Link: GAO Opinion
Agencies: Department of Transportation, Federal Transit Administration
Disposition: Protest Sustained.
Keywords: DCAA Audit, Compliance, Cost Accounting System
General Counsel, P.C. Highlight: An agency’s evaluation must be reasonable and consistent with the evaluation criteria. An agency’s evaluation is unreasonable if the contemporaneous record lacks sufficient detail to support the agency’s action or determination.
The Federal Transit Administration issued an RFP soliciting proposals for program management oversight, contemplating an award of multiple cost-reimbursement, indefinite-delivery/indefinite-quantity task order type contracts. McKissack+Declan JV II (MD-JV) protested FTA’s rejection of its proposal.
After receiving proposals and rating MD-JV’s as technically acceptable, FTA sent the cost proposal to the Defense Contract Audit Agency (DCAA) for a pre-award audit. During this analysis, DCAA raised several issues with MD-JV’s accounting system – in particular the fact that its system was maintained in Canada and did not comply with U.S. Generally Accepted Accounting Principles (GAAP). Moreover, DCAA also raised issues with MD-JV’s indirect rate structure, labor rates, and cost estimates for the period of contract performance. Based on DCAA’s audit, FTA determined MD-JV’s proposal to be unacceptable and listed the above reasons as support for its rejection. MD-JV filed a protest with GAO challenging FTA’s reasons, and then filed a supplemental protest after receiving a copy of the DCAA report, arguing that FTA’s reliance on the report was unreasonable due to factual errors and DCAA’s nonconformity to Generally Accepted Government Auditing Standards (GAGAS).
In its response to the protest, FTA stated that none of MD-JV’s arguments addressed the real issue of the case, which was MD-JV’s failure to submit a single overhead rate in its cost proposal; their basic failure being the noncompliance with Cost Accounting Standard (CAS) 401.
After its review of the record, GAO stated that while a contracting officer has significant discretion for deciding a negative determination of responsibility (as was the case here), it will not be found to be reasonable where it is based primarily on unreasonable or unsupported conclusions. In addition, the agency’s reliance upon the advice of DCAA did not insulate it from responsibility for error on the part of DCAA. Because neither FTA nor DCAA provided any analysis or legal authority as to why MD-JV’s indirect rate structure violated CAS 401, and because FTA did not provide a reasonable explanation why MD-JV’s accounting system was unacceptable, the protest was sustained. GAO recommended that FTA reevaluate MD-JV’s accounting system, and if it was found to be adequate, it was recommended that FTA would then determine whether MD-JV’s proposal was otherwise in line for award.