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FAR 32.702: Adequate Funding

Comptroller General - Key Excerpts


Section 422 of title 42 of the United States Code directs the CAS Board to promulgate regulations, which shall be incorporated into the Federal Acquisition Regulation (FAR) and shall "require contractors and subcontractors as a condition of contracting with the United States to--(A) disclose in writing their cost accounting practices, including methods of distinguishing direct costs from indirect costs and the basis used for allocating indirect costs." 42 U.S.C. sect. 422(h)(1) (2006). In this regard, the solicitation incorporated FAR clause 52.230-1, CAS Notices and Certifications, which provides as follows:

Any offeror submitting a proposal which, if accepted, will result in a contract subject to the requirements of 48 CFR Chapter 99 must, as a condition of contracting, submit a Disclosure Statement as required by 48 CFR 9903.202. When required, the Disclosure Statement must be submitted as a part of the offeror's proposal under this solicitation unless the offeror has already submitted a Disclosure Statement disclosing the practices used in connection with the pricing of this proposal.

FAR sect. 52.130-1(b). In turn, 48 C.F.R. sect. 9903.202-1(b)(1) provides that "[a]ny business unit that is selected to receive a CAS-covered contract or subcontract of $50 million or more shall submit a Disclosure Statement before award." Here, the negotiated contract with GTV is a CAS-covered contract, 48 C.F.R sect. 9903.201-1, and because the contract was in excess of $50 million, GTV "as a condition of contracting," was required to submit a CAS disclosure statement.

GTV, a limited liability joint venture incorporated in the state of Delaware, is comprised of two large business joint venture members--AM General and General Dynamics Land Systems (GDLS). GTV's proposal indicated that 100 percent of the contract costs would be accounted for by subcontracts with the two joint venture members, apportioned between them equally. GTV FPR Cost Proposal at 31. GTV indicated in its proposal that a CAS disclosure statement had previously been submitted, and specifically cited in this regard disclosure statements submitted by AM General and GDLS.

The protesters assert that, because the CAS disclosure statements GTV relied on to meet the solicitation requirements had been submitted by and concerned the cost accounting systems of GTV's joint venture members--that is, its subcontractors for this contract--and did not address the cost accounting system of GTV itself, the prime contractor, GTV failed to meet the CAS disclosure requirement and thus was ineligible for award.

This argument is unpersuasive. In order to assist in our consideration of this matter, we requested an advisory opinion from the Defense Contract Audit Agency (DCAA), which is responsible for performing contract audits for the Department of Defense (DOD), and for providing accounting and financial advisory services regarding contracts and subcontracts to all DOD components responsible for procurement and contract administration. DCAA Information for Contractors, DCAAP 7641.90, Jan. 2005, 1-301. In responding to this request, DCAA referred to the DCAA Contract Audit Manual, DCAAM sections 7640.1, 7‑1810.2, which provides the following audit guidance:

b.  Joint ventures are composed of two or more contractors each of which may have already filed a Disclosure Statement as a result of having obtained other Government contracts. Review the characteristics of the joint venture to determine if the joint venture meets the definition of a CAS segment.

c.  The need for a joint venture CAS Disclosure Statement depends upon the characteristics of the venture itself. The determination must be made on a case-by-case basis. Where the joint venture is the entity actually performing the contract, has the responsibility for profit and/or producing a product or service, and has certain characteristics of ownership or control, a Disclosure Statement should be required. Where the venture merely unites the efforts of two contractors performing separate and distinct portions of the contract with little or no technical interface, separate joint venture disclosure may not be required. Where doubt exists, discuss the circumstances with the contracting officer.

DCAAM sect. 7‑1810.2. Applying this guidance, DCAA advised that submission of a CAS disclosure statement by the GTV joint venture itself may not be required; since all of the joint venture's costs were proposed to be incurred and accounted for by the two joint venture members (which had already submitted their respective CAS disclosure statements) it would not serve a useful purpose in the examination of the joint venture's cost proposal or in ensuring the joint venture's compliance with the CAS Board's rules.

We find DCAA's position persuasive. GTV's proposal in fact incorporated CAS disclosure statements applicable to the contemplated contract effort. While these disclosure statements had originally been submitted by, and concerned the cost accounting systems of, GTV's joint venture members/subcontractors, GTV's proposal indicated that all costs to be billed under the contemplated contract would be incurred and accounted for by GTV's joint venture members/subcontractors, with no allowance for any costs to be incurred and accounted for at the GTV level. Furthermore, GTV's proposal delineated the overall share in the cost of performance and the specific roles to be filled by each joint venture member/subcontractor. In these circumstances, we think AMC could reasonably determine that GTV's proposal satisfied the CAS disclosure requirements. 
(Northrop Grumman Space and Missile Systems Corporation; Textron Marine & Land Systems Corporation, B-400837; B-400837.2; B-400837.3; B-400837.4; B-400837.5, February 17, 2009) (pdf)

Comptroller General - Listing of Decisions

For the Government For the Protester
Northrop Grumman Space and Missile Systems Corporation; Textron Marine & Land Systems Corporation, B-400837; B-400837.2; B-400837.3; B-400837.4; B-400837.5, February 17, 2009) (pdf)  

U. S. Court of Federal Claims - Key Excerpts

U. S. Court of Federal Claims - Listing of Decisions
For the Government For the Protester


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