Sep 7, 2017

In the past I have written about subcontracting compliance from the Contractor Purchasing System Review (CPSR) audit prospective. The three step process of system existence, system procedure adequacy and compliance is a very effective way to meet the FAR 44.3 CPSR goal of “efficiency and effectiveness with which the contractor spends Government funds and complies with Government policy when subcontracting”. How efficient and effective the contractor procurement system performs goes beyond these three steps. Some of the factors that commonly impact on the acquisition process include planning, proper description of needs and funding. This article touches on a few aspects of these factors that if ignored can degrade the efficiency and effectiveness of your outsourcing processes.

Planning is the major factor and can encompass the other two, but each is worth discussing. Planning encompasses many things that don’t always get the attention they deserve. One thing is certain, if you don’t take the time to do a good comprehensive job up front you will pay for it later! One of the major aspects of planning is in the proposal phase make or buy decisions. The make or buy analysis is part of the process for creating a winning team.

You want to offer the client a winning team that meets their needs on time and at the right price. Do you provide the goods, components and services in-house or can you improve the “product” and pricing through partnering and subcontracting? The answer is to look for the best combination to win the contract. Is the outsourcing function within your company adequately represented on the proposal team? The subcontracting team can add value through market research identifying potential source and supporting small business plan development. Additionally, the subcontracting team can work with proposal team members on issue including flow down requirements, terms and conditions and pricing support.

Have you ever hear the complaint that the government wants you to competitively award scope that was promised to a team member? If the original proposal clearly identifies the team member as the teaming source for a specific scope, then the source selection issue is complete. In fact, you may be able to get the Contracting Officer to include the team member in clause 52.244-2(j) excluding them from the consent process. Unfortunately I have seen cases where the winning proposal used information from a subcontractor but did not clearly describe the teaming arrangement in line with FAR 9.6. If the original proposal had included a clear description of the teaming arrangement, you have a solid basis for the subcontract source selection and a solid response when the CPSR team questions the adequacy of your subcontract competition activities. The outsourcing function needs to be an active member of the proposal team to make sure the ground work is laid right up front!

A proper description of needs is not a new subject. Too often the internal customer (aka end user or requisitioner) is left to his or her own to come up with what is needed. The outsourcing function should be involved with the internal customer working with them to identify the best ways to meet their needs. If it is a recurring need, do you set up a competitively awarded catalog or blanket purchase arrangement? Or, do you set up a larger order with multiple deliveries coordinated with the internal customer’s schedule? If the internal customers’ needs are so specific that it limits competition, then you have the opportunity to work with them to do the market research to find alternatives or to substantiate the single or sole-source justification. In either case, you have a solid response when the CPSR team questions the adequacy of competition activities or basis for a commercial item determination. The outsourcing function needs to be actively involved with the internal customer right up front!

Funding is a subject that doesn’t always get the attention it deserves. Sure, you need money to support a purchase order/subcontract, and Under DFARS 252.244-7001 (c) (4), properly authorized requisitions are required.  But there are other issues around funding that can hamper efficient and effective outsourcing. One issue that can negatively impact you is adequate funding.

Inadequate funding on a requisition can lead to delays and increased costs in prime contract performance. Proper project planning and budgeting helps, but the funding source(s) and acquisition planning need to be worked together. For example, rental of heavy construction equipment should be based on the construction schedule the equipment is supporting. You would think that means a six month rental should be funded for six months. But, sometimes you see it “incrementally” funded through a series of requisitions. Here is where efficiency and effectiveness go out the window. The buyer/subcontract administrator must issue a series of monthly modification to add funds (buyer time away from other work). If the funding requisition is delayed, then invoices sit in Accounts Payable waiting for sufficient committed funds to pay the invoice (both buyer and A/P clerk have time away from other work). Late payments leads to stop work threats, complaints to the Contracting Officer, and questions/findings on accounting and purchasing audits (now management, buyers, A/P clerks and others have more time away from other work). When payment is slow, disgruntled subcontractors are less inclined to bid new work or offer better pricing (more work again and potential system audit issues related to a variety of issues such as; timely award, adequate competition, fair and reasonable pricing, subcontract closeout and file documentation).  Again, early involvement of the outsourcing function can help eliminate problems before they occur saving time and resources that would otherwise be consumed trying to patch and fix things later in the process.

I hope my point is clear. Early involvement by your subcontracting and purchasing staff pays big rewards to the overall success of your company. Beyond timely and successful prime contract performance, another benefit is improved compliance. When I see problems during compliance audits and CPSR reviews, the “root cause” is frequently the result of a “reactive procurement system” trying to fix things that could have been avoided by early, effective involvement with internal customer. With time being taken away from the primary task of procuring the goods and services needed, quality and compliance suffer. When people have the time and tools to do their jobs, they are going to give you the kind of results you need, successfully perform the prime contract and meet client audit expectations. That’s how you maintain an approved purchasing system!

About the Author

Jack Hott headshot | Centre Law & Consulting in Tysons, VA Jack Holt has more than four decades of experience as a contracts professional in Government and the private sector. A retired Air Force officer, he served multiple acquisition related assignments with The Air Force and Defense Contract Management Agency. These assignments included Assistant Professor of Acquisition Management, Air Force Institute of Technology, multiple in-plant assignments where he functioned as Principle Administrative Contracting Officer/DACO managing contract administration, pricing, government property, CAS and overhead approvals, supplier quality, and subcontract management.

After leaving the Air Force, Mr. Hott became principle consultant to a small veteran owned business developing and presenting training on a variety of government contracting subjects including cost/price analysis, contract administration and Cost Accounting Standards.

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