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12 hours ago, MrJP said:

What should we do to ensure performance from a company that just lost approval of their purchasing system as a result of a recent CPSR?

Adding to Vern's questions --

What are your concerns? What risks do you see, against which you would like assurance?

Fundamentally, I don't see ANY ADDITIONAL way to "ensure performance" because any contract/subcontract you have already awarded requires performance. Do you think another signed letter is somehow going to reduce the risk of nonperformance? I don't think so.

I'd like you to answer Vern's questions so I know where you're coming from, but I don't think you're going to get to where you say you want to go.

+++

Let me add that contractors fail CPSRs frequently. Sometimes for tickey-tack reasons and sometimes for very valid systemic reasons. It happens; and it happens to the biggest contractors as well as the smaller contractors.

Not much changes, except for consent requirements. Plus the contractor then dedicates a portion of its purchasing team (and leadership team) to developing and executing a corrective action plan, instead of spending time doing purchasing.

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If the deliverable items are critical and not easily re-obtained in the event of non-performance, I suggest you request a written plan from the company with milestones dates for the correction, re-review and re-assessment of system approval. You should monitor this and meet with them regularly about progress. You may also want to consider requesting a performance bond from the company.  

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12 hours ago, Vern Edwards said:

Who is "we"? Are you the CO? A COR?

Hi Vern,

Thank you for your quick response.  To answer your question, the "we" in my question is a Govt contractor, not a Govt agency.  So, we are the Buyer in the relationship and the company is the Seller.

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2 hours ago, here_2_help said:

Adding to Vern's questions --

What are your concerns? What risks do you see, against which you would like assurance?

Fundamentally, I don't see ANY ADDITIONAL way to "ensure performance" because any contract/subcontract you have already awarded requires performance. Do you think another signed letter is somehow going to reduce the risk of nonperformance? I don't think so.

I'd like you to answer Vern's questions so I know where you're coming from, but I don't think you're going to get to where you say you want to go.

+++

Let me add that contractors fail CPSRs frequently. Sometimes for tickey-tack reasons and sometimes for very valid systemic reasons. It happens; and it happens to the biggest contractors as well as the smaller contractors.

Not much changes, except for consent requirements. Plus the contractor then dedicates a portion of its purchasing team (and leadership team) to developing and executing a corrective action plan, instead of spending time doing purchasing.

Hi Here2Help,

Thank you for your response.  As I just replied to Vern, the "we" in my question is a Govt contractor, not a Govt agency.  So, we are the Buyer in the relationship and the company is the Seller.

My concern was succinctly expressed by Neil Roberts in his response relative to critical deliverable end-items not easily re-obtained in the event of non-performance; especially in light of the issue you addressed at the end of your response - Seller's focus will be primarily on trying to regain approval of their purchasing system.

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35 minutes ago, Neil Roberts said:

If the deliverable items are critical and not easily re-obtained in the event of non-performance, I suggest you request a written plan from the company with milestones dates for the correction, re-review and re-assessment of system approval. You should monitor this and meet with them regularly about progress. You may also want to consider requesting a performance bond from the company.  

Thank you, Neil, for your response.

You nailed it!  I appreciate your understanding of my concerns.  I was the only person in my group with this concern, so I was beginning to doubt myself.  However,  you just confirmed my concerns - glad to know I am not loosing it after all.  Take Care!

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A couple of thoughts. Take 'em for what they may be worth.

1. The contractor has already (or will be very very soon) prepared an official corrective action plan with milestone dates. It's what happens when a contractor business system gets disapproved. The cash flow impacts imposed by the government on large prime contracts awards tends to ensure that the contractor implements the CAP with a sense of urgency.

2. The timing of when the CPSR team returns for a re-review and re-assessment of the system approval is not within the control of the subcontractor. Any milestone date they would provide would be a guess, at best.

