Purchasing System Compliance – Unauthorized Commitments

Table of Contents

1. Introduction
2. Definition of Unauthorized Commitments
3. Consequences of Unauthorized Commitments
4. Compliant Purchasing System Facts
5. Root Cause Analysis of Unauthorized Commitments
6. The 5-Why Process
7. Conclusion
8. The Role of BOOST Contracts Team
9. Key Takeaways
10. About The Author, Janet Clark

Unratified Purchase Errors.  In business-speak we call them procedural missteps, broken processes, or deviations from procedures.  Colloquially, we use phrases like “cart before the horse” or “cut across the infield” and “blew it this time”. DCMA calls them “Unauthorized Commitments”. 

If you are a GovCon subject to the DFARS Purchasing System rules, you most likely have Unauthorized Commitments from time to time. FAR 1.602-3 defines an Unauthorized Commitment as an agreement that is not binding solely because the representative who made it lacked the authority to enter into that agreement.  The most common example is a project manager directing a seller to get to work before authorization from the purchasing department.  Sound familiar?  

The saying, “sometimes it is easier to ask for forgiveness than permission” comes to mind.  Forgiveness, however, can come with a price. 

Here are a few compliant purchasing system facts. (See DFARS 252.244-7001 (c) sections referenced below):

• Company purchasers must be authorized to spend company money.  (3)
• Sellers must be competitively sourced to the maximum extent practicable (7)
• Management level justification is required for any sole or single source purchase (9)

A single Unauthorized Commitment violates these three basic rules, and probably violates others as well.  If the value exceeds $35,000 and the seller started work before their debarment status was checked, this is a violation.  If the federal contract has a DPAS rating and that was not passed on to the seller before they started, pile on another.  A creative DCMA auditor could probably add any number of other findings with minimal effort.  Worse, DCMA views a pattern of Unauthorized Commitments as a lack of spending control that is unaddressed by the GovCon leadership. 

When Unauthorized Commitments happen, it is easy to focus on the behavior of the person who made those commitments as the root cause of the problem.  In some cases, this is true, but more often the root cause is more complex.  Here is an example of using the 5-Why process to find a root cause.

Why did the project manager put the seller to work ahead of the PO? 

• The PO was not ready to send at the start of the seller’s period of performance.

Why wasn’t the PO ready to send at the start of the seller’s period of performance?

• The requisition was not sent/approved with enough lead time to write a compliant PO or to generate an Authorization To Proceed or Letter Subcontract. (More on ATPs/Letter Subcontracts in my next blog.)

Why does it take so long to write a compliant PO?

• Sellers must be competitively sourced to the maximum extent practicable.  Large businesses must make good faith efforts to subcontract to small businesses. Single/sole sources must be justified with something more substantial than “that’s who we always use” and must be approved by company management. In all cases, the Buyer must find the price paid “fair and reasonable”, which is challenging when the seller has already been assured of the work by the project team.  The seller knows that they have no competition.  They dive into the work quickly which makes the project team happy, but it leaves the buyer without any leverage to negotiate price or terms and conditions.  

Why wasn’t the requisition approved sooner?

• Does the GovCon train its requisitioners on certified purchasing system rules so they understand how much lead time is sufficient?  How do the GovCon’s policies and procedures address the transition from RFPs sent to sellers to support a bid through converting them to purchase requisitions post-award? Is this process automated?  If not, how can it be automated?

Why aren’t Unauthorized Commitments fully investigated, case by case, to find the root cause of each instance, and over time, to identify trends that point to process failures?

• If the GovCon overlooks these events, they are missing an opportunity to streamline the process, make it efficient and compliant, and ultimately to save money and become more profitable. 

Beyond the non-compliant state of the purchase, these backwards procurements inevitably cost the GovCon extra money, impose undue performance risk on the GovCon through unbalanced terms and conditions, lead to complacency with the seller, and dampen competition on future efforts.  

To err is human. To forgive is divine. To improve processes is profitable. 

Contact the BOOST contracts team today. Our compliance services for GovCons can provide you with an independent review of your purchasing system. 

Key Takeaways

• Unauthorized Commitments: In the context of government contracting, unauthorized commitments refer to agreements that are not binding because the representative who made them lacked the authority to do so. This often happens when a project manager instructs a seller to start work before the purchasing department has given authorization.
• Consequences: Unauthorized commitments can lead to violations of several basic rules, such as the requirement for sellers to be competitively sourced, and for management level justification for any sole or single source purchase. If these commitments become a pattern, it can be seen as a lack of spending control.
• Root Cause Analysis: The root cause of unauthorized commitments is often more complex than just the behavior of the person who made the commitment. It can be due to issues such as insufficient lead time to write a compliant purchase order, the time it takes to source competitive sellers, or a lack of training for requisitioners on certified purchasing system rules.
• Impact: Unauthorized commitments can lead to extra costs for the government contractor, impose undue performance risk, lead to complacency with the seller, and dampen competition on future efforts.
• Solution: To prevent unauthorized commitments, it’s important to fully investigate each instance to find the root cause and identify trends that point to process failures. Improving processes can make them more efficient and compliant, ultimately saving money and increasing profitability.

About the Author, Kathy Wright

Kathy Wright is a contracts and procurement professional with more than 30 years of experience working with government and commercial contracts.  She has worked for both small and large businesses and has developed a contracts management style that blends agility with process improvement.