Will Not Having An Approved Accounting System Disqualify Our Firm From Bid Opportunities? - PART I

Many new/start-up small business federal contractors often ask the question: Will not having an approved accounting system disqualify our firm from bid opportunities? 

An examination of government acquisition regulations suggests not having an approved accounting system should not be a barrier to bidding on solicitations. This stands to reason since winning bidders emerge all the time (i.e. SBIR/STTR and Seaport-E programs) who don’t have approved accounting systems when their bids are submitted.

Regulatory foundation

Having an approved accounting system is a critical tool for the government to reduce its risk for acquiring goods and services on a cost-plus contract type basis. It’s also required when contractors request special payment terms that are cost-based, such as progress payments (See FAR 52.232-16).

FAR 16.301(a)(3) suggests cost-plus type contracts be used when,  “The contractor’s accounting system is adequate for determining costs applicable to the contract or order.” Note that the clause does not state that it’s a barrier to bidding.

Additional clues can be found in FAR 16.106, which states: “Before agreeing on a contract type other than firm-fixed-price, the contracting officer shall ensure that the contractor’s accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type. This factor may be critical … when a cost- reimbursement contract is being considered and all current or past experience with the contractor has been on a fixed-price basis.”

This statement appears to recognize that not all bidders will have an approved accounting system, but it’s the contracting officer’s duty to make sure it will prior to the contract start if awarded the bid.

Acquisition officials are instructed to perform pre-award surveys of contractors as a method of validating their qualifications for a contract. A number of these surveys can be found in FAR Part 9, to include:

•          Technical
•          Production
•          Quality Assurance
•          Financial Capability
•          Accounting System

Defining terms

It’s useful at this point to define the terms used throughout the acquisition process. “Notice of award” or “award” describes the notification of a winner of a bid, and not the placement of a contract. Many things can occur in this “pre-award” phase that could lead to the contract not being executed. This pre-award phase is typically set aside to continue negotiations (on negotiated procurements) and to qualify the prospective winner for the job.

Indeed, the SF1408 form, named the “Preaward Survey of Prospective Contractor -- Accounting System,” is one such qualification technique contracting officers use.

Full and Open Competition

Unless the government can justify contracting directly with a single source, FAR Part 6 promotes the concept of “Full and Open” competition among bidders. Given the regulatory language discussed above, restricting bidders to those already having an approved accounting system would have to fit within the narrow exemptions justifying “other than full and open competition.” 

Coming in Part 2 – Fighting for your right to bid! 

...We discuss several examples of solicitations validating the assertion that a Government / DCAA approved accounting system is NOT required to bid on a contracting opportunity (coming Tuesday, July 21st).