The Importance of Adequate Proposal Submissions

The following information has been extracted from the instructions that DCAA (Defense Contract Audit Agency) provides to contracting officers on the proper procedure for requesting audits. It is instructive for contractors (and prospective contractors) because essentially, DCAA will not audit a proposal that has inadequacies. DCAA would prefer that contracting officers first determine whether contractor proposals are adequate before they send out a request for audit. Offerors could find themselves out of a job if they don't pay attention to the fundamental requirements of FAR Part 15.

Before requesting an audit, offerors/contractors’ proposals, claims, or other submissions should be adequately supported. It is in the buying commands best interest to obtain adequate proposals and submissions in order to fully protect the Government’s interests, to ensure receipt of timely and effective audit services, and to assist in performing the necessary cost or pricing analysis required to attain a fair and reasonable contract price. It is in the contractor’s best interest to provide adequate proposals and submissions in order to obtain timely contract awards, ensure funding is not lost or transferred elsewhere, and to help adhere to applicable regulatory requirements. DCAA auditors are required to obtain adequate proposals/submissions prior to starting an audit. FAR 15.403-4 sets forth those circumstances in which contractors are required to submit certified cost or pricing data. FAR 15.408, Table 15-2 provides instructions for submitting cost/price proposals when cost or pricing data are required. The DCAA Forward Pricing Adequacy Checklist (located at http://www.dcaa.mil) is a valuable tool in assessing the adequacy of all types of offeror/contractor submissions.

Adequacy of Cost or Pricing Data

If you submit a proposal for a contract based on cost or pricing data, chances are good that it will be audited. One of the first things an auditor will do upon receipt of a request to perform an audit is to make an assessment on the Adequacy of the proposal. Previously, we wrote on how the auditors go about making these adequacy determinations. You can read that post here. It is a judgment call of course when an auditor deems the cost or pricing data so deficient that an audit cannot be performed. Depending on the specific circumstances, the auditor must decide whether one item alone or a combination of items justifies a notification to the contracting officer that a proposal is unauditable and therefore not acceptable as a basis negotiating a fair and reasonable contract price. Examples of cost or pricing data deficiencies that would usually be reported to the contracting officer follow:

 

1. Significant amounts of unsupported costs.
2. Significant differences between the proposal and supporting data resulting from the proposal being out of date or available historical data for the same or similar items not being used.
3. Significant differences between the detailed amounts and the summary totals (e.g., the bill of material total does not reconcile with the proposal summary).
4. Materials are a significant portion of the proposal, but the contractor provides no bill of materials or other consolidated listing of the individual material items and quantities being proposed.
5. Failure to list parts, components, assemblies or services that will be performed by subcontractors when significant amounts are involved.
6. Significant differences resulting from unit prices proposed being based on quantities substantially different from the quantities required.
7. Subcontract assist audit reports indicate significant problems with access to records, unsupported costs, and indirect expense rate projections.
8. No explanation or basis for the pricing method used to propose significant interorganizational costs.
9. No time-phased breakdown of labor hours, rates or basis of proposal for significant labor costs.
10. No indication of basis for indirect cost rates when significant costs are involved.
11. The contractor does not have budgets beyond the current year to support indirect expense rates proposed for future years (but see this posting).

Just because the auditor reports these deficiencies, does not mean the audit will be terminated. The contracting officer often requests the auditor to do the best he/she can under the circumstances. The auditor usually will acquiesce to the contracting officer's wishes but will issue a an adverse opinion report (e.g. the proposal is not acceptable as a basis for negotiating a fair and reasonable price).

GAO Denies Accounting System Protest

GSA (General Services Administration) issued an RFP (Request for Proposal) for IT (Information Technology) Services anticipating the award of 25 to 30 contracts under a multiple-award, ID/IQ (indefinite-delivery/indefinite-quantity) with a NTE (not-to-exceed) price of $50 billion (how's that for using a bunch of acronyms in a single sentence?).  Obviously that's a lot of money even though its unlikely the Government will really spend $50 billion. Nevertheless, there was tremendous potential and many contractors submitted bids to vie for a piece of the action.

Awards were to be made on a "best value" basis, with proposals evaluated under two equally important technical factors; past performance and contract planning. These factors, when combined, were significantly more important than price. Prior to the evaluation, proposals were to be reviewed for acceptability on a pass/fail basis. Those failing this review would not be considered further.

Proposals were required to include the Defense Contract Audit Agency's (DCAA), or other federal audit agency's verification that its accounting system had been audited and determined adequate for determining costs under cost-reimbursable contracts. Any offeror that did not have audit verification but was certain that its accounting system has been determined adequate could provide contact information from a cognizant auditing representative office. Offerors were warned that their proposals would be rejected if the agency was unable to obtain audit verification.

