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Government Contractors

Accounting System Assessment – Alliant 2 Contract

By: Eric Poppe, Manager; Kristen Kwiatkowski, Manager; and Jacob Barclay, Consultant

There have long been rumors that the General Services Administration (“GSA”) will be releasing Alliant 2 (“A2”) and Alliant 2 Small Business (“A2SB”) Governmentwide Acquisition Contract (“GWAC”) Request for Proposals (“RFP”) in the near future. While there has been much speculation of a June 2016 release, nothing yet is certain. As companies begin to prepare for the final release of these two separate solicitations, companies should consider what regulatory impact the potential award could have on their compliance environment. The Draft Request for Proposals (“DRFP”) previously released on March 31, 2015, and October 15, 2015, can be used as road maps to understand the potential compliance environment A2 and A2SB may require.

In review of the DRFP, Cherry Bekaert identified system requirements that we strongly believe contractors should be aware of. We have the ability to assist a contractor with mitigating any potential business system gaps, providing recommendations to ease the administrative burden of compliance requirements, and ensuring the company overall complies with business system requirements. The text below goes further into detail on certain business system requirements.

First, what is the GSA Alliant Contract?

A2 and the A2SB are Government-wide Acquisition Contracts (“GWACs”) that are considered two of the most important technology, IT, software and solutions vehicles used by the Federal government. The contracts are administered by GSA. Any government agency can buy off the schedule.

What is a GWAC?

A GWAC is a multiple-award, indefinite delivery, indefinite quantity contract that other Federal agencies use to streamline their procurement for products or services. GWACs are a common vehicle used within the Federal government.

Okay, we understand the contract type and what a GWAC is, but what are the compliance requirements within the solicitation?

Within the DRFPs, there are certain compliance requirements that can be especially burdensome on small contractors or companies that primarily do commercial work and are starting to enter the government space. We will highlight a few compliance requirements specifically called out that could affect a company’s position in obtaining the contract.

Specifically, GSA would like to see evidence of an approved purchasing system; acceptable estimating system; acceptable EVMS ANSI/EIA Standard-748; verification of Forward Pricing Rate Agreements, Forward Pricing Rate Recommendations, and/or approved billed rates; and finally an approved and audited accounting system. All of these items are used for scoring and determining potential award. Of the items listed, this article will go further into the requirement on the accounting system requirement, which is required in order to receive any type of cost type or flexibly priced task orders on this vehicle. The remaining requirements, while important, may not be applicable for all companies. We will address the additional compliance and business systems in future blog posts.

Within the solicitation, under Section B.11.2, Cost Reimbursable, the DRFP states, “Contractors are required to have an adequate cost accounting system for Cost Reimbursable type Task Orders in accordance with FAR 16.301-3(a)(1).” The DRFP discusses the need of an adequate accounting system under Sections B.11.2, F.6, G.15, and H. 16; however, Section L.5.4.1 of the DRFP goes further into detail discussing the requirement to prove verification of the system.

The text from Section L.5.4.1, Cost Accounting System and Audit Information, can be found in the DRFP. In lieu of this information, we’ve summarized what we can glean from the RFP on possible scenarios for how to (or how not to) earn points on this scoring element.

  1. The Company can earn points if it has verification of an acceptable accounting system from the Defense Contract Audit Agency (“DCAA”), Defense Contract Management Agency (“DCMA”), or any Cognizant Federal Agency (“CFA”). The company must submit the verification and also must certify that there have been no material changes in the accounting system since the verification. At minimum, a copy of the audit report and/or a copy of the Standard Form (“SF”) 1408, Pre-Award Survey of Prospective Contractor Accounting System, will be provided. If both are available, both are required to be submitted, in addition to contact information for the Company’s cognizant DCAA, DCMA, and CFA offices.

While the DRFP does not specifically state this, it is implied that under this circumstance the letter would be less than five years old.

