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Preaward Surveys and DCAA


SSKO

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It's not much of a risk to the government. If the contractor cannot prove the allowability of its costs because its accounting system is inadequate for that purpose the CO can disallow the questionable costs as unallowable. The burden is on the contractor to prove the allowability of its costs, so the main burden of risk due to an inadequate accounting system is on the contractor.

Yes, I agree it's not much of a risk to the government. It's a risk to the contractor and to the external firm performing the work. Your point(s) are taken.

But to your assertion that "the burden is on the contractor to prove the allowability of its costs," I beg to differ.

The burden is on the contractor to prove the reasonableness of its costs when challenged. And that is because the FAR was revised to address some court cases that held the opposite.

But the burden is still on the government to prove costs are unallowable. It's the government's burden, not the contractor's. As many cases have held. See, for a recent example, ASBCA No. 56353, dated Oct. 5, 2011 (SRI international).

H2H

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Guest Vern Edwards

You are correct only in part. See Manos, Government Contract Costs and Pricing, 2d ed., Section 86:17:

When costs are questioned on the basis of reasonableness, the burden is on the contractor to establish that the costs are reasonable. In addition, the ASBCA has held that the contractor bears the burden on the issue of allocability. On the other hand, when costs are questioned on the basis of a cost principle or contract provision, the burden is on the Government to establish that the costs are unallowable.

Emphasis added. Footnotes omitted. That is consistent with SRI International, ASBCA No. 56353, 11-01 BCA para. 34694, which you cited and which can be found at http://www.asbca.mil...100511_WEB.pdf. The author that I quoted above was the contractor's attorney in SRI, in which the board said:

When the government disallows costs on the basis of a FAR cost principle, the burden is on the government to prove that the costs are unallowable. Lockheed Martin Western Development Laboratories, ASBCA No. 51452, 02-1 BCA para. 31,803 at 157,102; Johnson Controls World Services, Inc., ASBCA Nos. 46674, 47296, 96-2 BCA para. 28,464 at 142,166 (where there is no dispute over reasonableness or allocability of incurred costs charged to a contract, the government bears the burden of proving that the costs are of the type made specifically unallowable by regulation or contract provision).

Emphasis added. So it's not just reasonableness that the contractor must prove. And since reasonableness and allocability are two of the five elements of allowability listed in FAR 31.201-2(a), a contractor must prove those elements in order to prove the allowability of a cost. But If allowability is challenged on the basis of compliance with the cost principles or the terms of the contract, then the government has the burden of proof.

Am I wrong? If so, please do not hesitate to say, "Vern, you're wrong." It saves words and time.

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Nobody is assuming a non-DCAA audit is a "magic bullet". I'm open to any alternative solutions. DCAA is out. I've tried to get SBA on board. My goal is to provide maximum small business competition. Due the nature of the work a FFP contract is not an option. I've asked for information that would give me some assurance that a system is in place (even a floor check)

Documented evidence can include but not limited to:

  • Certified Public Accountant (CPA) audit within the last year (perhaps for IRS purposes) who can provide a certificate that the accounting system that can comply with the requirements for collecting and segregating costs as listed above.
  • Billing rates or evidence of submitting progress payments from a previous government contract(s).
  • Evidence that a CPA is or will conduct a cost accounting system audit and certify compliance prior to award.
  • Documentation/certification from the result of performance of a compliance audit conducted by external consultants/CPAs or internal auditors.
  • Source documents, accounting records, SOPs and policies.
    This is a service contract for OCONUS support in Afghanistan. A break in service is not an option.

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You are correct only in part. See Manos, Government Contract Costs and Pricing, 2d ed., Section 86:17:

Am I wrong? If so, please do not hesitate to say, "Vern, you're wrong." It saves words and time.

No, Vern. You are right. Anytime you quote Manos, you are going to be right.

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Its one thing to determine if a contractor has an adequate cost accounting system. From my experience, it would be sad if the government has to rely on contractor hired CPA's to review and verify incurred costs or even to review and/or audit proposals for new contracts or contract actions. There are differences between what are legitimate or legal accounting practices and what the cost principles and procedures in Part 31 and 31.2 allow that are often overlooked in proposals.

Heck, the DCAA isnt even normally trained to spot these type cost duplications or non-allocable costs. For years, I had to provide the DCAA with standard pre-printed guidelines as part of my technical analysis input to the audit, identifying those points to address in auditing overhead and G&A rates. I'm not faulting the auditors because that is a specialized area but the DCAA as an Agency didnt pick up very well on construction contract auditing. I say that only because they require a lot of help from technical and cost analysts and they, as a group are often ignorant of the contractual cost aspects of proposals

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I'm asking for some alternative ideas. Yes, many of us are aware of the problems with private sector CPAs. Again, DCAA is NOT going to conduct preaward reviews on accounting systems prior to selecting the offeror for award. I understand what we "can't" do or what is "wrong". So, how do we determine if the small business accounting system is adequate? HUM?? Just one?

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SSKO,

Did you see the CAE bid protest decision, linked-to on WIFCON's home page today? I thought it did a nice job of explaining how SAIC's accounting system could be determined to be adequate pending official DCAA audit. Certainly, the specific circumstances matter. I.e., SAIC had an adequate system and then changed it, and the new system required some corrective actions that DCAA had not yet reviewed. But I would think that this phrase ought to help --

"The determination regarding the adequacy of an offeror's cost accounting system is a matter of an offeror's responsibility. ... The determination of a prospective contractor's responsibility rests within the broad discretion of the contracting officer, who, in making that decision, must necessarily rely on his or her business judgment."

