Is Your Purchasing System Adequate?

How do you know whether your purchasing system is good enough for Government contracting? There are guidelines in the FAR (Federal Acquisition Regulations) and various FAR supplements (e.g. the DoD FAR Supplement or DFARS) to help contractors make self-assessments as to whether their purchasing systems are adequate for Government purposes. Often, when people hear about purchasing systems they have subcontracting in mind. However, the term purchasing system can also encompass the full range of material purchases. Ultimately, the Government is most concerned that contractors spend Government funds most efficiently and effectively. To the extent that your purchasing system can provide that assurance, you should be good to go.

Perhaps the most comprehensive listing of the characteristics of a purchasing system are found in DFARS 252-244-7001. There are 24 of them but we'll just examine a few.

The most important thing about a "system" is its documentation. There needs to be a system description that includes policies, procedures, and purchasing practices. These policies, procedures, and practices must comply with FAR and DFARS (or other Agency supplements, although many Federal agencies defer to DoD anyway). If you don't have a system description, you will fail right out of the gate. Your purchasing system will not be adequate because no one will have the road map.

Flow-down clauses. Many of prime contract clauses are required to be flowed down to subcontracts. This is not as easy as it sounds because there is no centralized listing of what needs to be flowed down for each type of contract. At a minimum, contractors need to identify the mandatory clauses but that would not be sufficient for most purposes. For example, the Government's termination for convenience clause is not a required flow-down clause but a contractors would certainly want that clause in any subcontract that it awards if it is in their prime contract.

Lines of authority. Does the purchasing organization have clear lines of authority and responsibility? Is there a division of responsibility that reduces the likelihood of fraud in the purchasing organization? Many of the reported fraud investigations were the result of someone messing with the purchasing function. Many frauds could have been avoided with the proper internal controls, lines of authority, and division of duties.

Are purchase orders based on authorized requisitions and include a complete and accurate history of purchase transactions to support vendor selections, and prices paid. The Government will, at some point, request PO/Subcontract files and would expect to see this information/data.

Does the system show evidence that price, quality, delivery, technical capabilities, and financial capabilities of competing vendors were considered and properly evaluated to ensure fair and reasonable prices? Or, to state it differently, how do you prove to the Government that you got the best price?

Regardless of whether a company has Government contracts, the purchasing function is critical to the organization and will ultimately affect its bottom line.