The Government wants to pay a fair and reasonable price for products and services that they purchase and expects you to pay your suppliers a fair and reasonable price. FAR 52.244-5 Competition in Subcontracting includes the requirement to select subcontractors and suppliers on a competitive basis to the maximum extent possible. What happens when you receive only one bid or there is only one source that can perform the effort? Well, the purchase becomes sole source – and yes, the requirements have just increased significantly. If the purchase exceeds the micro-purchase threshold, yes $10,000, you must document the justification as sole source. While it sounds pretty simple, for example, when the customer directs a part to be purchased from a specific supplier, you just check the box “customer directed” and move on. Oh, if that were only the case. Even when a purchase is customer directed, more documentation is necessary. It is never as easy as checking a box. When you are directed to buy from a supplier, you must still document the price is fair and reasonable. If the price is not fair and reasonable, it is your job to inform the government.
How Much Documentation? “Just enough”
For every sole source justification there needs to be sufficient documentation. It begins with a clear description of the product or service. Then, market research needs to be performed and documented. Yes, even when it is customer directed or if it is the only source. If you use the cost associated with qualifying a new vendor as the reason for justifying sole source, you need more than just a flat dollar amount. You need documented input from program management and engineering to support the estimate. If a part is customer directed, a copy of the page from the solicitation, or an email from the contracting officer should be included in the purchasing file. If your market research shows the price of the directed purchase is not fair and reasonable, you want direction from the contracting officer to make the purchase.
Oh, and by the way, the sole source justification needs to be signed by the preparer and approved by management. Management approval of sole source justifications is required under DFARS 252.244-7001(c)(9) Contractor Purchasing System Administration criteria.
It is important to adequately document sole source justifications. DCAA will question the cost if the justification is missing or inadequate, and the DCMA Contractor Purchasing System Review (CPSR) team will take exception when documentation is missing, market research is not performed, or there is no management approval.
Takeaway
Sole source justifications require documentation including a clear description of the product or service, justification for sole source, market research, and a signature of the preparer and management approval. A copy of the approved justification should be included in the purchasing file. The key to passing a CPSR and ensuring DCAA does not question any of your incurred or proposed cost is well trained staff engaged in the purchasing process. Even contractors that have been in the government contracting business for years need to invest in training on this topic and other purchasing high risk areas at least annually.
How can Redstone GCI Help?
Redstone GCI offers comprehensive support to help your company navigate Federal Acquisition Regulation (FAR) requirements. Our team can assist in drafting tailored policies and procedures, providing training for your staff either on-site or virtually, and conducting thorough GAP assessments of your sole source justifications or purchasing system to ensure compliance and efficiency.
Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting