Offerors were required to include verification of an acceptable cost accounting system ("CAS") if they claimed points for possessing an acceptable CAS on the scoring worksheet. Specifically, offerors needed to:
provide verification from the Defense Contract Audit Agency [("DCAA")], Defense Contract Management Agency or any Cognizant Federal Agency [("CFA")] of an acceptable accounting system that has been audited and determined adequate for determining costs applicable to the contract or order in accordance with [Federal Acquisition Regulation("FAR")] 16.301-3(a)(3).In lieu of submitting a letter from the auditing agency, an offeror could submit a statement of certainty in which it averred that it possessed an audited and adequate CAS (Cost Accounting System). The contracting officer would then be obligated to contact the auditing agency to verify that the offeror's CAS was acceptable.
Ultimately, GSA awarded IDIQ (indefinite-delivery, indefinite-quantity) to 81 contractors. Citizant, Inc. had submitted a proposal but was not one of the 81 contractors selected for the IT work. Citizant appealed the award on the grounds that the contracting officer made errors when evaluating proposals from other offerors who were subsequently awarded contracts.
Two of the offerors attempted to validate the adequacy of their cost accounting systems by submitting letters from DCAA addressing the adequacy of their incurred cost proposal (ICP). In those letters, DCAA stated that the ICP's were adequate and had not been selected for audit. The contracting officer reasoned that since ICPs are submitted for cost-type contracts and cost-type contracts cannot be awarded to a firm that does not have an adequate cost accounting system, the letters from DCAA were sufficient to conclude that the offerors had accounting systems that had been audited and determined adequate for cost-reimbursement contracting.
Citizant asserted that those offerors' submission of a letter from DCAA concerning their ICPs does not reflect that their accounting systems were audited and determined adequate for cost accounting purposes. GSA countered that the contractors provided the necessary information in the DCAA letters they submitted because an ICP is submitted by a contractor performing a cost-reimbursement contract, and can only be used if the contractor's CAS has been deemed adequate.
The U.S. Court of Federal Claims who decided the protest determined that GSA's contracting officer's conclusion was irrational for two reasons.
First, DCAA's review of an ICP is not unequivocal evidence that the contractor has an adequate CAS. ICPs are required for both cost-reimbursement and T&M contracts. An adequate accounting system is not required for T&M contracts. Since it was not evident that the ICPs pertained to cost-type contracts, it was unreasonable for the contracting officer to rely on DCAA letters that stated the ICPs were adequate. Secondly, and perhaps more damaging to GSA, the Court cited examples where government contractors had received cost-reimbursement contracts without having an adequate cost accounting system.
In sum, the contracting officer could not rationally conclude that DCAA letters unequivocally indicated that the contractors possessed cost accounting systems that DCAA had audited and deemed adequate. He therefore acted arbitrarily and capriciously when he relied on the letters to validate the points those offerors claimed for maintaining an acceptable cost accounting system.
The full decision is found here.