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FAR 16.301-3:  Adequacy of contractor’s accounting system

Comptroller General - Key Excerpts

New Leader essentially argues that the solicitation required only that offerors have received verification from DCAA that their accounting systems had been audited and determined adequate, but did not require the submission of any documentation from DCAA itself. Protest at 5-6; Comments at 3-4. In this regard, Leader contends that its elimination from the competition was unreasonable because Leader met the RFP’s requirement by providing its own unambiguous statement that its accounting system had been audited and approved by DCAA, along with the 2008 DCAA audit report number and additional information. Id. In Leader’s view, this information was sufficient for the agency itself to independently confirm with DCAA the verification and audit of its accounting system. Id.

In response, the agency acknowledges that a DCAA audit report would have been an acceptable source of verification; however, it explains that the solicitation expressly required offerors to furnish verification from DCAA with its proposal. AR, MOL at 8; AR, see also Supp. MOL at 3-6. In this regard, the agency also explains that the solicitation did not permit offerors to essentially self-verify the adequacy of their accounting systems. Rather, by requiring offerors to provide verification from DCAA, the agency would obtain independent verification that offerors’ accounting systems had been audited and determined adequate. Id.

When a dispute arises as to the actual meaning of solicitation language, our Office will resolve the matter by reading the solicitation as a whole and in a manner that gives effect to all provisions of the solicitation. See Level 3 Commc’ns LLC, B-412854 et al., June 21, 2016, 2016 CPD ¶ 171 at 7; KAES Enters., LLC, B-411225 et al., June 18, 2015, 2015 CPD ¶ 186 at 5. A solicitation is not ambiguous unless it is susceptible to two or more reasonable interpretations. WingGate Travel, Inc., B-412921, July 1, 2016, 2016 CPD ¶ 179 at 7. If the solicitation language is unambiguous, our inquiry ceases. Id.

On this record, we find that the agency’s interpretation of the solicitation, when read as a whole, is reasonable, whereas the protester’s interpretation is not reasonable. Here, the solicitation stated that an offeror “must have verification from [DCAA]. . . of an accounting system that has been audited and determined adequate” in order to be eligible for award. Id. at L-17 (emphasis added). The solicitation also advised that the agency would “evaluate evidence that the [o]fferor . . . [has] an adequate accounting system . . . as required under Section L.3.1.h.” Id. at M-3 (emphasis added). Finally, the solicitation cautioned that failure to “furnish verification of an adequate cost accounting system” would result in a rating of unacceptable and render the proposal ineligible for award. Id. (emphasis added). As explained by the agency, contrary to Leader’s contentions, the solicitation did not contemplate that an offeror could simply provide a declarative statement in lieu of the submission of evidence from DCAA verifying the adequacy of the offeror’s accounting system. See AR, Supp. MOL at 5. On this record, we find that the agency followed the clear and unambiguous terms of the solicitation and reasonably found Leader’s proposal unacceptable because it did not provide verification from DCAA that its accounting system had been audited and deemed adequate.

Leader also argues that its proposal should nonetheless have been accepted because it satisfied the agency’s actual and reasonable needs, its acceptance would not result in unfair prejudice to other offerors or provide Leader with a competitive advantage, and it contained sufficient information for the agency to obtain additional verification or confirmation with DCAA. See Protest at 6; Comments at 7-8. We disagree.

Clearly stated RFP requirements are considered material to the needs of the government, and a proposal that fails to conform to such material terms is unacceptable and may not form the basis for award. AttainX, Inc.; FreeAlliance.com, LLC, B-413104.5, B-413104.6, Nov. 10, 2016, 2016 CPD ¶ 330 at 5; TYBRIN Corp., B-298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5; National Shower Express, Inc.; Rickaby Fire Support, B-293970, B-293970.2, July 15, 2004, 2004 CPD ¶ 140 at 4-5. As explained by the agency, here, the requirement to provide verification from DCAA was a material requirement, the waiver of which would result in an inconsistent and unfair evaluation, thereby prejudicing other offerors. See AR, MOL at 6-7; AR, Supp. MOL at 7. Accordingly, we have no basis to sustain the protest.  (Leader Communications, Inc. B-413104.9: Mar 17, 2017)

CAE also contends that SAIC's proposal was unacceptable and should have been rejected because SAIC's accounting system had not been approved by DCAA as required by the RFP. Protester's Second Supp. Comments at 13. The protester states that, although DCAA had performed a limited scope survey in 2009 indicating that SAIC's accounting system was acceptable for award, SAIC subsequently and fundamentally changed its accounting system and that DCAA had not yet completed an ongoing audit. Protester's Comments at 16.

