Part 5, or some other type
teaming arrangement. CPSR teams should sample purchase orders reviewed by the
contractor, and a percentage of purchase orders not included in the contractor's
sample. This provides confidence that the contractor's sample is
representative of the universe.
4.5.5 Compile and Analyze Statistics
4.5.5.1 The CPSR Software Model
program automatically sorts and prints spreadsheets detailing the data gathered
from the sample purchase orders. It also compiles statistics and prints
statistical summaries. If the Software Model Program is not available this
should be done manually.
4.5.5.2 Each member of the team
should examine the statistical summaries and share their opinions on what trends
appear to exist, and what directions to take for the rest of the review.
Negative indicators occurring early in the year need not automatically result in
a recommendation. Procedures may have already been corrected. Purchase lead
time and delivery statistics deserve particular attention. For example, 30 days
lead time may not necessarily be too short for some products, and 90 days is
definitely not enough for long lead items.
4.5.5.3 Verify the facts
concerning any apparent public law violations
4.5.5.3.1 Cost or
Pricing Data requires obtaining one or more cost data submissions upon which
prime and subcontractor negotiations were based, and a certificate that the most
recent cost data was accurate, current, and complete. The certificate is
required by FAR 15.406-2(a).
4.5.5.3.2 Cost
Accounting Standards requires obtaining disclosure statements or exemption
certificates from subcontractors and flowing down the applicable CAS clauses in
qualifying subcontracts. Notifying the ACO is required by FAR 52.2306 (e)(3).
4.5.5.3.3
Notifying contracting officers before awarding subcontracts under cost plus
fixed fee prime contracts is a legal requirement (notifying contracting officers
of pending awards under other types of prime contracts, and obtaining ACO
consent in all cases, are regulatory requirements, not legal ones).
4.5.5.3.4
Contractors failing to definitize their letter subcontracts before 40% of the
work is accomplished (or within 180 days - whichever comes first) is a violation
of FAR 16.603-2(c)(3).
4.5.5.4 Any violation of Public Law may constitute a major system
deficiency. The Team analyzes the causes and considers all the
circumstances of each situation to arrive at a recommendation which is in the
best interests of the Government. In most situations, negative statistical
indicators provide a basis for further inquiry, and should not be used alone to
justify recommendations for corrective action.
4.5.5.5 When comparing CPSR team
statistics to those submitted by contractor internal audit, team members should
determine whether the results are similar enough to support the contractor's
conclusions. If the results are dissimilar, the team should attempt to discover
a reason for the finding through discussions with the contractor liaison, and/or
select an additional sample of purchase orders and subcontracts on which to base
further analysis.
4.5.6 Interview other Contractor Personnel.
4.5.6.1 Interview other
contractor personnel on issues resulting from the analysis of statistics and
also on areas not covered in the sample. During the sampling of purchase order
process, the team may have questions concerning some of the files that were
reviewed. This does not necessarily mean that the files are deficient, but it
does mean that further explanation or clarification is needed. Typically the
questions are answered by the cognizant buyer or senior
purchasing/subcontracting management. The response may be oral or written
depending on the complexity of the question and the response. There may also
be occasions where the team interviews personnel from outside of the
purchasing organization regarding questions that are not under the control of
the purchasing personnel. For example, there may be a question regarding the
requisitioning process.
4.5.6.2 Interviews may be
conducted with personnel outside the purchasing area covering topics that may be
included in the CPSR report but are not directly discussed in the sampling
process. The following cover some of the areas to be addressed:
standardization, value analysis, make-or-buy and ethics.
4.5.7 Team input Final Review - Prior to the
conclusion of the on-site portion of the CPSR, the team reviews the input
from all members, including DCAA, Legal, and other DCMA Technical Specialists to decide if there are any areas where further investigation is
needed. The Team Leader is responsible for coordinating resolution.
4.5.8 Write Preliminary Observations and
Findings - Once all on site activities have been completed; it is time to assess
the results of the reviews. The Team Captain should write preliminary
observations and findings that provide the basis for the exit conference
discussion and formal CPSR report. The team considers the results of the
sampling, and the team members' input. After the statistics have been reviewed,
along with all of the other information generated during the review, the Team
Leader decides if any problems found are serious enough to warrant presenting
formal recommendations to the contractor requiring corrective actions. It
should be recognized that there may be situations where isolated non-systemic
problems are found. While a formal recommendation may not be warranted, the
problem should be addressed in the exit conference and discussed in the CPSR
report to preclude recurrence.
