Wednesday, August 1, 2018

Government Disapprove's Bechtel's Purchasing System

FAR Part 44 lays out the case for Government reviews of contractor purchasing systems. The objective of a "Contractor Purchasing System Review" (CPSR) is to evaluate the efficiency and effectiveness with which the contractor spends Government funds and complies with Government policy when purchasing and subcontracting. CPSRs provide the contracting officer a basis for granting, withholding, or withdrawing approval of a contractor's purchasing system.

The Defense Contract Management Agency (DCMA) is the organization with primary responsibility for reviewing contractor purchasing systems. DCMA has a CPSR review team that specializes in performing these reviews. The basis threshold for performing CPSRs is $25 million in cost type contracts during the next twelve months but that is somewhat fluid. The ACO (administrative contracting officer) determines the need for a review and considers other risk factors beyond the $25 million. Generally, CPSRs are conducted once every three years (Note, DCMA's Guidebook for performing CPSR's is available here).

The CPSR team conducting these reviews perform a deep dive into the policies, procedures, and practices for purchasing and subcontracting. It's not often that the team finds issues with policies and procedures as most contractors have had years to develop and evolve those documents. It is very easy for them to find non-compliance issues however. No one or no company is perfect and its not uncommon to overlook a checkbox, omit some documentation, or fail to obtain a required signature. The CPSR team writes up these infractions, the contractor promises to do better, and everyone goes on with business as usual for the next three years when the cycle begins again. If the deficiencies are significant enough, the contracting officer can withhold approval of the purchasing system which then requires contractors to obtain contracting officer approval prior to purchasing materials or entering into contracts.

It is very uncommon for CPSR reports to become public but it happened recently as at least two newspapers ran stories about a CPSR review performed at Bechtel National Industries that resulted in the Government pulling the contractor's procurement authority. Bechtel is the prime contractor on a $17 billion project to design, construct and commission a plant to turn radioactive waste into glass logs (the process is called vitrification). The plant was initially budgeted at less than $5 billion but that is a different story.

Without an approved purchasing system, Bechtel must obtain consent from a Energy Department contracting officer to award any fixed price contracts in excess of $150 thousand. The Energy Department stated that the new process will stay in effect as long as Bechtel's purchasing system remains "disapproved". Purchasing system deficiencies reported in the press include:

  • Missing paperwork to document that the subcontractor had not been suspended or debarred.
  • Missing certifications that subcontracted funds would not be used for lobbying
  • Missing information as to how subcontractor was selected.
  • Failing to notify the Energy Department 24 hours in advance of awarding a subcontract.
Bechtel, for its part, promised to conduct additional oversight on its practices to ensure compliance but indicated the added burden of obtaining Energy Department approval for every new purchase would not affect the construction schedule. 

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