As noted above, the RFP required offerors to inform the agency as to whether their accounting systems had been approved by DCAA as adequate for determining costs applicable to the contract. In its proposal, SAIC provided a March 20, 2009, DCAA report, which stated that SAIC's accounting systems had been determined to be adequate for determining costs applicable to cost-type contracts. AR, Tab 33, DCAA Audit Report, at 2. That report specifically noted that SAIC was in the process of changing its accounting system and was performing a time phased implementation of the changeover to the new system by business unit so that both accounting systems were operational. Id. at 3. The report noted that as a result of SAIC's change in accounting systems, DCAA's "audit opinions of [SAIC's] accounting systems are pending and control risk in DCAA audits is assessed at the maximum (increased substantive testing is performed in all audits)." Id.

SAIC also provided a Defense Contract Management Agency (DCMA) report that noted SAIC's completion of its accounting system change and that DCAA had reviewed the SAIC's new system and issued the Statement of Condition and Recommendation on January 21, 2011. See AR, Tab 35, DCMA June 20, 2011 Letter, at 1. DCMA states that based upon their review and in accordance with Defense Federal Acquisition Regulation Supplement Subpart 242.75 (Contractor Accounting Systems and Related Controls), DCMA approved SAIC's accounting system pending DCAA verification of corrective actions implemented by SAIC and DCAA validation of the effectiveness of these corrective actions. Id. at 2.

The SSA in making his source selection decision recognized that SAIC had changed its accounting system. The SSA further recognized that DCAA had performed a limited-scope pre-award system survey on SAIC's new system and that the system had been approved by DCMA pending further audit by DCAA. AR, Source Selection Decision, at 31. In this regard, the SSA recommended that the contracting officer request that DCAA provide a completion date for a full audit of SAIC's accounting system. Id.

We find that the agency reasonably concluded that SAIC's accounting system was adequate for determining costs in a cost-type contract. The determination regarding the adequacy of an offeror's cost accounting system is a matter of an offeror's responsibility. See McKissack+Delcan JV II, B-401973.2, B-401973.4, Jan. 13, 2010, 2010 CPD ¶ 28 at 6. 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. Id. We find no basis here to question the SSA's judgment.  (CAE USA Inc., B-405659, B-405659.2, B-405659.3, Dec 2, 2011) (pdf)
 


As noted above, the solicitation provided that "[a]n offeror's accounting system shall be adequate for determining costs applicable to the contract," and directed each offeror to "provide evidence of their accounting system being adequate in accordance with FAR [sections] 16.301-3, 16.403-1 and in compliance with FAR [Part] 31, Contract Cost Principles and Procedures." RFP at 226, 228.

In responding to these solicitation provisions, KMS's proposal directed the agency's attention to a Defense Contract Audit Agency (DCAA) audit, performed in September 2006, which had concluded that KMS's cost accounting system was adequate for performing cost reimbursement contracts. AR, Tab 16, KMS Proposal, Vol. 6 at 59. Notably, KMS's proposal made no reference to any subsequent DCAA audit.

Following submission of KMS's proposal in February 2011, the cost/price evaluation team (CPET) chair contacted DCAA personnel to obtain an update on the status of KMS's accounting system. AR, Tab 25, DCAA Email at 4. DCAA responded that it had, in fact, performed an audit of KMS's accounting system in 2010, and that a final report had been issued in March 2011. Id. Notwithstanding the failure of KMS's proposal to disclose any information regarding the 2010 DCAA audit, the CPET chair's inquiries revealed the following chronology of prior events.

From May 25 through July 2, 2010, DCAA conducted an audit of KMS's cost accounting system during which DCAA identified multiple aspects of KMS's system that it characterized as "inadequate procedures" or "deficiencies." AR, Tab 24, DCAA Audit Report No. 02171-2010C17740004 at 4, 29-62. Specifically, the audit identified deficiencies and inadequacies related to KMS's accumulation and segregation of costs, as well as to its billing system for preparation of reimbursement claims. Id. at 29-62.

On July 20, 2010, the agency conducted an exit interview with KMS personnel, and provided a draft copy of its "Results of Audit and Statement of Conditions and Recommendations" to KMS at that time. Id. at 5. On October 12, 2010, KMS formally responded to that DCAA document. Id. at 27-62. In its response, KMS concurred with many of the identified deficiencies, but stated that it did not concur, in whole or in part, with several others, specifically including DCAA's findings with regard to inadequate procedures for [deleted], improper [deleted], and non-compliance with FAR provisions regarding [deleted]. Id.

On March 7, 2011, DCAA issued its final report affirming its earlier findings and stating that there are "significant deficiencies that are considered to be material weaknesses in KMS accounting system that could result in misstated costs." Id. at 2. The report concluded that "[KMS's] accounting system and billing procedures are inadequate," and recommended "suspension of a percentage of progress payments or reimbursement of costs." Id.

Based on the information provided by DCAA, including the audit report and KMS's October 2010 response rejecting several of DCAA's findings and recommendations, the CPET concluded that KMS's accounting system was inadequate for purposes of awarding a cost-reimbursement contract. CPET Report Addendum at 3. In reaching that conclusion, the CPET referred to the specifically identified DCAA findings with which KMS had non-concurred, characterizing those as "material deficiencies that go to the heart of an adequate cost accounting system, [which] present significant cost risk to the government, and are inappropriate for the award of an ID/IQ contract for which cost-type task orders are contemplated." Id.

KMS protests that the agency's determination of inadequacy regarding KMS's cost accounting system was improper for various reasons. We disagree.

KMS first maintains that the determination regarding the adequacy of an offeror's cost accounting system is a matter of an offeror's responsibility, see McKissack+Delcan JV II, B-401973.2, B-401973.4, Jan. 13, 2010, 2010 CPD para. 28 at 6, and asserts that the agency improperly treated the issue as a matter of proposal acceptability. The agency responds that, although the adequacy of an offeror's cost accounting system is generally a matter of responsibility, where a solicitation provides for evaluation of offerors' accounting systems under a stated evaluation factor, the issue becomes a matter of the proposal's acceptability. See A‑TEK, Inc., B-299557, May 3, 2007, 2007 CPD para. 89 at 3-4. The agency maintains that the solicitation here provided for evaluation of offerors' accounting systems under the cost evaluation factor and, thus, converted the issue to a matter of proposal acceptability.

We need not resolve whether the terms of this solicitation converted the adequacy of KMS's accounting system from a matter of responsibility to a matter of proposal acceptability because, even assuming that they did not, and that this issue properly constituted a matter of responsibility as KMS asserts, the agency's actions reasonably constituted a nonresponsibility determination.

As KMS asserts, questions regarding an offeror's capability to perform a contract involve matters of responsibility, and an agency's responsibility determinations may be based on information received up to the time of award. American Tech. & Analytical Servs., Inc., B‑282277.5, May 31, 2000, 2000 CPD para. 98 at 3. However, an agency need not permit an offeror unlimited opportunities to address responsibility concerns. Sygnetics, Inc., B-404535.5, Aug. 25, 2011, 2011 CPD para. 164 at 5; Kilgore Flares Co., B‑292944 et al., Dec. 24, 2003, 2004 CPD para. 8 at 10-11. 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. We therefore will not question a negative determination of responsibility unless the determination lacks a reasonable basis. Oertzen & Co. GmbH, B‑228537, Feb. 17, 1988, 88-1 CPD para. 158 at 3.

