When Contractor Purchasing System Reviews are required and how to pass them

At a glance:

• The main takeaway: Contractor Purchasing System Reviews (CPSRs) are used to evaluate the efficiency and effectiveness with which a contractor uses government funds when subcontracting.
• The impact on your business: Understanding how CPSRs work, when they’re necessary and how they are employed is important for any contractor trying to win and successfully complete contracts with the federal government.
• Next steps: Learn about CPSRs and take in the insights from this piece, then reach out to Aprio for more answers and strategies for dealing with CPSRs and succeeding as a federal government contractor.

Schedule a consultation with Aprio’s GovCon team today.

The full story:

Contractor Purchasing System Reviews (CPSR) are addressed in FAR Subpart 44.

Why does a Federal Contractor need a CPSR?

The objective of a CPSR is to evaluate the efficiency and effectiveness with which the contractor spends Government funds and complies with Government policy when subcontracting. The CPSR provides the Administrative Contracting Officer (ACO) the basis for granting, withholding or withdrawing approval of the contractor’s purchasing system.

When does a Federal Contractor need a CPSR?

Unlike most regulatory requirements, there is not a set dollar threshold that requires a contractor to implement an approved purchasing system. Rather, if the contractor’s sales to the Government (excluding competitively awarded firm fixed price and commercial contracts per FAR Part 12) are expected to exceed $25 million in the next 12 months, the ACO shall perform a risk assessment to determine if a CPSR is needed (Please note, the Department of Defense (DoD) uses a $50 million threshold).

What should a Risk Assessment include?

The risk assessment should include a review of the contractor’s past performance and the volume, complexity and dollar value of the subcontracts. In addition, it is unlikely a CPSR will be required for a contractor that has no or a minimal number of cost reimbursement contracts. If it is determined that a CPSR is required, then the ACO must perform a risk assessment every three years thereafter to determine whether a follow-up CPSR is required.

Are there different CPSR requirements for the Department of Defense (DoD) and a Civilian Agency Contractor?

Though the FAR addresses CPSRs, it lacks a contract clause that requires contractors to maintain an approved purchasing system. Conversely, the Defense Federal Acquisition Regulation Supplement (DFARS) contains DFARS 252.244-7001 “Contractor Purchasing System Administration.” Significantly, the Government can withhold up to 10% of each public voucher if a DoD contractor fails to maintain an approved purchasing system. As a result, CPSRs for contractors that work exclusively with Civilian agencies are not nearly as common as they are for DoD contractors.

What are the CPSR requirements?

A civilian agency contractor’s CPSR must consider the 17 factors listed in FAR Subpart 44.202 as augmented by the “special attention” requirements listed in FAR Subpart 44.303. DoD CPSRs are subject to the 24 system criteria listed in the DFARS clause, as interpreted by the DCMA CPSR Guidebook.

The Contracting Officer (CO) will determine the need for a CPSR based on Agency expectations and guidance. A contractor is eligible for a CPSR when sales to the Government are expected to exceed $50 million during the next 12 months, excluding competitively awarded firm-fixed-price contracts awarded with or without an economic price adjustment and sales of commercial items pursuant to FAR part 12.

The CO may also determine the need for a CPSR based on, but not limited to, contractor past performance, as well as the volume, complexity and dollar value of subcontracts.

How can a Contractor prepare for a CPSR?

A contractor needs adequate written policies and procedures as well as purchasing files that demonstrate compliance with those policies and procedures. The best way to prepare is to perform a mock CPSR. The policies and procedures need to be reviewed for adequacy and the purchasing files checked for compliance. The mock CPSR needs to be done with enough time to implement any corrective action plans before the actual CPSR begins.

Aprio helps Government contractors comply with cost account standards (CAS), maintain eligibility for Government contracts and ensure accurate and reliable financial reporting.

Connect with our dedicated Government Contract Compliance team today for help with your CAS compliance needs.

Related Resources:

Earned Value Management Systems (EVMS)

Pass-Through Entity Tax Considerations for Government Contractors

The Four Horseman of the Incurred Cost Audit