Friday, July 6, 2012

Accounting Systems - Developed vs. Implemented

We have written frequently about accounting system adequacy. This is one area where, if a prospective contractor's accounting system is deemed inadequate, there is a good chance that the firm will not get the contract it is seeking.

For purposes of determining accounting system adequacy, the Government only requires that a prospective contractor has developed an adequate accounting system. There is no requirement that the system be implemented until there is a successful contract award.

There is definitely a cost associated with setting up an accounting system that is adequate for Government contracting purposes. Some of the required attributes are unnecessary in a purely commercial enterprise. Sometimes companies that do not have Government contracts but are seeking to enter that market, do not want to undergo the time and expenses associated with creating such a system, especially when certain required features are not necessary for their other (commercial) work, and there is no certainty that they will be awarded a Government contract. They might not want to, but they need to do it anyway if they want to stay in the running.

The Government though, is somewhat flexible in these situations. The Government's position is that a prospective contractor must have developed an accounting system that is operable, though not necessarily in use. The contractor must be in a position to demonstrate this new system to the Government and be ready to implement the system prior to incurring any costs on Government contracts.

Here the Government distinguishes development activities from implementation. It says that contractors must develop a system but they don't necessarily have to implement it until contract award. From our perspective, we cannot think of a situation where a prospective contractor would go through the work necessary to develop an "adequate" accounting system and then not deploy it. By the time the system is developed, the costs are sunk costs and the incremental costs associated with implementing would be minimal.

Companies interested in pursuing Government work should measure their accounting system against the minimum accounting system attributes listed in SF Form 1408.

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