Referring to our decision in McKissack, supra, KMS suggests that the agency should have "open[ed] a dialogue" with KMS following the agency's discovery of the 2010 DCAA audit. Protest, July 12, 2011, at 23-24. To the extent KMS's protest relies on McKissack to maintain that an agency must engage in a post-closing date dialogue with offerors before making a nonresponsibilty determination, it misreads our decision. In McKissack, we found that an agency's nonresponsibility determination, which was based on the inadequacy of the protester's accounting system, did not have a reasonable basis. Accordingly, we sustained the protest and noted that an agency "may open a dialogue" to address responsibility concerns without such dialogue necessarily constituting discussions. McKissack at 9. While noting that such dialogue is permissible, we did not conclude that it is required where an agency has an otherwise reasonable basis for assessing the adequacy of an offeror's accounting system.

Here, we believe the agency had a reasonable basis for evaluating the adequacy of KMS's accounting system. Based on our review of the record, we find no basis to question the substantive support for the agency's determination that KMS's accounting system was inadequate to perform a cost reimbursement contract. As discussed above, the DCAA audit specifically identified multiple deficiencies in KMS's cost accounting system, including KMS's inadequate procedures for [deleted], its improper [deleted], and its non‑compliance with FAR provisions governing [deleted]. The CPET specifically considered these particular deficiencies, as well as KMS's express non-concurrence with those DCAA findings, in determining that KMS's system was inadequate. In pursuing this protest, KMS has not meaningfully challenged the substance of the DCAA's findings of deficiencies and inadequacies. Accordingly, even assuming that the agency's assessment constituted a nonresponsibilty determination, we find no basis to question that determination.

Alternatively, KMS asserts that the agency's reliance on the final DCAA audit report issued in March 2011, along with KMS's non-concurrence with several of the DCAA‑identified deficiencies constituted improper reliance on "outdated information." Protest, July 12, 2011, at 24. Specifically, KMS refers to FAR sect. 9.105-1(b)(3), which states: "Information on financial resources and performance capability shall be obtained or updated on as current a basis as is feasible up to the date of award." KMS asserts that the agency failed to properly seek updated information from KMS prior to determining that KMS's accounting system was inadequate.

In the context of the facts presented here, we find KMS's assertion that the 2010-11 data was "outdated" to be truly remarkable. That is, KMS is asserting that it properly directed the agency's attention to a 2006 DCAA audit for purposes of complying with the solicitation's requirement that KMS "provide evidence of [its] accounting system being adequate," yet maintains that the agency's consideration of the data from DCAA's 2010 audit (including the final audit report issued less than 4 months before the agency's award determinations), was improper because that information was "outdated." Protest, July 12, 2011, at 23-25; KMS Comments, Aug. 1, 2011, at 27‑29. KMS's inconsistent positions regarding what constitutes sufficiently recent information undermines its assertion that the 2010-11 dated was "outdated," and we reject KMS's assertion that the agency failed to comply with FAR sect. 9.105-1(b)(3).

As noted above, an agency need not provide an offeror unlimited opportunities to address responsibility concerns. Sygnetics, Inc., supra; Kilgore Flares Co., supra. Here, we conclude that KMS was given ample opportunity to provide meaningful, current, and updated information to demonstrate the adequacy of its cost accounting system, and that it failed to do so. We further conclude that the agency reasonably considered the substance of the 2011 DCAA report, along with KMS's non‑concurrence with several of the DCAA-identified deficiencies. We note that, in pursuing this protest, KMS has not meaningfully challenged the substantive bases underlying the DCAA's determination that KMS's accounting system contained deficiencies and inadequacies. On this record, we find no merit in KMS's assertion that the agency improperly determined that KMS's cost accounting system was inadequate. Accordingly, we find that the agency reasonably rejected KMS's proposal.  (KMS Solutions, LLC, B-405323.2; B-405323.3, October 6, 2011)  (pdf)


We first note that FTA's rejection of PMO-JV's proposal due to evaluated problems in its accounting system concerns a matter of a prospective contractor's responsibility, not technical acceptability. See Pacificon Prods., Inc., B-196371, July 22, 1980, 80‑2 CPD para. 58 at 4. In this regard, Federal Acquisition Regulation (FAR) sect. 9.104(e) provides that "to be determined responsible, a prospective contractor must . . . have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them." FAR sect. 16.301-3(a)(1) states that a cost-reimbursement contract may only be used when a contractor's accounting system is adequate for determining costs applicable to the contract.

