Most large government contracts now require that the bidder have an approved purchasing system. An approved system is one that has “passed” a Contractor Purchasing System Review (CPSR) conducted by the Defense Contract Management Agency (DCMA) in accordance with FAR Subpart 44.3. The Administrative Contracting Officer (ACO) may request a CPSR when a contractor’s projected sales to the government is expected to exceed $25M in the next 12 months.  The purpose of the CPSR is to determine if the contractor’s purchasing system is adequate to ensure that government funds are expended in an efficient and effective manner in compliance with government policy.

Even if the RFP does not require an approved purchasing system, there are advantages to both government and contractor to have one. The FAR requires that the contractor notify and obtain contracting officer consent for many procurement actions if the contractor does not have an approved purchasing system (FAR 52.244-2). This can be a time-consuming process resulting in delays in the procurement process which can effect contract performance.  It is burdensome to both the contracting officer and the contractor.

Contractors who see their businesses growing toward that $25M threshold should begin preparing for the CPSR as early as possible. The process of developing a purchasing system that has the elements required to “pass” is long and complex as is involves many of the functional areas of the company. Purchasing procedures must be developed and implemented. Personnel involved in the procurement process must be trained. Because DCMA will review the awards made during the prior 12 months, those awards must be compliant with the procedures. An internal audit is required prior to DCMA coming in. This can be accomplished by a corporate compliance department or an external auditor.

The procurement files can be either hard or soft copy but are extensive including many documents that cover all the phases of the procurement process: contract award/program setup, pre-solicitation, solicitation, award, subcontract administration and closeout. The documents are not just forms with boxes to be checked. Many of them require narratives with justification for the decisions made. Each procurement whether a complex subcontract or a simple purchase order for supplies must address every step in the process even if it’s a simple “not applicable.” It is not unusual for the file to contain 30 or more items.  Consistency and detail is critical to a successful CPSR.

The CPSR can take a week or more with the DCMA auditor(s) in your facility reviewing your procedures and a sample of your files. They may interview some or all of the employees involved in the procurement process. You will not know in advance which files they will want to look at so you need to have everything ready. You may get an indication at the exit briefing how you did but their final decision will follow some time later in a written report. It is common for companies to receive deficiencies in their first audit, requiring remediation efforts and a follow-up review. And after obtaining approval, you must continue to follow the procedures because contractors are always subject to re-review at any time to retain their approved system status.

When you consider the time required to develop procedures, train employees, develop a year’s worth of audit-ready files, and the possibility of failure on the first attempt, you can see why it is important to start well in advance of the need for an approved system.