3. You are concerned about a focus on trying to regain approval of the purchasing system negatively impacting the focus on subcontract performance. So why in the world would you want to impose additional burdens on the subcontractor at this time. Why would you want to have the company submit another CAP to you and have them attend meetings with you to monitor progress? Isn't that counterproductive to your concerns?

4. The subcontract you awarded contains all remedies for late performance or non-performance. I would suggest that unless you have terms that permit you to do what you want to do (i.e., request a CAP and monitor progress against the CAP), you refrain. You might find yourself with a REA or claim submitted for the additional costs associated with your additional requirements.

5. Further, you cannot transfer performance risk to subcontractors. You, as prime, are already responsible for contract performance to your government customer. The most you can do is to sue the subcontractor or impose liquidated damages (if permitted by your subcontract).

5. What, specifically, are the risks you are trying to mitigate by imposition of additional requirements?  If the issue is a critical item such that a second source is not feasible, then you already had the risk of non-performance yesterday before the subcontractor's purchasing system was disapproved. What has changed? Nothing. If the subcontractor's performance is critical to your program performance, and you weren't already monitoring your subcontractor's performance yesterday, why is today going to be different?

Despite Neil's comments I think you are very much overreacting. If nothing else, you are stepping into the government's role of reviewing, assessing, and determining the adequacy of the subcontractor's purchasing system. Why in the world would you want to do that? Do you also want to audit the subcontractor's final billing rate proposal on behalf of the DCAA? (See the LMIS ASBCA decision from December 2016.)

Again, just my point of view.

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1 hour ago, Vern Edwards said:

Question: What if any standard FAR clause requires a contractor to pass a CPSR and to have an approved purchasing system?

Hah! Trick question...

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Guest Vern Edwards

Maybe. And the answer?

I don't know of any clause that requires an approved purchasing system or that requires a contractor to submit to a review of its purchasing system. The only contractual consequence that I know of due to lack of an approved system is that the contractor will have to notify the CO of, and seek approval of, certain prospective subcontracts. If so, that's more work for the government as much as for the contractor, since the government will have to perform diligently in reviewing and approving or rejecting prospective contractors and in justifying its decisions in that regard or face claims for delay and costs due to failure to cooperation and, possibly, bad faith. I suppose it could lead to cost allowability challenges, but not in and of itself.

What if an ACO wants to schedule a CPSR and the contractor says, "Thanks, but no"?

Failure to get an approval of a purchasing system does not necessarily indicate that a contractor cannot keep its promises. It may indicate nothing more than that some bureaucrat is unhappy with its purchasing processes or policies.

Don't get me wrong. Failure to get approval would be a nuisance. Maybe.

Am I wrong about any of this?

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There is no FAR clause, but there is a DFARS clause. 252.242-7005. It requires the contractor to have an adequate purchasing system, if any awarded contract contains the DFARS clause 252.244-7001. 252.242-7005 specifies the remedy for any business system that is found not to be adequate. There is a mandatory payment withhold.

 

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Guest Vern Edwards

Thanks! I notice that the DFARS clause does not mention a CPSR specifically. Neither does DFARS 252.244-7001. Did I miss it? They refer to "acceptable" systems, but not "approved" systems. Are they the same?

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14 hours ago, Vern Edwards said:

Thanks! I notice that the DFARS clause does not mention a CPSR specifically. Neither does DFARS 252.244-7001. Did I miss it? They refer to "acceptable" systems, but not "approved" systems. Are they the same?

The contractor Business Systems oversight regime is flawed. It was flawed when the DAR Council implemented it in 2011 and it's still flawed today. One of the flaws is that "acceptable" and "approved" are synonyms, just like "unacceptable" and "disapproved" are synonyms. (Primarily turns on which system is being discussed). Officially, DCMA is responsible for reviewing/assessing three systems (Purchasing, Property Control, EVMS) and DCAA is responsible for auditing/assessing three systems (Accounting, Estimating, MMAS), but of course the cognizant ACO/DACO/CACO makes the official determination. (See DCMA Instruction 131).

