GAO Denies Bid Protest

January 13, 2017

The Government Accountability Office (“GAO”) has denied a bid protest challenging the agency’s evaluation of the protester’s proposal as unacceptable because the protester did not demonstrate that it had an accounting system that had been approved by the Defense Contract Audit Agency (“DCAA”).

The National Security Agency (“NSA”) issued a small business set aside Request for Proposal for business, engineering, information technology, operations, and training support services. One of the evaluation subfactors was that offerors have an accounting system “that has been deemed acceptable for award by a [Defense Contract Audit Agency (DCAA)] audit at the time of proposal submission and include the documentation from DCAA.” This subfactor was to be evaluated on a pass/fail basis.

The protester, WILLCOR, timely submitted its proposal and included a copy of a 2003 DCAA audit as evidence that its accounting system was deemed acceptable by the DCAA. WILLCOR’s proposal also stated that a DCAA audit was conducted in November 2012, with a verbal that our accounting system is adequate, but a written audit report has not been received. After receiving WILLCOR’s proposal, the National Security Agency (“NSA”) contacted DCAA to get further details regarding the status of WILLCOR’s accounting system. DCAA informed NSA that the most recently completed audit was conducted in 2008. The 2008 audit determined that WILLCOR’S accounting system was inadequate in part due to three significant deficiencies that could result in overstated or misstated costs on government contracts. DCAA also provided information regarding a subsequent audit that was initiated in 2011, but then was cancelled before it had been completed.

As a result of this information, the agency concluded that WILLCOR had not demonstrated that its accounting system had been deemed acceptable by DCAA. NSA therefore assigned WILLCOR’s proposal a fail rating under that subfactor. Additionally, NSA rated WILLCOR’s proposal unacceptable under another subfactor dealing with innovation. Thus, WILLCOR’S proposal was deemed unacceptable under two subfactors, resulting in an overall unsatisfactory rating.

In denying the protest, GAO focused solely on WILLCOR’S arguments regarding its rating under the innovation factor, and did not identify the basis upon which WILLCOR was challenging NSA’s determination that it did not have an accounting system approved by DCAA. However, in a footnote to the decision, GAO noted that the adequacy of an offeror’s accounting system is generally considered a matter of responsibility, such that any negative determination on this basis must be referred to the SBA for a final determination under its certificate of competency (“COC”) procedures. However, where, as here, an agency’s evaluation of a small business’s proposal as unacceptable is based on factors unrelated to responsibility as well as under responsibility related factors, referral to the Small Business Administration for COC consideration is not required. This footnote needs further examination.

Federal Acquisition Regulation (“FAR”) 9.104-1 lists having an adequate accounting system as an element of responsibility. In addition, FAR 16.104 states that before a contracting officer agrees on a contract type other than firm-fixed-price, the contracting officer “shall ensure that the contractor’s accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type.” Thus, reading these two sections together, it is clear that there is no universal standard for what would be considered an adequate accounting system. Instead, the answer to this question depends on the cost data that the contractor will be required to provide under a specific contract. Despite this, DCAA does not consider the potential contract type when evaluating a contractor’s accounting system in the pre-award context. Instead, DCAA generally applies the factors listed on the SF-1408, which is to be used when a pre-award survey is required. More importantly, it should be noted that DCAA has no authority under the FAR or Defense Federal Acquisition Regulation Supplement (DFARS) to determine that a contractor has an adequate accounting system. Instead, both regulations assign this responsibility to a contracting officer and limit DCAA to making a recommendation to the contracting officer. Therefore, using an evaluation factor that a contractor must have a DCAA-approved accounting system seems to be asking the contractor to demonstrate the impossible.

In regard to the use of responsibility factors as evaluation factors, the GAO has traditionally held that if such factors are used on a comparative basis to discriminate among proposals, a COC referral is not necessary if a small business is not selected for award. On the other hand, if responsibility factors are used as pass/fail evaluation factors and a small business is not selected because it failed one of such factors, a COC referral is necessary. Thus, in that situation, if a small business is disqualified from receiving an award because it does not have an adequate accounting system, that is the equivalent of a non-responsibility determination which requires a COC referral.

Unfortunately for WILLCOR, its proposal was determined inadequate for a reason in addition to not having an adequate accounting system. Therefore, a COC referral was not required because even if the COC was issued, WILLCOR would still not be in line for the contract.