Just Because You're Bankrupt Doesn't Mean You're Precluded from Government Contracting

Companies that desire Government contracts must meet a number of qualifications including an accounting system suitable for Government Contracting and enough financial resources to perform the contract. From a practical standpoint where a contractor is eligible for progress payments or other interim payments (e.g. public vouchers), a two to three months of working capital is sufficient until the billing/payment pipeline starts producing.

Prior to any contract award, the Government will perform a financial responsibility determination. Often times, the responsibility is assigned to someone in the procurement office. Sometimes it is farmed out to the Administrative Contracting Officer (ACO). Once in awhile, DCAA is requested to perform the review though that Agency is mostly out of the financial capability assessment business. These reviews are typically performed by someone who does not know a debit from a credit and the scope of the reviews are very superficial - never diving into the underlying data that makes up a financial statement.

Earlier this year, the Marine Corps awarded a contract for motorcycle safety training services. The contract was ultimately awarded to a company called Information Sciences Consulting, Inc (ISCI) whereupon a competitor, SaxmanOne, LLC protested the award. The protest alleged a number of deficiencies including an allegation that the Marine Corps improperly determined that ISCI was a responsible offeror. SaxmanOne contended that the contracting officer ignored ISCI's alleged debts and pending bankruptcy litigation.

As a general matter, the GAO (with whom the protest was filed) does not review affirmative determinations of responsibility by a contracting officer. It will, however, review a challenge to an agency's affirmative responsibility determination where the protester presents specific evidence that the contracting officer may have ignored information that, by its nature, would be expected to have a strong bearing on wither the awardee should be found responsible.

In this case, the contracting officer considered ISCI's alleged debts and pending bankruptcy litigation. The contracting officer specifically found that ISCI had adequate financial resources to perform the contract, or the ability to obtain them". The contracting officer specifically mentioned that an involuntary bankruptcy notice was provided to the Government. Further, the Marine Corps inquired with ISCI's current clients and determined that neither its debts nor pending bankruptcy litigation had an impact on its contract performance. Lastly, the Marine Corps checked the Federal Awardee Performance and Integrity Information System (FAPIIS) and identified no information indicating that ISCI had a history of failing to pay its subcontractors.

Given this level of detail, the GAO ruled that the Marine Corps did not ignore either ISCI's alleged debts or any pending bankruptcy litigation and denied the protest.