A Note on CIO-SP4: Don't Let an Inadequate Verification of Your Accounting System Sink Your Proposal
Yesterday, I wrote a brief LinkedIn post regarding a recent U.S. Government Accountability Office ("GAO") bid protest decision finding that the National Institutes of Health ("NIH") acted reasonably when it determined that "the protester’s proposal failed to comply with the [CIO-SP3 Small Business On-Ramp] solicitation’s specific instructions for providing verification of an adequate cost accounting system from the Defense Contract Audit Agency."
Given that a number of contractors will be submitting proposals for the $40 billion CIO-SP4 GWAC, and that the final RFP (not yet published) will likely include as a "go/no-go" criteria an evaluation to verify that each offeror has an adequate accounting system, I began to wonder whether this issue had surfaced in any other CIO-SP3 protests. It did. And, while it is unfortunate that those offerors were eliminated at the go/no-go stage, there are lessons to be learned. After all, no offeror wants to lose an opportunity to compete for CIO-SP4 task orders because they failed to pass this go/no-go requirement.
To that end, below are several GAO bid protests in which each protester challenged the NIH's decision to eliminate them from competition under the CIO-SP3 Small Business On-Ramp solicitation after NIH found that their proposals were unacceptable under the adequate accounting system requirement. Notably, the relevant adequate accounting system language in the CIO-SP3 On-Ramp RFP is nearly identical to language in the CIO-SP4 Draft RFP. Thus, NIH's evaluation approach under the prior solicitation might be an indication – but it does not definitively confirm – how NIH might evaluate this same accounting system requirement under the CIO-SP4 Final RFP (which appears to be coming in early February).
Protester's proposal included several representations and some documentation regarding the adequacy of its accounting system. Protester represented that it was audited by DCAA in 2002 and that its accounting systems were adequate at the time, but it did not include the DCAA audit report in its proposal. Protester explained that DCAA had subsequently audited or performed adequacy reviews of its “incurred cost submissions annually through 2012” and stated that was including a letter (dated 2014) that showed the results of "DCAA’s most recent adequacy evaluation." Unfortunately, NIH determined that the protester failed to comply with the solicitation requirements because none of the information independently verified that the protester's accounting system had been audited and determined to be adequate (whether by a government agency or by a third-party accounting firm). Protest denied.
Protester bid a CTA. In addressing the accounting system requirement, the CTA member submitted an independent auditors' report for the consolidated financial statements of the CTA member's parent company and subsidiaries. This audit report stated that the responsibility of the auditors was "to express an opinion on these consolidated financial statements" and that the audits were conducted "in accordance with auditing standards generally accepted in the United States of America." Unfortunately, NIH determined that the audit report failed to comply with the requirements of the solicitation, because, among other things, "the report did not certify that the accounting system had been audited and deemed adequate for determining costs applicable to this contract in accordance with FAR [§] 16.301-3(a)(1), as required by the solicitation." Protest denied.
Protester submitted a document that stated that its "accounting system was approved by DCAA after an audit in 2008 and provided the audit report number." The document also included details about protester's accounting system and cost accounting practices, as well as contact information for its cognizant DCAA office and representative. Notably, however, the protester did not furnish any audit report with its proposal. Unfortunately, NIH determined that the protester failed to comply with the solicitation because protester's "own representations about its accounting system did not meet the requirements to provide verification of an adequate accounting system." Protest denied.
Both protesters formed a CTA with two other contractors. Each protester submitted documents for all three CTA members regarding the adequacy of their respective accounting systems. The documents indicated two of the three team members for each offeror used a third-party CPA firm for verification. Notably, both protesters submitted as their documentation a form entitled “Adequacy of the Accounting System,” which was "to be signed, dated, and completed by an auditor if a DCAA audit had not been performed on the accounting system, but a third-party accounting firm review was conducted and the accounting system was found adequate for cost-type federal contracts." Unfortunately, NIH determined that that these forms "did not comply with the solicitation’s requirement to provide, on letterhead of the third-party CPA firm, verification that the CTA members’ accounting systems had been audited and found adequate for determining costs applicable to the contract in accordance with FAR § 16.301-3(a)(1)." Protests denied.
