Summary: The Defense Contract Management Agency (DCMA) may conduct different types of Contractor Purchasing System Reviews (CPSR): initial, comprehensive, special, or follow-up. These reviews ensure the contractor’s purchasing system is effective, compliant with government requirements, consistent with DCMA guidance, FAR Part 44, and DFARS 252.244.7001, and properly manages federal funds, safeguarding both financial health and contract eligibility.
A Contractor Purchasing System Review (CPSR) evaluates compliance and efficiency in managing government funds. The threshold for determining the need for a CPSR is $50M and must include FAR 52.244 and DFARS 252.244-7001 for Department of War (DOW) contracts. Approved purchasing systems can earn points in RFP evaluations, while failure to comply with DFARS 252.244-7001 can result in withheld payments.
Preparing for the CPSR by understanding requirements and using available resources is essential for maintaining contract eligibility.
What is a purchasing system?
A purchasing system is a set of policies, procedures, and internal controls that govern how a contractor selects suppliers, procures goods and services, and manages subcontractor relationships while fulfilling government contracts.
An approved purchasing system demonstrates to the government that the contractor is capable of managing federal funds responsibly, complying with regulations, and maintaining efficiency and transparency in procurement activities. Having an approved system not only streamlines contract administration but also enhances a contractor’s reputation and competitiveness for future opportunities.
Understanding why you were selected for a CPSR
A CPSR will be requested when a contractor’s annual sales to the government are expected to exceed $50 million in a 12-month period or at the contracting officer’s direction. Government sales will include all government contracts and subcontracts, minus those competitively awarded firm-fixed-price, competitively awarded fixed-price with economic price adjustment, or sales of commercial items pursuant to FAR Part 12.
After DCMA performs a risk assessment to determine which contractors will undergo a purchasing system review, the contracting officer may request one of the following:
- An initial review,
- A comprehensive review,
- A special review, or
- A follow-up review to ensure that the purchasing system is efficient and effective in the expenditure of government funds, and is in compliance with contract requirements.
Review types that can be requested
An initial review will cover DCMA’s first-time analysis of the contractor’s purchasing system. A comprehensive review occurs when a contractor already has an approved purchasing system, but the contractor is due for another review. Reviews typically occur every four years or sooner if the contracting officer deems it necessary. A special review will occur if specific weaknesses are noted in the contractor’s purchasing system (i.e., during its initial or comprehensive review) or if there are any major changes in the contractor’s purchasing policies, procedures, or key personnel (e.g., changes in plant workload or type of work). A follow-up review will occur when a contractor’s purchasing system has been disapproved by the contracting officer and will involve the implementation of a Corrective Action Plan (CAP).
The timing for the follow-up review will be based on two scenarios:
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- Written notification has been received from the contractor by the contracting officer that states all deficiencies have been corrected along with the implementation date of the CAP, and
- Sufficient time (e.g., approximately 90 days) has passed after all elements of the CAP have been implemented. This is to allow the contractor to be able to provide a suitable sample to be reviewed.
If remediation efforts are not implemented after deficiencies have been identified, contractors may face contract payment withholdings amounting to 5-10%, potentially having a significant impact on cash flow and project funding. These penalties can not only disrupt current operations but also jeopardize contract eligibility and competitiveness for future Requests for Proposal (RFPs) and Requests for Quotation (RFQs), as agencies often scrutinize a contractor’s compliance history when awarding new contracts.
Ensuring timely remediation is essential for maintaining financial health and a strong position in upcoming government bids.
How do I prepare for a CPSR?
A CPSR covers many areas, thus preparation is key. Here are some practical tips to help you avoid common pitfalls:
- Understand your contracts and leverage government resources.
- Review the DCMA CPSR Guidebook to ensure purchasing system policies and procedures are compliant with DFARS 252.244-7001, Contractor Purchasing System Administration. The guidebook covers:
- Eligibility requirements, including the $50 million sales threshold and at least one prime contract with FAR Clause 52.244-2, which reserves the government’s right to review the purchasing system under FAR Subpart 44.3.
- Details on whether the CPSR team will conduct a virtual or on-site review.
- What to expect during the review process, including team introductions, schedule overview, review elements, deficiency resolution, and daily/final briefings.
- The 30 Review Element Job Aids that should be addressed in your purchasing manual and day-to-day practices.
- Prepare a comprehensive listing of all purchasing activities from the past 12 months, including proposal details, contract information, and relevant clauses for audit review.
- Maintain thorough documentation, such as a written purchasing manual, purchasing files, subcontractor/vendor documents, and evidence of adequate training. Documentation should cover key areas like pricing analysis, source selection, negotiations, make-or-buy programs, commercial item determinations, and subcontract types.
- Establish a purchasing activity review committee with cross-functional input and an authority matrix based on dollar thresholds.
- Organize and store purchasing activity files and cost justifications in a centralized, consistent repository.
- Consider asking for professional help if needed. Consulting with Aprio’s experienced team can help you strengthen your purchasing system through tailored assessments, gap analyses, remediation plans, and audit readiness services designed to meet compliance requirements.
What happens if your purchasing system has been disapproved?
If the final determination made by your ACO has resulted in a disapproved purchasing system, the ACO can elect to withhold payments on contracts in accordance with DFARS 252.242-7005.
If one or more material weaknesses occurred in any single contractor business system, the withholding amount shall not exceed 5%. However, 10% could be withheld for multiple weaknesses in multiple contractor business systems.
Final thoughts
A compliant purchasing system is an asset that reflects the contractor has internal controls and processes in place for a secure, responsible, and compliant supply chain. It is more than a regulatory checkbox, it demonstrates your commitment to growth, accuracy, and accountability. Whether you are pursuing major contract vehicles like Alliant 3 or just aiming to build audit-ready proposals, having a compliant purchasing system in place is a smart, proactive step.
When the inevitable DCMA review or another cognizant federal audit agency arrives, or when an RFP requires proof of your purchasing system, you will be prepared, not scrambling.