One of the bidders was A-TEK, Inc. A-TEK had a number of cost-reimbursable contracts and had submitted provisional billing rates to DCAA. However, when GSA contacted DCAA, it could not verify that DCAA had ever reviewed and/or approved A-TEK's accounting system. When GSA requested additional contact information, A-TEK argued that the requirement was arbitrary, and asked GSA to come in and perform its own audit of the accounting system. Instead, GSA rejected A-TEK's bid. A-TEK protested GSA's action to the GAO.

GAO upheld the GSA rejection. GAO stated that GSA's evaluation was reasonable. The RFP unequivocally required offerors to have DCAA or other federal audit agency verification that the firm's accounting system had been audited and determined adequate for determining costs under cost-reimbursable contracts. The GAO found that A-TEK did not have any cost-reimbursement contracts in place; had never been audited by DCAA; and had never been subject to a pre-award survey of its accounting system. Furthermore, A-TEK's submission of provisional rates was not relevant because it lacked any existing cost-type contracts. The GAO decision cited a number of other factors but in short, A-TEK failed to provide any information that satisfied the RFP requirement. Based on A-TEK's failure to provide the required information, GSA reasonably concluded that the firm lacked a properly audited accounting system, and thus reasonably rejected the firm's proposal.

A-TEK asserted that since only the government can request and perform the required audit, meeting the requirement is beyond the firm's control, and it should not be penalized as a result. GAO, in a back-handed way, agreed with A-TEK's assertion that the requirement may not have been reasonable. However, GAO also stated that this requirement should have been protested prior to the closing for accepting proposals, not after. Since the protest was received after the closing date, the appeal was untimely and not sustained.

In this solicitation, any contractor that had not had its accounting system audited by DCAA or another federal audit agency and declared adequate for cost-reimbursable contracts were effectively eliminated from the bidding process. We agree with A-TEK that the requirement is not reasonable. However, the lesson to take home from this case is that contractors must immediately protest any such unreasonable solicitation requirements. Do not wait until after bids are due and do not try to finesse your way through with "alternative" methods of satisfying specific requirements.

Adequate Contract Pricing Proposals

FAR contains detailed guidelines for preparing and adequately supporting price proposals. Proposals that do not comply with these guidelines are at risk for being returned to the offeror and could easily result in the offeror's disqualification. Someone in the Government will typically perform an adequacy determination. This could be a contracting officer or analyst in the buying command, someone in the administrative contracting office, or an auditor. Most organizations have checklists to help their staff make the adequacy determination. If deficiencies are minor and the Government does not believe that they will significantly impede the negotiation/contract award process, the proposal will be considered adequate. On the other hand, proposals with significant deficiencies significantly slow down the audit, price analysis, negotiation, and contract award process. In order to maximize resources, the Government is becoming less understanding and less tolerant of proposals that do not meet the FAR guidelines.

Specific guidelines for proposal preparation are found in FAR 15.408 and in Table 15-2. Any company preparing proposals for Government contractors should be intimately familiar with these sections.  Following is a listing of the significant proposal elements that, if missing, could result in an inadequacy determination.

1. Properly completed first page (see Table 15-2, Section I.A).
2. Index referencing all cost or pricing data and information accompanying or identified in the proposal (see Table 15-2, Section I.B).
3. Summary of total cost by element cross-referenced to supporting cost or pricing data (see Table 15-2, Sections I.D and I.E.)
4. Identification of cost or pricing data and an explanation of the estimating process to include judgmental factors and methods used in the estimate, including those used in projecting from known data and the nature and amount of any contingencies (see Table 15-2, Section I.C).
5. Identification of any incurred costs for work performed before submission of the proposal (see Table 15-2, Section I.F)
6. Identification and description of any agreements with Government representatives on use of forward pricing rates and factors (see Table 15-2, Section I.G).
7. Consolidated bill of materials (see Table 15-2, Section II.A).
8. Price analyses of all subcontract proposals and cost analysis of subcontracts when cost or pricing data is required (see Table 15-2, Section II.A).
9. Cost analysis of proposed interorganizational transfers (see Table 15-2, Section II.A.(i)).
10. Time phased breakdown of labor rates and hours by category or skill level and the basis for the estimates (see Table 15-2, Section II.B).
11. Calculation of indirect rates (see Table 15-2, Section II.C).
12. Identification of ODCs and basis for pricing (see Table 15-2, Section II.D).
13. Royalties and license fees (see Table 15-2, Section II.E).
14. Facilities Capital Cost of Money (see Table 15-2, Section II.F). It is important to note that in order to recover FCCM on a cost type contract, it must have been proposed.
15. For change orders, modifications, and claims, proposals must include current estimates for deleted and added work (see Table 15-2, Section III.B).

Besides the standard requirements found in FAR 15.408, Agencies often add additional submittal requirements. These additional requirements will be identified in the solicitation (RFQ/RFP) and adherence to these could also become critical to the success of your offer.