Monday, October 31, 2011

Another One Bites the Dust

Companies that wish to enter the Government contracting arena and companies who wish to continue working in that arena, must ensure that they have internal control systems in place that meet basic Government expectations. We frequently discuss these requirements in this blog - especially requirements for accounting systems. Contractors need to establish adequate accounting systems to obtain a contract and they need to maintain those systems to receive future awards. This fact is illustrated (yet once again) in a Comptroller General's "bid protest" decision handed down last month (KMS Solutions, LLC, B-405323.2; B-405323.3, October 6, 2011).

A Government solicitation provided that "[a]n offeror's accounting system shall be adequate for determining costs applicable to the contract," and directed each offeror to "provide evidence of their accounting system being adequate in accordance with FAR and in compliance with FAR [Part] 31, Contract Cost Principles and Procedures." 

In responding to these solicitation provisions, KMS's proposal directed the agency's attention to a Defense Contract Audit Agency (DCAA) audit, performed in September 2006, which had concluded that KMS's cost accounting system was adequate for performing cost reimbursement contracts. The problem here, as the contracting office found out when it contacted DCAA for an update on the 2006 audit report, was that DCAA had performed a subsequent audit in 2010 that concluded just the opposite - that there were significant deficiencies  that are considered to be material weaknesses in the contractors system that could result in misstated costs. The audit stated that the accounting and billing systems were inadequate and went further by recommending suspension of progress payments and billings under cost reimbursable contracts. 

KMS's proposal made no reference to any subsequent DCAA audit.

Based on this updated information, the Government threw out KMS's bid. KMS protested that the agency's determination of inadequacy was improper for various reasons. The Comptroller General disagreed. One of the challenges had to do with the contractor's stated disagreement with the DCAA position. However, the Comptroller General found that "In pursuing this protest, KMS has not meaningfully challenged the substance of the DCAA's findings of deficiencies and inadequacies." 

Ultimately, the Comptroller General found that the Government reasonably rejected KMS's proposal. 

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