Takeaway
The CIO-SP4 GWAC is a $40 billion opportunity and contractors should consider that, given the anticipated volume of proposal submissions, NIH will likely be employing the "go/no-go" requirements, in part, to whittle down the field of competition. In other words, contractors should expect that NIH will likely evaluate all go/no-go requirements for strict compliance.
For the verification of an adequate accounting system requirement, as shown above, NIH will likely be looking for evidence (Section M, Draft RFP) to verify that the contractor's accounting system is adequate for determining costs applicable to the contract pursuant to FAR § 16.301-3(a)(1). [2] As a result, offerors should be prepared to submit with their proposal:
(i) a government audit report from DCAA, DCMA, or any federal civilian audit agency indicating that the contractor's accounting system is adequate for determining costs applicable to the contract pursuant to FAR § 16.301-3(a)(1); or
(ii) a third-party audit report on a CPA firm's letterhead stating that the contractor's accounting system is adequate for determining costs applicable to the contract pursuant to FAR § 16.301-3(a)(1); and
(iii) any other information that is required under the solicitation, including the name and contact information of the relevant audit representative. [3]
Because, as shown above, a contractor's self representations do not constitute verification, failure to provide the required evidence will likely sink your proposal. [4] So beware and plan accordingly.
Good luck to all offerors!
JD
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[1] Follwing its GAO bid protest, FreeAlliance.com filed a similar protest at the U.S. Court of Federal Claims to challenge its exclusion from further consideration. See FreeAlliance.com, LLC v. United States, 135 Fed. Cl. 71 (2017) (denying protester's motion for judgment on the administrative record), aff'd, Case No. 18-1190 (Fed. Cir. 2018) (per curiam).
[2] CIO-SP4 Draft RFP, Section M, Go/No-Go Requirements, March 27, 2020:
If the proposal does not contain the required documents, the Government deem will the proposal to be “Unacceptable” and ineligible for further consideration for award.
The Government will evaluate evidence that the Offeror, and all CTA members (if applicable) have an adequate accounting system in accordance with FAR 16.301-3 (a) (1), as required under Section L.3.1.h. If the Offeror and all CTA members (if applicable) fail to furnish verification of an adequate cost accounting system will result in an “Unacceptable” rating, the proposal will be determined “Unacceptable” and ineligible for further consideration for award.
[3] CIO-SP4 Draft RFP, Section L, Verification of An Adequate Accounting System, March 27, 2020:
Because of the need for Contractors to respond to Cost Reimbursement task orders, to be eligible for award under the GWAC, Offerors must have verification from the Defense Contract Audit Agency (DCAA), the Defense Contract Management Agency (DCMA), any federal civilian audit agency, or a third-party Certified Public Accounting (CPA) firm of an accounting system that has been audited and determined adequate for determining costs applicable to this contract in accordance with FAR 16.301-3(a)(1). In the event the verification is from a third-party CPA, the verification letter shall be on the letter head of the third-party CPA firm, and certified by a certified public accountant. For those Offerors that submit a proposal in the form of a FAR 9.601(1) CTA, see paragraph L.3.1.6, each member of the CTA must show evidence that it has verification of an adequate accounting system. Failure to do so will result in an unacceptable rating (see M.2).
As such, the Offeror must provide in its proposal, a contact name and contact information (i.e., phone number, address, email address) of its representative at its cognizant DCAA, DCMA, federal civilian audit agency, or third-party accounting firm and submit, if available, a copy of the Pre-Award Survey of Prospective Contracting Accounting System (SF 1408), provisional billing rates, and/or forward pricing rate agreements.
[4] As a reminder, because the CIO-SP4 Final RFP has not yet been published, contractors should closely scrutinize the verification of adequate accounting system sections (and all others, for that matter) because it is possible that NIH will include in the final version revised language that could impact this requirement (or others).
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