Government reviewers have been evaluating property, purchasing and estimating systems for as long as I've been in this crazy business. I've never experienced--or even heard of--a contractor pushing back, asserting that the government lacked authority to perform those reviews. I believe a contractor would be afraid to make that assertion, fearing what the repercussions would be.

Easier to staff up (typically on overhead) and support government reviews. And then pass on the additional expense to the buying commands.

Per DCMA Instruction 131 (at 3.1.2)

Quote

The Defense Contract Audit Agency (DCAA) auditor or the DCMA functional specialist reviews the business system to determine if the system is in compliance with the DFARS criteria for the specific business system. If the business system report reflects deficiencies, the CO is responsible for evaluating the business system report to determine if it contains sufficient information to make a determination of significant deficiency, as defined in DFARS 252.242-7005.

 

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Guest Vern Edwards
2 hours ago, Neil Roberts said:

Per FAR 52.244-2 (i), the Contractor agrees that the Government may perform a CPSR. 

True. But I didn't see where it says that the contractor is obligated to pass or that there will be consequences for failing. Did I miss it?

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15 hours ago, Vern Edwards said:

True. But I didn't see where it says that the contractor is obligated to pass or that there will be consequences for failing. Did I miss it?

As indicated in earlier posts, more restrictive advanced notice and prior consent requirements and withholding of payments are consequences. It is "tribal knowledge" in industry that an approved purchasing system is "required" to qualify for responding to large Government contract solicitations. Example: GAO Accountability Office protest case Symvionics B-408505 http://www.gao.gov/assets/660/658010.pdf . I am not aware that this is based on any regulatory/contract consequence of a failed system. Regardless, it is a competitive disadvantage not to have an approved system and this is often seen as even greater concern and risk than contract consequences such as consent or payment withholds.      

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Guest Vern Edwards
34 minutes ago, Neil Roberts said:

It is "tribal knowledge" in industry that an approved purchasing system is "required" to qualify for responding to large Government contract solicitations. Example: GAO Accountability Office protest case Symvionics B-408505 http://www.gao.gov/assets/660/658010.pdf .

Then like much "tribal knowledge", it is not necessarily true. An approved purchasing system is not required to qualify for responding to large Government contract solicitations unless an agency decides to make it so through its specification of evaluation factors for award. In the GAO decision you cited NASA did not make it a requirement that an offeror have such a purchasing system in order to quality for award, but that an offeror must be able to convince NASA that it would able to pass a NASA-conducted (not DCMA) review within 90 days after award:

Quote

As discussed above, the management approach factor states that, for offerors that do not have an existing government-approved purchasing system, NASA will consider the realism of an offeror’s plan to establish and implement its system within 90 days of contract award.

That would not be hard to do, especially with the help of a consulting firm.

In any case, my inquiry doesn't have anything to do with source selection factors. My question at the outset was: "

On 12/2/2017 at 12:16 PM, Vern Edwards said:

Question: What if any standard FAR clause requires a contractor to pass a CPSR and to have an approved purchasing system?

I don't see where FAR 52.244-2 requires that a company pass a CPSR or have an approved system, unless I missed it, and imposes no sanctions for failing to quality for, have, or maintain one. Did I miss it?

I already discussed more demanding notification and approval requirements for certain subcontracts and what I thought about them. Here_2_Help showed us a DFARS clause. There may be other agency-specific clauses. But what about a FAR clause?

What I'm trying to do here is provoke some discussion of the matter as considered from a strictly contractual point of view. Clearly, for a big company with a lot of government contracts for which subcontracting of the kinds that require approval will be necessary, an approved purchasing system is a necessary evil. Also, failing a CPSR could potentially have responsibility (FAR Subpart 9.1) implications with respect to new procurements. But is it breach of contract? Is it grounds for T for D? I'm asking. I haven't taken a position.

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