Responsibility is to be determined based on any information received by the agency up to the time award is proposed to be made. American Tech. & Analytical Servs., Inc., B-282277.5, May 31, 2000, 2000 CPD para. 98 at 3. In this regard, FAR sect. 9.105-1(b)(3) requires that information on financial resources and performance capability shall be obtained or updated on as current a basis is as feasible up to the date of award. 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. We therefore will not question a negative determination of responsibility unless the determination lacked any reasonable basis. Oertzen & Co. GmbH, B-228537, Feb. 17, 1988, 88-1 CPD para. 158 at 3. In this respect, while a contracting officer has significant discretion in this area, a negative responsibility determination will not be found to be reasonable where it is based primarily on unreasonable or unsupported conclusions. Decker and Co.; Baurenovierungsgesellschaft, m.b.H., B‑220807 et al., Jan. 28, 1986, 86-1 CPD para. 100 at 7. Moreover, an agency's reliance upon the advice of an auditor, such as the Defense Contract Audit Agency, does not insulate the agency from responsibility for error on the part of that advisor. See ASRC Research & Tech. Solutions, LLC, B‑400217, B-400217.2, Aug. 21, 2008, 2008 CPD para. 202 at 11 n.12.

As noted, FTA now asserts that PMO-JV's accounting system is inadequate because PMO-JV's failure to submit a unique indirect rate for the joint venture violates CAS 401. CAS 401 states:

(a) A contractor's practices used in estimating costs in pricing a proposal shall be consistent with his cost accounting practices used in accumulating and reporting costs.

(b) A contractor's cost accounting practices used in accumulating and reporting actual costs for a contract shall be consistent with his practices used in estimating costs in pricing the related proposal.

(c) The grouping of homogeneous costs in estimates prepared for proposal purposes shall not per se be deemed an inconsistent application of cost accounting practices under paragraphs (a) and (b) of this section when such costs are accumulated and reported in greater detail on an actual cost basis during contract performance.
48 C.F.R. sect. 9904.401-40 (2009). That is, CAS 401 requires a contractor's accounting practices in estimating costs for a proposal to be consistent with cost accounting practices used by the contractor in accumulating and reporting costs. 48 C.F.R. sect. 9904.401-20. This requirement is imposed because "[c]onsistency in the application of cost accounting practices is necessary to enhance the likelihood that comparable transactions are treated alike," so that, among other things, there is "financial control over costs during contract performance." Id.

FTA has provided a memorandum from BMC in support of its argument that PMO‑JV's failure to submit a unique indirect rate for the joint venture violates CAS 401, which states that "the contractor's proposal did not comply with CAS 401 as the contractor's proposal failed to identify a unique rate structure, for the [joint venture] which an independent and professionally operated organization would have established in the regular course of doing business. . . . The CAS/FAR noncompliance issue is not the number of indirect rates," but rather PMO-JV's "failure to identify its own rate structure for allocating costs to Government contracts." BMC Memorandum (Dec. 16, 2009) at 2.

However, CAS 401 is clearly inapplicable to PMO-JV because FTA has conceded that PMO-JV is a small business concern. AR, Tab 5, Contracting Officer Determination and Findings, Source Selection Decision, at 3. The applicable regulation, 48 C.F.R. sect. 9903.201-1(b)(3), states: "The following categories of contracts and subcontracts are exempt from all CAS requirements: (3) Contracts and subcontracts with small businesses." The agency nevertheless argues that "if the current award is $7.5 million or more the award is CAS covered. . . . Even if the proposer would otherwise be entitled to claim exemption from CAS as a small business, the [$7.5 million] trigger applies and the award would be CAS covered." This argument represents a misunderstanding of the CAS regulations. The "trigger" relied upon by FTA is set forth in 48 C.F.R. sect. 9903.201(b)(7), which exempts "from all CAS requirements" "[c]ontracts or subcontracts of less than $7.5 million, provided that, at the time of award, the business unit of the contractor or subcontractor is not currently performing any CAS-covered contracts or subcontracts valued at $7.5 million or greater." That is, as indicated by the provision itself, this section is another exemption from all CAS requirements, not a rationale for ignoring the small business exemption. Since PMO‑JV is a small business for which CAS does not apply, the agency's rationale for excluding PMO-JV on the basis of CAS 401 is unreasonable.

