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DoD is amending the Defense Federal Acquisition Regulation Supplement to establish a higher dollar threshold for conducting contractor purchasing system reviews. In lieu of the threshold at Federal Acquisition Regulation 44.302(a) of $25 million, the administrative contracting officer shall determine the need for a contractor purchasing system review if a contractor’s sales to the Government are expected to exceed $50 million during the next 12 months.

Statement of Need:

This DFARS case 2017-D038, Contractor Purchasing System Review (CPSR) Threshold was opened at the request of the Defense Contract Management Agency (DCMA). FAR 44.302(a) allows the head of the agency responsible for contract administration to raise or lower the $25 million CPSR threshold if it is considered to be in the Government's best interest. It was determined that raising the threshold from $25 million to $50 million would not only accommodate inflationary adjustments (since the threshold has not been changed since 1996), but also allow the CPSR analysis to shift from reviewing smaller contractors with lower volume of Government sales to a more in-depth review of the largest contractors.

Summary of the Legal Basis:

This rule is issued under the authority at 41 U.S.C. 1303, Functions and Authority, which provides the authority to issue and maintain the Federal Acquisition Regulation and executive agency implementing regulations. 

Alternatives:

The alternative to raising the threshold in the DFARS as authorized by the FAR is to continue using the existing FAR threshold of $25 million.

Anticipated Costs and Benefits:

For contractors with qualifying annual sales to the Government valued between $25 million and $50 million, the Government will no longer be required to perform the initial reviews of the contractor’s purchasing system or the follow-up review every three years. As a result, contractors will no longer be required to:

• Maintain a structured training program compliant with the purchasing system policies and procedures for employees conducting purchasing for the contractor;

• Maintain tools and process documentation to ensure employee compliance with the requirements for an approved system;

• Conduct quality assurance checks to ensure the system and procedures are compliant with the requirements of an approved system; or

• Have the Government initially audit and approve their purchasing system, with follow-up audits up to every 3 years.

Risks:

Adjusting the threshold upward to $50 million would appropriately account for inflation, reduce burden on small contractors, and allow more efficient and effective use of CPSR resources to review larger contractors where more taxpayer dollars are at risk. However, contractors may be required to obtain consent to subcontract from the contracting officer in accordance with FAR clause 52.244-2, Subcontracts, before awarding certain types of subcontracts. Contract types requiring a consent to subcontract include noncommercial cost-reimbursement contracts, time-and-materials or labor-hour contracts, letter contracts, and certain unpriced actions. When requesting consent to subcontract, the contractor must submit adequate information to ensure that the proposed subcontract is appropriate for the risks involved and consistent with current policy and sound business judgment. The review allows the Government to determine whether the contractor’s purchasing policies and practices are efficient and adequately protect the Government’s interests.