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 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.
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.