In any case, except for the conclusory statements made by BMC quoted above, neither FTA nor BMC has provided any analysis or legal authority as to why the PMO-JV indirect rate structure, which adopts the individual overhead rates of the joint venture partners for PMO-JV's own use and describes how the rates will be applied, violates CAS 401. Nor is it apparent to our Office why this would violate CAS 401, given that FTA and BMC have not explained why the particular overhead rate structure proposed by PMO-JV would lead to an inconsistency in the application of cost accounting practices or a loss of financial control over costs during contract performance. In this regard, it is notable that BMC's audit report and FTA's determination and findings supporting the rejection of PMO-JV's proposal because of its unacceptable accounting system did not make any mention of a CAS 401 violation. Moreover, we have found no other authority that explicitly prohibits PMO-JV's proposed rate structure.

Finally, the agency improperly failed to consider the "weighted average" overhead rate that combined the various overhead rates of the joint venture partners, which the contracting officer requested PMO-JV to submit a month prior to rejecting PMO‑JV's proposal. As noted above, this is a matter that concerns PMO-JV's responsibility. An agency can and should reverse a previous non-responsibility determination based on additional information brought to its attention prior to award. Henry Spen & Co., Inc., B‑183164, Jan. 27, 1976, 76-1 CPD para. 46 at 4. In this regard, where an agency requests information pertaining to an offeror's responsibility, it is required to reasonably consider this information if there is sufficient time to do so prior to making award. See Tomko, Inc., B-210023.2, B‑212217, Feb. 13, 1984, 84-1 CPD para. 202 at 3-4. While the agency has not responded to this protest basis, it may be that the agency believed considering this information would constitute discussions that would require opening discussions with all competitive range offerors. However, communicating with an offeror concerning its responsibility, that is, addressing agency concerns about the offeror's ability to perform, do not constitute discussions, so long as the offeror does not change its proposed cost or otherwise materially modify its proposal. See Luhr Brothers, Inc.--Recon., B‑248423.2, Nov. 9, 1992, 92-2 CPD para. 328 at 3-4. It appears that considering and accepting a weighted average overhead rate would not constitute discussions because this would only involve a change to PMO-JV's accounting system, not its cost proposal.

While the agency acted properly in choosing to investigate whether or not PMO-JV had an adequate accounting system to support this cost-reimbursement contract, the FTA has not provided on this record a reasonable explanation why PMO‑JV's accounting system was unacceptable. FTA also unreasonably failed to consider additional information pertaining to this issue that it specifically requested from PMO-JV, and we sustain the protest on these bases.

We recommend that FTA reevaluate PMO-JV's accounting system to determine whether it is adequate. In so doing, we note that if the agency has problems with PMO-JV's accounting system, it may open a dialogue to resolve these issues without such dialogue necessarily being considered discussions, given that this is a matter relating to PMO-JV's responsibility, so long as PMO-JV does not change its proposed cost or otherwise materially modify its proposal. If PMO-JV's accounting system is found adequate, the agency should determine whether PMO-JV's proposal is otherwise acceptable and in line for award, and if so award should be made to that firm. If PMO-JV's accounting system is found inadequate and its proposal rejected for this reason, the matter, which involves the responsibility of a small business concern, must be referred to the Small Business Administration for a Certificate of Competency (COC) determination. We also recommend that the agency reimburse the protester for the reasonable costs of filing and pursuing the protest, including reasonable attorneys' fees. Bid Protest Regulations, 4 C.F.R. sect. 21.8(d)(1) (2009). The protester's certified claims for cost, detailing the time expended and costs incurred, must be submitted directly to the agency within 60 days of receiving this decision. 4 C.F.R. sect. 21.8(f)(1).

