What to Expect During a Property Management System Analysis (PMSA)

A Government Property Management System Analysis (PMSA) can be a contractor’s first experience with Defense Contract Management Agency (DCMA). This video and article explain what to expect for a Government contractor’s initial PMSA – commonly known as a Government property audit. Join Jonas Clem as he discusses the essential aspects of a contractor’s first PMSA.

Today, we will review what happens during a government property management system analysis (PMSA). Most of us call those government property audits.

So, we have been helping clients, especially over the past two years, a lot with government property audits. DCMA, they're doing more audits, they're doing more in-depth audits, and generally what happens is we'll get an email or a call from a client that says something, might go something like this, I got an email from DCMA, and they say they're going to audit my government property system. That's generally followed up with saying that I don't have a government property system or didn't know I had government property.

Those are two different subjects, but today, we will focus on what the contractor will experience with an initial property system analysis. We're going to assume that this is the contractor's first government property audit. What causes a contractor to get a PMSA from DCMA? Obviously, government property is important, especially government-furnished property (GFP).

Remember the rule on government-furnished property. If you have GFP, the contract type does not matter. If you have GFP, the government has title to it, meaning you must track it. Government property, whether government-furnished or contractor-acquired property on cost-reimbursable contracts.

Maybe you've submitted a proposal where government property will be required. Generally, when we do this, you will have to submit a government property plan with the proposal. At least the contracting officer or whoever will be reviewing that proposal understands that you know the aspects behind having a property system.

Remember, unlike a CPSR, there's no defined dollar threshold for a government property audit. We're seeing, especially in the last couple of years, that even small dollar amounts of GFP can bring an audit. What do we expect during a PMSA? Remember, we're making the assumption that this is the contractor's first PMSA.

Generally, as we talked about in the introduction, you'll get an email from DCMA. That email generally includes a list of things they want to see and a questionnaire. That questionnaire is going to cover all the outcomes listed in FAR 52-245-1.

The contractor will need to provide a listing of all contracts with government property along with the number of lines and total dollar value of that government property. Remember, subcontractors are also included, so that information will be required. If you have subcontractors that you have issued government property, then the government will also request information on those subcontractors.

Policies and procedures. This is generally where DCMA will make their initial assessment of your system. If you have good policies and procedures, then that tells DCMA we can proceed with the audit.

If your policies and procedures are terrible or not good, they don't cover all the outcomes as listed in FAR 52-245-1, then generally, DCMA won't even pursue the audit at that point. They will give you a little bit of time to get your policies and procedures in place. Then, they will come back and do the audit after that.

Remember, they will also ask for your last contractor self-assessment and your last fiscal inventory, the results of which you should be doing on an annual basis. Another question we get is whether DCMA will make an on-site visit. Well, let's just assume we're not in the time of pandemic right now. Yes, normally, DCMA will come on-site several times.

Their own guidebook says they have to do an entrance conference and an exit conference. Between those two, they're going to do the actual audit and the walkthrough. Remember, DCMA must test all required outcomes from FAR 52-245-1 unless there are outcomes that are not applicable to the contractor during the audit period.

If the audit period is going to cover from January 1st, 2020, through December 31st, 2020, and one of the outcomes is contract closeout, well, if the contractor didn't have any contract closeouts during that year, then that wouldn't be applicable. However, any other outcome will be tested during that period. What that means is that DCMA must visibly check your government property records.

They must perform what they would call a record-to-floor test and then a floor-to-record test. Both of those tests will be conducted. They must visibly see that your storage areas are clean and secure and that you have your government property labeled correctly.

So probably the biggest reaction we get from clients and contractors is, oh no, I've got a corrective action request (CAR), and what happens when I get one or two? Generally, if it is a contractor's first PMSA, they will get at least one or two or three or four. It doesn't mean that that's anything bad. It just means that they have found non-compliance in your government property system.

Now, non-compliance can be one of two things. It can be that your system doesn't meet the outcomes listed in FAR 52-245-1, or your written policies and procedures may meet those outcomes, but you're not following your written policies and procedures. Generally, the biggest thing we see is that the contractor and the client are not following what they have written in their own policies and procedures.

So, what happens? After the CAR is issued, DCMA will expect the contractor to tell them a few things. We're not going to list them all here, but generally, what's the root of the non-compliance? What caused this to happen? Secondly, corrective action taken or planned to eliminate the cause of that non-compliance. And the big thing is, do the contractor's policies need to be updated because of the findings? On corrective action from DCMA they range from level one through four, with four being the worst.

Level one can usually be fixed on the spot with very little effort. You may have had a label that was not exactly correct on something. It may have had the wrong property type on it or something very small.

Level two normally requires a little bit more work, and it could be a change in an internal procedure. We're not doing something as our procedures say we should be doing it. Level three is much more serious.

This means that level two was never corrected. Level threes are addressed to the contractor's top management. Non-compliance is normally something that's going to require immediate attention.

A level four normally means that the contractor has made no effort to correct a level three. They've had a level three and have not submitted a root cause. They've made no effort to correct it.

And with a level four, everything is on the table for the contracting officer. That's who's going to decide the punishment. A level four, they will withhold payment up to a certain percentage, and they can even terminate the contract with a level four corrective action.

So, we want to avoid those if at all possible. Generally, when we get a level one or level two, we fix those immediately. We provide what DCMA asks for, and we get those corrected.

When we don't correct level one, and we don't correct level two, that's when they turn into level three and level four. So, the one thing we don't want to do is we don't want to panic. We see a lot of clients and contractors who get in panic mode because they get their original email, and as I said, sometimes contractors don't even know they have government property.

If you have any questions about whether you have government property or DCMA has contacted you, then you can reach out. We'd love to talk to you about it. We can look at the contract and see what clauses are in it, and we can see if government-furnished property is listed. Our team would love to help you in any way possible.