DFARS Proposed Rule to Raise CPSR Threshold to $50 Million

calendar iconJuly 30, 2019

By: Eric Poppe, Senior Manager

On May 31, 2019, the Department of Defense (“DoD”) proposed to amend the Defense Federal Acquisition Regulation Supplement (“DFARS”) to raise the threshold for determining when a contractor purchasing system review (“CPSR”) is required.

Currently, the Federal Acquisition Regulation (“FAR”) 44.302(a) states that the cognizant Administrative Contracting Officer (“ACO”) is to determine whether the contractor’s sales to the government, excluding firm fixed price and fixed price with economic price adjustment contracts and contracts for commercial items, are expected to exceed $25 million during the next year and, if so, perform a review to determine if a CPSR is needed. In making this determination, the ACO is supposed to take into account the company’s past performance, the complexity and value of subcontracts and other factors the ACO deems relevant. This evaluation is supposed to be conducted on a three-year basis. Currently, this threshold of $25 million can be raised or lowered by the agency if the agency believes it is in the government’s best interest.

The proposed rule would push this threshold of $25 million to $50 million. According to the proposed rule, increasing the threshold would allow “DoD personnel to support other essential priorities and missions of greater contractual risk, while reducing regulatory impact on contractors.” Sounds like a win-win! However, this may be deceiving.

In reading the proposed rule, it sounds like the Defense Contract Management Agency (“DCMA”) also took into consideration the burden of a CPSR on small (or other than larger) contractors. DCMA also believes that the proposed $50 million threshold takes into account inflation and allows for better use of resources. Another interesting point is that DCMA believes increasing the threshold would reduce the amount of CPRS by 20 percent. Unfortunately, the proposed rule does not address the issue of contracting officers requiring contractors to have an approved purchasing system before they can be considered eligible to receive a contract.  Raising the threshold for a CPSR may have the unintended consequence of making even more contractors, particularly small business concerns, ineligible to receive contracts

Remember that this is a proposed rule. The rule would only increase the threshold from $25 million to $50 million and all other components of FAR 44.3 would stay the same. All comments on the proposed rule were to be submitted in writing on or before July 30, 2019. Stay tuned for more information as this rule is pushed forward!