The protest is sustained.  (PMO Partnership Joint Venture, B-401973.3; B-401973.5, January 14, 2010)  (pdf)


We first note that FTA's rejection of MD-JV's proposal due to evaluated problems in its accounting system concerns a matter of a prospective contractor's responsibility, not technical acceptability. See Pacificon Productions, Inc., B-196371, July 22, 1980, 80-2 CPD para. 58 at 4. In this regard, Federal Acquisition Regulation (FAR) sect. 9.104(e) provides that "to be determined responsible, a prospective contractor must . . . have the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them." FAR sect. 16.301-3(a)(1) requires that cost-reimbursement contracts are only used when a contractor's accounting system is adequate for determining costs applicable to the contract.

Responsibility is to be determined based on any information received by the agency up to the time award is proposed to be made. FAR sect. 9.105-1(b)(3); American Tech. & Analytical Servs., Inc., B-282277.5, May 31, 2000, 2000 CPD para. 98 at 3. 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. We therefore will not question a negative determination of responsibility unless the determination lacked any reasonable basis. Oertzen & Co. GmbH, B-228537, Feb. 17, 1988, 88-1 CPD para. 158 at 3. In this respect, while a contracting officer has significant discretion in this area, a negative responsibility determination will not be found to be reasonable where it is based primarily on unreasonable or unsupported conclusions.[8] Decker and Co.; Baurenovierungsgesellschaft, m.b.H., B‑220807 et al., Jan. 28, 1986, 86-1 CPD para. 100 at 7. Moreover, an agency's reliance upon the advice of DCAA does not insulate the agency from responsibility for error on the part of DCAA. See ASRC Research & Tech. Solutions, LLC, B-400217, B-400217.2, Aug. 21, 2008, 2008 CPD para. 202 at 11 n.12.

As noted, during the development of this protest, FTA has abandoned many of the reasons it previously advanced regarding why it believed MD-JV's accounting system was inadequate. FTA now asserts that MD-JV's accounting system is inadequate because MD-JV's failure to submit a unique indirect rate for the joint venture violates CAS 401.

CAS 401 states:

(a) A contractor's practices used in estimating costs in pricing a proposal shall be consistent with his cost accounting practices used in accumulating and reporting costs.

(b) A contractor's cost accounting practices used in accumulating and reporting actual costs for a contract shall be consistent with his practices used in estimating costs in pricing the related proposal.

(c) The grouping of homogeneous costs in estimates prepared for proposal purposes shall not per se be deemed an inconsistent application of cost accounting practices under paragraphs (a) and (b) of this section when such costs are accumulated and reported in greater detail on an actual cost basis during contract performance.
48 C.F.R. sect. 9904.401-40 (2009). That is, CAS 401 requires a contractor's accounting practices in estimating costs for a proposal to be consistent with cost accounting practices used by the contractor in accumulating and reporting costs. 48 C.F.R. sect. 9904.401-20. This requirement is imposed because "[c]onsistency in the application of cost accounting practices is necessary to enhance the likelihood that comparable transactions are treated alike," so that, among other things, there is "financial control over costs during contract performance." Id.

FTA has provided a DCAA memorandum from the Branch Manager of DCAA's Reston, Virginia branch office in support of its argument that MD-JV's failure to submit a unique indirect rate for the joint venture violates CAS 401. DCAA simply states that "the contractor's proposal did not comply with CAS 401 because the contractor's proposal did not contain a unique rate structure, which an independent and professional operated organization would have in the regular course of business. . . . The CAS/FAR noncompliance issue is not the number of indirect rates," but rather that "MD-JV does not have its own indirect rate structure for allocating costs to Government contracts." DCAA Memorandum (Dec. 15, 2009) at 2.