  1. The Company can earn points if it is aware that verification and evidence is available to show that the Company has an acceptable accounting system from DCAA, DCMA, or any CFA; however, the evidence (audit report or SF 1408) is not available to the Company or the Company never received any report. In this circumstance, GSA will contact the cognizant office (i.e., DCAA, DCMA, CFA, etc.) to verify. It will be the Company’s responsibility to provide the government with contact information for the appropriate representative to contact and obtain that information. If the government is unable to identify the verification (with “reasonable efforts”), no points will be earned.

If you know this is the case for you, we strongly recommend that you begin exploring who may have the information needed to make this process smoother for you, for the government, and for the success of your bid. Again, while the DRFP does not specifically state this, it is implied that under this circumstance the evidence would be less than five years old.

  1. If audit verification documents from DCAA, DCMA, or the CFA are older than five years, offerors must submit:
    • A self-evaluation of the accounting system;
    • An audit by an independent CPA firm, with the letter indicating there have been no material changes to the offeror’s accounting system since the last DCAA/DCMA review.

In this instance, if material changes have occurred from the letter that is older than five years, it may not be possible to adequately certify either the self- evaluation or for the third party to issue a letter.

  1. If the offeror has no federal cost-reimbursement contract experience with any verification from the DCMA or CFA, then the offeror will earn no points for the accounting system scoring element. Additionally, the DRFP goes on to state that GSA will not sponsor a “Pre-Award Survey of Prospective Contractor Accounting System” or an Adequacy determination to assist in response to the solicitation. Lack of verification will not disqualify the proposal, but the offeror will have no way to earn points for this scoring element.

This is all merely our interpretation of the DFRPs. Any changes to the final RFP will hopefully expand the ability for offerors to gain points in this scoring element, as the current requirements are somewhat limiting.

What, wait? What does GSA mean by an “adequate accounting system” and what is an SF 1408?

When performing work for the Federal government that is flexibility priced (i.e., cost reimbursable or time-and-material), the contractor’s accounting system should have the ability to perform project cost accounting and meet the criteria outlined in FAR Part 31, Contract Cost Principles.

The government uses the SF 1408 as a tool to determine if the contractors accounting system is “capable” to handle and manage flexibly priced contracts. Audits are preformed to verify the capability at the request of the contracting officer at each agency. A contractor can request an audit; however, there is no obligation from the government to oblige the request.

It is becoming common practice for contractors to use third-party CPA firms to verify the capability of business systems and provide a report on CPA letterhead. Additionally, we are seeing more of this verbiage included in RFPs in order to facilitate approval of systems, in lieu of DCAA’s untimeliness on accounting system reviews.

So what? What effect does this have on me as a contractor?

Due to the requirements stated above, the contractor is responsible to have an “adequate” accounting system if the contractor wants to be more highly rated and considered for flexibility priced work. The crux is most small contractors or new contractors to government work do not have an approved accounting system and most likely are not on the radar of DCAA to receive an audit verifying the capability.

Additionally, we find this to be one of the easier elements on an RFP to gain points in. In addition to the extra points, we find companies with adequate accounting systems have better pricing strategies, more opportunities to bid new work, and enhanced budgetary control.

How we can help….

If your company is responding to A2 or A2SBA and you do not have an approved accounting system by DCAA, Cherry Bekaert can conduct a third-party assessment of your Company’s accounting system. Our third-party assessment would issue a report on whether the system is capable of complying with Federal government cost accounting requirements; include the Standard Form 1408 with the report; and additionally advise and provide recommendations for modifying the accounting system in order to comply with Federal government cost accounting requirements, if needed.

It should be noted, in response to Alliant 1, there were multiple bid protests related to a similar accounting system requirement within the RFP. As a result of these protests, contractors who protested and argued the requirement that DCAA or DCMA must perform an audit on the accounting system (instead of a third party) had their argument recognized and a third-party assessment was allowed. On the opposite end of the spectrum, contractors who protested the accounting system requirement (that it should not be required of them) in general lost their protest.

In the event a contractor does not have an audited system by the government and wants to respond to the A2 or A2SBA, it would be prudent for the contractor to have an assessment performed by a thirdparty CPA firm to help provide assurance the accounting system is capable of receiving flexibly priced contracts.

For any other questions regarding accounting system requirements discussed above, please contact Cherry Bekaert’s Government Contractor Services Group.

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