and Report Allocated Costs Consistent With Contract Requirements
D. System Monitoring
DFARS § 252.242-7006(c)(8).
1. Does the segment have written policies and procedures to implement this requirement?
2. Does the segment, or the company of which it is a part, periodically (i.e., at least annually) audit or evaluate the performance of its accounting system and internal controls? a. Are there procedures for implementing and enforcing any
required corrective measures following the identification of weakness in its system or internal controls?
b. Is there a procedure for checking the status of compliance at scheduled intervals (e.g., at three, six, nine months) after the implementation of corrective measures?
3. Does the segment, or the company of which it is a part, regularly hire external auditors to audit and prepare CPA Management Letters regarding accounting system and internal controls? a. Are there procedures for implementing and enforcing any
required corrective measures following the identification of weakness in its system or internal controls?
b. Are there procedures for checking the status of compliance at scheduled intervals (e.g., at three, six, nine months) after the implementation of corrective measures?
4. Does the segment, or the company of which it is a part, periodically review and revise its written accounting and internal controls policies and procedures? Is the Audit Committee actively involved or consulted in such reviews?
5. Does the segment, or the company of which it is a part, periodically review and revise its training materials related to accounting and internal controls? Is the Audit Committee actively involved or consulted in such reviews?
6. Is the training conducted periodically and, when it occurs, is it recorded in personnel records?
7. Is there a process for identifying and evaluating necessary Information Technology upgrades to the accounting system? a. Is there a procedure that requires management to review
and approve any such upgrades?
b. Are appropriate consultants and/or subject matter experts consulted before any purchase decisions are made?
I. Overview
The Business Systems Rule sets forth 24 criteria that must be present in all contractor purchasing systems subject to the Rule in order for a purchasing system to be “acceptable.” DFARS § 252.244-7001(a). If an ACO determines that a contractor’s purchasing system is significantly deficient in one of these 24 areas, and the contractor fails to cure the deficiency, the ACO will deem the system “unacceptable.” DFARS § 252.244-7001(d).
The Business Systems Rule defines a purchasing system as “the Contractor’s system or systems for purchasing and subcontracting, including make-or-buy decisions, the selection of vendors, analysis of quoted prices, negotiation of prices with vendors, placing and administering of orders, and expediting delivery of materials.” DFARS § 252.244-7001(a). This definition applies to both purchases that result in direct costs, as well as those that result in indirect costs. The criteria of the Business Systems Rule are in addition to other pre-existing FAR requirements relating to contractor purchasing systems, which sometimes overlap or expand upon the 24 criteria set forth in DFARS Business Systems Rule.
See DFARS § 244.305; FAR §§ 44.204, 52.244-2. For example, FAR provides that contractors performing flexibly priced contracts or unpriced, fixed price contracts must obtain ACO consent prior to issuance of certain types of subcontracts, absent an “approved” purchasing system. FAR §§ 44.204, 52.244-2. FAR Subpart 44.2 sets forth the factors that the ACO is to consider when assessing a specific transaction and the types of transactions that ACOs may not approve. FAR § 44.202-2.
Further, under certain government contracts, the government may perform Contractor Purchasing System Reviews (“CPSR”) to assess the health of a contractor’s purchasing system. FAR § 44.302. FAR Subpart 44.3 provides guidance concerning government approval of contractor purchasing systems, relying on, among other things, the considerations used for subcontract approvals and 10 enumerated considerations for special attention listed at FAR § 44.303. Importantly, unlike the Business Systems Rule, FAR does not provide for automatic withholds against government payments to the contractor in the event that the criteria of FAR Part 44 are not met. Instead, FAR provides that the contractor must seek ACO consent prior to subcontracting as the consequence of a “disapproved” purchasing system.
For these reasons, the fundamental compliance requirement for purchasing systems may be stated as follows:
DFARS § 252.244-7001(a). Accordingly, this chapter consolidates the Business Systems Rule criteria for purchasing systems with relevant FAR and DFARS requirements. After providing a discussion of relevant definitions, the chapter is organized generally to follow the procurement lifecycle, including contractor procurement policies, procurement planning, source selection and closeout.
II. References
• DFARS § 252.244-7001 • DFARS § 244.305-70 • FAR Subpt. 15.4 • FAR Pt. 44 • FAR § 52.244-2 • FAR § 52.244-5 • FAR § 52.244-6 • DFARS Pt. 244III. Key Definitions
The following terms are used throughout this chapter.
1. Purchasing System: The contractor’s system or systems for purchasing and subcontracting, including make-or-buy decisions, the selection of vendors, analysis of quoted prices, negotiation of prices with vendors, placing and administering of orders, and
Compliance requirements: when the DFARS Business System Rule applies, establish and maintain an “acceptable” purchasing system compliant with the 24 system criteria and the relevant FAR and DFARS purchasing system requirements.
2. Acceptable Purchasing System: A purchasing system that complies with the system criteria in DFARS § 252.224-7001(c). DFARS § 252.224-7001(a).
3. Approved Purchasing System: A purchasing system that has been reviewed and approved in accordance with FAR Part 44. FAR § 44.101.
4. Contractor: The total contractor organization or a separate entity of it, such as an affiliate, division, or plant, that performs its own purchasing. FAR § 44.101.
5. Offeror: A generic term covering all entities that submit bids, proposals, or other offers for business opportunities in support of a government program.
6. Subcontract: Any contract (as defined in FAR Subpart 2.1) entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders. FAR § 44.101.
7. Subcontractor: Any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor. FAR § 44.101.
8. Supplier: A generic term covering all entities that provide a contractor with goods or services that either directly or indirectly support a government program, including subcontractors, vendors, and affiliated business units. When appropriate, more specific terms are used throughout this section.
IV. Purchasing System Elements
This section begins by discussing compliance requirements relevant to a contractor’s general purchasing system policies. The section then discusses specific policies and compliance requirements that relate to each of the following stages of the procurement process: (a) procurement planning and market research; (b) prevention of conflicts of interest and procurement misconduct; (c) competitive purchasing; (d) negotiated procurements; (e) cost/price analysis; (f) source selection; (g) formation and content; (h) foreign purchases and performance; (i) procurement administration; and (j) procurement closeout.