RGCI - Does Micro-Purchase Threshold Apply to Contractors

Government Contractor Purchases below the Micro-Purchase Threshold Require NO Documentation

This is a common misconception within the GOVCON community. While the expectations are clearly less documentation and effort are required than that of a larger dollar value purchase, there is not a magic threshold at which NO documentation of the fair and reasonable price is allowed.

Let’s Understand what is expected of Contracting Officers for Micro-Purchases

FAR Part 2 provides the following definitions:

Micro-purchase means an acquisition of supplies or services using simplified acquisition procedures (FAR Part 13), the aggregate amount of which does not exceed the micro-purchase threshold.

Micro-purchase threshold means $10,000, for the most part. The threshold changes for some types of acquisitions:

  • For construction with Wage Rate Requirements, $2,000.
  • For acquisitions of services subject to Service Contract Labor Standards, $2,500.
  • For acquisitions of supplies or services supporting a contingency operation, defense against or recovery from an attack, supporting international disaster, or to support emergency response:
    • $20,000 inside the United States
    • $35,000 outside the United States
  • For acquisitions of supplies or services from institutions of higher education or affiliated nonprofit entities, or from nonprofit research organizations or independent research institutes, $10,000 or higher threshold approved by the head of the agency.

FAR 13.003, Policy, provide that the simplified acquisition procedures will be used “to the maximum extent practicable for all purchases of supplies or services not exceeding the simplified acquisition threshold (including purchases at or below the micro-purchase threshold).” (Emphasis Added) Clearly the Government is going to expect nothing else from contractors – i.e., at or below $10,000 purchases must be supported by some level of documented pricing to ensure a fair and reasonable price is paid.

Splitting buys to get below the threshold is prohibited.

So, what is Required when it comes to Pricing at or below the Threshold?

FAR 13.201(c) requires purchases at or below the micro-purchase threshold be conducted using the methods described in FAR subpart 13.3 (e.g., purchase card, purchase orders, blanket purchase agreements, etc.). FAR 13.203 sets forth the following guidelines for purchases at or below the micro-purchase threshold which include solicitation, evaluation of quotations, and award:

  • To the extent practicable, micro-purchases shall be distributed equitably among qualified suppliers.
  • Micro-purchases may be awarded without soliciting competitive quotations if the buyer considers the price to be reasonable.
  • The administrative cost of verifying the reasonableness of the price for purchases may more than offset potential savings from detecting instances of overpricing. Therefore, action to verify price reasonableness need only be taken if:
    • The buyer suspects or has information to indicate that the price may not be reasonable (e.g., comparison to the previous price paid or personal knowledge of the supply or service); or
    • Purchasing a supply or service for which no comparable pricing information is readily available (e.g., a supply or service that is not the same as, or is not similar to, other supplies or services that have recently been purchased on a competitive basis).
  • If competitive quotations were solicited and award was made to other than the low quoter, documentation to support the purchase may be limited to identification of the solicited concerns and an explanation for the award decision.

We are not sure the drafters of the FAR could have made the wording anymore convoluted. Our interruption is that the Government’s expectation is clearly that all purchases including those at or below $10,000 must have reasonable level of documentation to support that the purchase was made at a fair and reasonable price.

DCAA Focus

DCAA has figured out that many contractors have bought into the misconception that at or below $10,000 no documentation or support for a fair and reasonable price is required. As a result, whether or not the cost of low dollar purchases is material, many DCAA offices have taken to auditing direct and indirect purchases at or below $10,000. In many cases, this is easy picking for the auditors – select a sample of low dollar purchases, request supporting documentation, and when little to no documentation is provided question the entire cost of the sample item and project to the universe.

We have also seen where the auditors pile-on by issuing an accounting, purchasing, or estimating system deficiency report – more fun to deal with. The Administrative Contracting Officer is asking you to implement preventive internal controls related to likely immaterial cost – a cost benefit analysis is not likely, ending up with just more cost on Government contracts. Protecting the taxpayer? NOT LIKELY – at least in our mind.

The Takeaway

No contractor should have in their policies a statement that purchases or expenditures at or below $10,000 require no documentation that a reasonable price is being paid. We suggest the following:

For both direct and indirect purchases at or below $10,000, the Buyer/Purchaser will document the price to be paid is fair and reasonable based on the following:

  • Perform limited market research.
  • Competitive quotes, which includes internet pricing or catalog pricing from more than one vendor.
  • Comparison to a historical purchase made within the last year, provided there is documentation maintained to support the historical price was fair and reasonable.

Documentation will be maintained in the purchase order file or purchase card file.

Another option is to put in place long-term purchasing agreements for common items. This way the purchasing department can perform market research on families of items/commodities once a year to update pricing lists with qualified vendors that the buyers/purchasers can use.

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractor from contract award to contract closeout. We would be happy to be part of your team.

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Written by John C. Shire, CPA

John C. Shire, CPA John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Compliant Accounting Infrastructure, Incurred Cost Proposal Submission (ICP/ICE), Contracts Administration, Defense Contractors, DFARS Business Systems, Cost-Type Contracts, DCAA Audit Support, Contractor Purchasing System Review (CPSR), Government Regulations, Federal Acquisition Regulation (FAR)