A contractor expecting sales to the Government above $25 million over the next 12 months has tripped the first wire in FAR Subpart 44.3. The threshold does not order a review; it orders the administrative contracting officer to decide whether one is needed. What follows is a Contractor Purchasing System Review, the audit that decides whether a company may buy from its own supply chain without asking the Government first.
Background
FAR 44.302(a), current through FAC 2026-01 effective March 13, 2026, sets the civilian trigger: if a contractor's sales to the Government are expected to exceed $25 million during the next 12 months, the ACO performs a review to determine whether a CPSR is needed. The count excludes competitively awarded firm-fixed-price contracts, competitively awarded fixed-price contracts with economic price adjustment, and sales of commercial supplies and commercial services pursuant to FAR part 12. A company doing $40 million a year in competitively awarded FFP work may never come close. The agency head may also raise or lower the review level, and the ACO weighs past performance plus the volume, complexity and dollar value of subcontracts.
The Defense Department uses a different number. DFARS 244.302 directs the ACO to determine the need for a CPSR when sales to the Government are expected to exceed $50 million during the next 12 months. That split, $25 million civilian and $50 million DoD, is the most misquoted pair in this corner of the regulations.
The clock does not stop after the first determination. FAR 44.302(b) requires that, at least every three years, the ACO determine whether a purchasing system review is necessary.
Key Details
FAR 44.303 lists what reviewers give special attention to: market research results, price competition obtained, pricing policies, methods of evaluating subcontractor responsibility, treatment of affiliates, small business subcontracting, management of major subcontract programs, Cost Accounting Standards compliance, appropriateness of subcontract types, management control systems, and quality assurance standards. DFARS 244.303 adds two DoD-only items: the rationale documenting commercial product and commercial service determinations, and the counterfeit electronic part detection and avoidance system under DFARS 252.246-7007.
For defense work, the detailed yardstick is DFARS 252.244-7001(c), which enumerates 24 system criteria. Among them: use competitive sourcing to the maximum extent practicable and exclude debarred or suspended contractors from award (criterion 7); seek, take and document economically feasible purchase discounts (12); prohibit cost-plus-a-percentage-of-cost subcontracts (13); enforce conflict of interest, gifts and gratuities policies, including the requirements of 41 U.S.C. chapter 87 (17); and notify the contracting officer in writing, in a timely manner, when subcontract effort changes after award such that it exceeds 70 percent of the total cost of the work (24). An acceptable purchasing system, by the clause's own definition, complies with those criteria.
Approval decisions belong to one official. FAR 44.305-1 makes the cognizant ACO responsible for granting, withholding, or withdrawing approval, and allows approval only after finding the contractor's purchasing policies and practices efficient and adequately protective of the Government's interests. Under FAR 44.305-2, the notice identifies the plant or plants covered, states that approval applies to all Federal contracts at that plant, and waives advance notification and consent to subcontracts in fixed-price contracts, with exceptions.
The Timelines Run Fast
Withholding or withdrawing approval starts a short calendar. FAR 44.305-3(b) requires the ACO, within 10 days of completing the in-plant review, to inform the contractor in writing, specify the corrections needed, and request a plan within 15 days.
DoD runs a different sequence, not an additional one. DFARS 244.305-70 applies instead of FAR 44.305-2(c) and 44.305-3(b), so the FAR's 10-day and 15-day mechanics do not govern defense reviews. Instead, the contracting officer requests a written response to an initial determination of material weaknesses within 30 days, then requires the contractor, within 45 days of receiving the final determination, either to correct the weaknesses or to submit an acceptable corrective action plan.
The Money Consequence
The purchasing system is one of six contractor business systems under the DFARS framework: accounting (252.242-7006), earned value management (252.234-7002), estimating (252.215-7002), material management and accounting (252.242-7004), property management (252.245-7003), and purchasing (252.244-7001). DFARS 252.242-7005 attaches payment withholding to material weaknesses in any of them: deficiencies creating a reasonable possibility that a material misstatement will not be prevented, or detected and corrected, on a timely basis.
The caps are explicit. Total payments withheld shall not exceed 5 percent for one or more material weaknesses in any single contractor business system, and 10 percent for material weaknesses in multiple business systems. The withholding comes off progress payments and performance-based payments, with a matching reduction directed on interim cost vouchers under cost-reimbursement, labor-hour and time-and-materials contracts. If the contractor submits an acceptable corrective action plan and the contracting officer finds it is being effectively implemented, the withholding drops to 2 percent. The clause runs the same rhythm: 30 days to respond, 45 days to correct or submit a plan, and a 90-day mark after the contractor reports the weaknesses corrected, past which an undecided determination cuts the withholding by at least half.
What It Means for Contractors
First, know which trigger applies to you and how your sales actually count. A defense supplier planning around $25 million is preparing a year early; a civilian-agency supplier planning around $50 million is preparing a year late. Either way, the excluded categories matter more than the headline number, because competitively awarded fixed-price and part 12 commercial sales come out of the calculation entirely.
Second, treat the 24 criteria as a file-completeness test, not a philosophy. Reviewers look for what is in the subcontract file: the competition solicited, the price analysis performed, the discount pursued, the responsibility determination made, the conflict-of-interest certification signed. Purchasing organizations rarely fail for lack of a policy; they fail because sampled files do not show it being followed.
Third, price the withhold into the decision to invest in the system. Five percent off progress and performance-based payments, plus the matching cut to interim vouchers on cost-reimbursement work, is real working capital, and the drop to 2 percent depends on a plan the contracting officer will accept and sees implemented, not merely on filing one. Run an internal file review against the 24 criteria before an ACO does.
Finally, remember what approval buys. An approved system removes the advance notification and consent bottleneck for fixed-price subcontracts, worth far more in schedule terms than the audit costs to survive. Losing approval reverses that on every Federal contract at the plant.