Best wishes to you,

H2H

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Guest Vern Edwards

SSKO:

You first asked your question six days ago. I told you how to do it using a method that I have used. No one else has come up with anything. So you've had your "just one."

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SSKO - H2H's post goes with my thinking. Not yours or the CO's problem but that of SBA as the matter is that of responsibility based on your mention of small business a couple of times. In other words seek a COC. Whether the silver bullet you are looking for or not here are some GAO references carried from H2H's reference and otherwise that may help, listed in order of how important they might be to your issue as I understand from the facts offered, right wrong, or indifferent.

http://www.gao.gov/a.../390/387823.pdf

http://www.gao.gov/d...pro/4019732.htm

http://www.gao.gov/n...tems/d09468.pdf

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SSKO:

You first asked your question six days ago. I am the only one who has offered a suggestion, one that I know can work because I have done it. .......................You in the meantime are beginning to sound pathetic. You have your one suggestion. If you don't like it then don't use it. If you are a contracting officer, then it is your job to come up with something, not ours. If you cannot figure this out for yourself, then give the job to someone who can.

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This is your response I received via email. "Pathetic"? Hardly. If I wasn't a good Contracting Officer I would not be seeking a solution but would merely determine the offeror did not comply with the solicitation. I also would not be so persisent if I wasn't dealing with a small business set aside procurement.

I was trying to bring to light that 1) DCAA has changed its policy on Preaward Survey reviews of cost accounting systems and will NOT review until an offeror is selected for award and 2) This policy change greatly affects small businesses who do not have an audited accounting system in order to compete on cost type contracts. Eventually, other contracting officers will run into a similar situation. I have revised Section L and M based on your response, as best I can interprete.

I appreciate all the feedback. Thank you.

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Guest Vern Edwards

With reference to Carl's post:

COs do not seek a COC. They refer determinations of nonresponsibility to the SBA. The SBA notifies the prospective contractor, who must apply for the COC. See FAR 9.105-2(a)(2) and 19.602 and 13 CFR 125.5. The COs referral must follow a documented determination of nonresponsibility. See FAR 9.105-2(B) and 19.602-1( c)(2)(vi) and 13 CFR 125.5( c)(1)(v).

So you cannot just shuffle the matter off to the SBA. You must first bite the bullet and make an official determination of nonresponsibility.

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Guest Vern Edwards

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SSKO:

You first asked your question six days ago. I am the only one who has offered a suggestion, one that I know can work because I have done it. .......................You in the meantime are beginning to sound pathetic. You have your one suggestion. If you don't like it then don't use it. If you are a contracting officer, then it is your job to come up with something, not ours. If you cannot figure this out for yourself, then give the job to someone who can.

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This is your response I received via email. "Pathetic"? Hardly. If I wasn't a good Contracting Officer I would not be seeking a solution but would merely determine the offeror did not comply with the solicitation. I also would not be so persisent if I wasn't dealing with a small business set aside procurement.

I was trying to bring to light that 1) DCAA has changed its policy on Preaward Survey reviews of cost accounting systems and will NOT review until an offeror is selected for award and 2) This policy change greatly affects small businesses who do not have an audited accounting system in order to compete on cost type contracts. Eventually, other contracting officers will run into a similar situation. I have revised Section L and M based on your response, as best I can interprete.

I appreciate all the feedback. Thank you.

What you quoted is not my response. That was something I posted late last night when I was irritated and withdrew a few moments later, when I cooled off, before you could see it. Somebody else emailed it to you. If that is what I still thought and I had wanted you to see it I would have left it there. I am not known to withhold my opinions.

Let me add this, however: The issue is how to determine the adequacy of a firm's accounting system. The only way to do that is to: (1) take their word for it, (2) look at it yourself and decide, or (3) ask someone else to do it and decide based on what they tell you. That is it. Period. You probably don't want to do (1). You might not be able to do (2). That leaves you with (3). If DCAA won't do it, who ya gonna call? Huh?

You can't just reject the proposal. The GAO would say that by doing so you had determined the offeror to be nonresponsible and must refer the matter to the SBA, which means you must document your determination of nonresponsibility. What ya gonna say? You can try saying that you made the determination based on the lack of affirmative evidence (see 9.103, last sentence). But let me warn you: I have worked in a large SBA office that did certificates of competency. Who in such an office is going to make the determination and on what basis. Huh? If you won't trust a private CPA, are you gonna trust some unknown at SBA, who might not even be a CPA?

You are between a rock and a hard place. I know. I've been there. Which is why I came up with the procedure that I recommended to you.

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Guest Vern Edwards

Think through what you are going to say in the RFP. Be clear about what you want. You can ask for a letter from all offerors, with their proposals, but remember that if the otherwise successful offeror didn't send it you still must make a determination of nonresponsibility and refer the matter to the SBA. Alternatively, you could ask for a letter from only the prospective winner and give the firm time to get it. But if they can't get it you'll still have to make a determination of nonresponsibility in order to reject them and will have to refer the matter to SBA.

Asking for the letter with all proposals might actually help a small business, because if the accountant finds that their system is not adequate the firm can hire the accountant to fix it, or fix it themselves and ask for another review. If they want to do business with the government under cost-reimbursement contracts it will be worth the money.

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