Except for the foregoing conclusory statements, neither FTA nor DCAA has provided any analysis or legal authority as to why the MD-JV indirect rate structure, which adopts the individual overhead rates of the joint venture partners for MD-JV's own use and describes how the rates will be applied, violates CAS 401. Nor is it apparent to our Office why this would violate CAS 401, given that neither agency has explained why the particular dual overhead rate structure proposed by MD-JV would lead to an inconsistency in the application of cost accounting practices or a loss of financial control over costs during contract performance. In this regard, it is notable that DCAA's audit report and FTA's determination and findings supporting the rejection of MD-JV's proposal because of its unacceptable accounting system did not make any mention of a CAS 401 violation. Moreover, we have found no other authority that prohibits MD-JV's proposed dual overhead rate structure.

While the agency acted properly in choosing to investigate whether or not MD-JV had an adequate accounting system to support this cost-reimbursement contract, FTA has not provided on this record a reasonable explanation why MD‑JV's accounting system was unacceptable, and we sustain the protest on this basis.

We recommend that FTA reevaluate MD-JV's accounting system to determine whether it is adequate. In so doing, we note that if the agency has problems with MD-JV's accounting system, it may open a dialogue to resolve these issues without such dialogue necessarily being considered discussions, given that this is a matter relating to MD-JV's responsibility, so long as MD-JV does not change its proposed cost or otherwise materially modify its proposal. If MD-JV's accounting system is found adequate, the agency should determine whether MD-JV's proposal is otherwise in line for award and if so award should be made to that firm. We also recommend that the agency reimburse the protester for the reasonable costs of filing and pursuing the protest, including reasonable attorneys' fees. Bid Protest Regulations, 4 C.F.R. sect. 21.8(d)(1)(2009). The protester's certified claims for cost, detailing the time expended and costs incurred, must be submitted directly to the agency within 60 days of receiving this decision. 4 C.F.R. sect. 21.8(f)(1).

The protest is sustained.  (McKissack+Delcan JV II, B-401973.2; B-401973.4, January 13, 2010) (pdf)


The evaluation here was reasonable. The RFP unequivocally required offerors to have DCAA or other federal audit agency verification that the firm’s accounting system had been audited and determined adequate for determining costs applicable to the solicited work in accordance with FAR sect. 16.301-3(a)(1). Contact with DCAA revealed that A-TEK did not have any cost-reimbursement contracts in place; had never been audited by DCAA; and had never been subject to a pre-award survey of its accounting system. Further, A-TEK’s submission of provisional rates was not relevant because it lacked any existing cost-type contracts. Agency Report, exh. D, at 3. Further, while the Deltek software is widely used by companies with adequate accounting systems, use of the software alone did not constitute verification that A‑TEK’s accounting system had been audited and verified as adequate. Id. With regard to A‑TEK’s other contracts, GSA learned that those contracts contained provisions that specifically prohibited the firm from submitting a proposal for a cost‑reimbursement-type task order because it had not had its accounting system audited and deemed adequate for those contracts. Id. at 3-4. While A-TEK also submitted a letter from its accountant, the agency found that it was insufficient to meet the RFP’s requirements because it was not from a federal audit agency, it clearly stated that the accountant had not audited A-TEK’s accounting system, and it failed to state that A-TEK’s system had been deemed adequate for this contract. In short, A-TEK failed to provide any information that satisfied the RFP requirement. Based on A-TEK’s failure to provide the required information, the agency reasonably concluded that the firm lacked a properly audited accounting system, and thus reasonably rejected the firm’s proposal. (A-TEK, Inc., B-299557, May 3, 2007) (pdf)

Comptroller General - Listing of Decisions

For the Government For the Protester
New Leader Communications, Inc. B-413104.9: Mar 17, 2017 PMO Partnership Joint Venture, B-401973.3; B-401973.5, January 14, 2010  (pdf)
CAE USA Inc., B-405659, B-405659.2, B-405659.3, Dec 2, 2011 (pdf) McKissack+Delcan JV II, B-401973.2; B-401973.4, January 13, 2010 (pdf)
KMS Solutions, LLC, B-405323.2; B-405323.3, October 6, 2011  (pdf)  
A-TEK, Inc., B-299557, May 3, 2007 (pdf)  
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