4.5.9 Informal Exit with Contractor's
Purchasing Staff - It is recommended that an informal exit meeting with the
contractor's purchasing personnel be held. This meeting provides the purchasing
personnel with advance warning concerning the issues that wilt be discussed at
the exit conference. It provides the purchasing staff with the opportunity to
provide additional information or evidence that could have an effect on the
review team's findings.
4.5.10 Discuss observations/findings with the ACO - The
ACO should be kept apprised of the progress of the review. There are at
least three areas to be discussed with the ACO. The first is to
confirm the ACO's attendance at the exit conference. Secondly, and most
Important, the review team should go over the results of the review and discuss
the proposed recommendations. Depending on the desires of the ACO, an in-depth
presentation may be required or a brief summary may suffice. The Team Captain
and the ACO have an understanding of the formal recommendations. Finally, the
ground rules for the exit conference should be discussed. It is preferable that
the ACO letter transmitting the findings and recommendations be signed at the
conclusion of these discussions. In the event that the ACO is unable to
attend the exit conference, the Team Captain still needs to brief the ACO as
explained above. However, in addition, to this, he/she should explain
that an informal list of findings may be presented to the contractor at the exit
conference. This document lists the recommendations, and alerts the
contractor that the ACO's formal letter with recommendations is
forthcoming.
4.5.11 Formal Exit Conference - The review team
should hold an exit conference with the contractor's top management to ensure that
they are aware of any serious problems that may have been uncovered. It is not
necessary that the exit conference be held on the last day of the review. It is
recommended that the Commander of the CMO or their representative be invited to
attend the exit conference. The Team Captain should provide positive
observations as well as negative comments. The letter with recommendations for
improvement of the purchasing system is given to the top contractor official in
attendance. The Team Captain explains the basis for the recommendations,
reviews the statistics resulting from the sampling process, gives the overall
results of the review, and highlights that the contractor is to respond to the
ACO within 15 days of the ACO's formal letter. (It can be assumed that the
contractor purchasing management briefs their upper management on the
review results, so an in-depth explanation of every facet of the review should
not be necessary.) The Team Captain should provide responses to unanswered
questions as soon as practical.
4.5.12. The ACO's Formal Letter - The ACO's letter with recommendations
shall request that the contractor respond within 15 days with its corrective
action plan to the ACO, copy to the Team Captain in accordance with FAR Part
44.305-2(c).
5.1 RISK MONITORING
5.1.1 The CPSR identifies major and minor
problems with the contractor's purchasing system. These problems may reduce the
effectiveness and efficiency of the purchasing system and increases the risk
level to the Government.
5.1.2 The Corrective Action Plan describes
actions the contractor proposes to take to correct the problems identified in
the CPSR. The ACO in consultation with the CPSR Team should review the
Corrective Action Plan to determine the appropriateness of the proposed
corrective actions. The contractors purchasing system should be monitored to
ensure the corrective actions are accomplished and the actions actually correct
the problems. Failure to implement Corrective Action Plan changes should be
considered as evidence that the risk level for that contractor may need to be
re-evaluated.
6.1 RISK DOCUMENTATION
6.1.1 Write Report and Recommendations
6.1.1.1 The report should be
concise and reflect conditions as found; and should identify the contractor,
processes reviewed and recommended corrective action(s) (Appendix C). Evidence
of CPSR Team Captains review of the final report, work papers, and other
pertinent documents should be held in the official CPSR file.
6.1.1.2 The CPSR Report format is
shown at Appendix D. The following exception apply: When contractors have
submitted internal audit reports on a portion of their purchasing system to the
Government, the CPSR team has the option of attaching copies of those reports to
the summary, and include a paragraph stating the Team's validation method and
results. The summary should not duplicate topics included in these internal
audit reports.
6.1.2 Evaluate Corrective Action Plan - The
ACO shall request the contractor to provide the Corrective Action Plan within
15 days after the exit conference, with a copy to the CPSR Team Captain in
accordance with FAR Part 44.305-2(c).. The CPSR Team Captain evaluates the Corrective Action Plan for responsiveness
to the recommendations, appropriateness of corrective actions, and capability of
meeting the designated milestones. Unacceptable Corrective Action Plans
are to
be returned via the ACO to the contractor for reconsideration and rework.
The Corrective Action
Plan and the Team Captain’s evaluation of the CAP should be made part of the
final CPSR report..
6.1.3
On the first page of the report, (Appendix D), the
Team Captain should inform the ACO of his/her
recommendation to approve or withhold approval of
the purchasing system. The ACO should not issue
approval or withhold approval prior to obtaining a
copy of the final CPSR report.
6.1.4
The Team Captain should provide a copy of the final
report to the ACO and DCAA.
revised 16 Apr 08 |
