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    What should we do to ensure performance from our affiliate company that just lost approval of their purchasing system? Is it reasonable to request "assurance of performance"? What, if anything else, should we do?


    1. The FAR and DFARS references quoted below in pertinent part are applicable to this response.

    FAR 2.101
    “Simplified acquisition threshold” means $150,000.

    FAR 42.201 -- Contract Administration Responsibilities
    (a) For each contract assigned for administration, the contract administration office (CAO)
      (1) Perform the functions listed in 42.302(a) to the extent that they apply to the contract, except for the functions specifically withheld.

    FAR 42.302 -- Contract Administration Functions
    (a) The contracting officer normally delegates the following contract administration functions to a CAO.
      (50) Review, approve or disapprove, and maintain surveillance of the contractor’s purchasing system.
      (51) Consent to the placement of subcontracts.

    DFARS 202.101 -- Definitions
    “Contract administration office” also means a contract management office of the Defense Contract Management Agency [DCMA].

    FAR 52.244-2 – Subcontracts (Oct 2010)
    “Consent to subcontract” means the Contracting Officer’s written consent for the Contractor to enter into a particular subcontract.

    “Subcontract” means any contract, as defined in FAR Subpart 2.1, entered into by a subcontractor to furnish supplies or services for performance of the prime contract or a subcontract. It includes, but is not limited to, purchase orders, and changes and modifications to purchase orders.

    (c) If the Contractor does not have an approved purchasing system, consent to subcontract is required for any subcontract that-
      (1) Is of the cost-reimbursement, time-and-materials, or labor-hour type; or
      (2) Is fixed-price and exceeds— (i) For a contract awarded by the Department of Defense, … the greater of the simplified acquisition threshold or 5 percent of the total estimated cost of the contract.

    (e)(1) The Contractor shall notify the Contracting Officer reasonably in advance of placing any subcontract or modification thereof for which consent is required under paragraph (c) of this clause, including the following information:
      (i) A description of the supplies or services to be subcontracted.
      (ii) Identification of the type of subcontract to be used.
      (iii) Identification of the proposed subcontractor.
      (iv) The proposed subcontract price.
      (v) The subcontractor’s current, complete, and accurate certified cost or pricing data and Certificate of Current Cost or Pricing Data, if required by other contract provisions.
      (vi) The subcontractor’s Disclosure Statement or Certificate relating to Cost Accounting Standards when such data are required by other provisions of this contract.
      (vii) A negotiation memorandum reflecting -
      (A) The principal elements of the subcontract price negotiations;
      (B) The most significant considerations controlling establishment of initial or revised prices;
      (C) The reason certified cost or pricing data were or were not required;
      (D) The extent, if any, to which the Contractor did not rely on the subcontractor’s certified cost or pricing data in determining the price objective and in negotiating the final price;
      (E) The extent to which it was recognized in the negotiation that the subcontractor’s certified cost or pricing data were not accurate, complete, or current; the action taken by the Contractor and the subcontractor; and the effect of any such defective data on the total price negotiated;
      (F) The reasons for any significant difference between the Contractor’s price objective and the price negotiated; and
      (G) A complete explanation of the incentive fee or profit plan when incentives are used. The explanation shall identify each critical performance element, management decisions used to quantify each incentive element, reasons for the incentives, and a summary of all trade-off possibilities considered.

    DFARS 252.244-7001 -- Contractor Purchasing System Administration Basic (May 2014)
    (a)  Definitions.  As used in this clause—
    “Purchasing system” means 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.

    (c)  System criteria.  The Contractor’s purchasing system shall—
      (2)  Ensure that all applicable purchase orders and subcontracts contain all flowdown clauses, including terms and conditions and any other clauses needed to carry out the requirements of the prime contract.

    2. This response assumes that clause DFARS 252.244-7001 is included in the prime contract. Therefore pursuant to DFARS 252.244-7001(c)(2) and to provide additional “assurance of contract performance”, your firm would be required to flow down clause FAR 52.244-2 in the contemplated inter-organizational transfer (IOT) to the affiliate company.

    3. Because the affiliate company’s purchasing system approval has been withdrawn by the CAO (presumably DCMA), then pursuant to flowdown clause FAR 52.244-2(c)(1), the affiliate must obtain the written consent from the cognizant DCMA ACO before placing any cost-reimbursement, time-and-materials or labor-hour type subcontracts or purchase orders. Pursuant to FAR 52.244-2(c)(2), the ACO’s written consent is also required before placing any fixed-price subcontracts or purchase orders exceeding the greater of $150,000 or 5 percent of the total estimated cost of the affiliate’s total IOT value. In addition, because the ACO’s written consent is required, then pursuant to FAR 52.244-2(e), the affiliate must notify the ACO reasonably in advance of placing any such subcontracts and purchase orders. Each of these “advance notifications” must also include the information required by FAR 52.244-2(e)(1), as applicable.

    4. Finally, we recommend that your firm download and consult the DCMA Contractor Purchasing System Review (CPSR) Guidebook (January 18, 2017) in order to perhaps assist with developing solutions that may expedite resolution of the deficiencies that DCMA had found in the affiliate’s purchasing system. This document can be accessed at the following link:

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