Comptroller General

United States Government Accountability Office

Washington, DC 20548 

of the United States

DOCUMENT FOR PUBLIC RELEASE

The decision issued on the date below was subject to a 

GAO Protective Order. This redacted version has been 

approved for public release. 

Decision 

Matter of: PMO Partnership Joint Venture 

File: B-401973.3; B-401973.5 

Date: January 14, 2010

William M. Weisberg, Esq., Joyce L. Tong, Esq., and Angela L. Nadler, Esq., Bryan 

Cave, LLP, for the protester. 

Stephen F. Pereira, Esq., Kerry L. Miller, Esq., and Michael L. Culotta, Esq., 

Department of Transportation, for the agency. 

Nora K. Adkins, Esq., and James A. Spangenberg, Esq., Office of the General 

Counsel, GAO, participated in the preparation of the decision. 

DIGEST 

Agency improperly rejected the proposal of a joint venture offeror for a costreimbursement contract because the indirect cost rate structure included in the joint 

venture’s accounting system was considered unacceptable, where the agency has 

provided no supportable or reasonable bases for its determination and unreasonably 

failed to consider a revised indirect cost rate that the agency specifically requested 

from the joint venture prior to award. 

DECISION 

PMO Partnership Joint Venture (PMO-JV) of San Francisco, California protests the 

Department of Transportation (DOT), Federal Transit Administration’s (FTA) 

rejection of its proposal for failing to provide an adequate accounting system under 

request for proposals (RFP) No. DTFT60-08-R-00010 for program management 

oversight (PMO) services. 

We sustain the protest. 

On June 26, 2008, FTA issued a RFP soliciting proposals for PMO services to provide 

support for select capital projects with continuous review and evaluation of grantee 

and FTA processes to ensure compliance with statutory, administrative, and 

regulatory requirements, and to monitor the projects to determine whether the 

projects are progressing on time, within budget, and in accordance with approved 

grantee plans and specifications. Agency Report (AR) at 2. The solicitation 

contemplated the award of multiple (approximately 15 to 25) cost-reimbursement, 

indefinite-delivery/indefinite-quantity (ID/IQ) task order type contracts. RFP at 2, 94. 
Award was to be made to responsible offerors whose proposals contained the 

combination of criteria offering the best value to FTA, considering the following 

evaluation criteria, listed in descending order of importance: Technical and 

Management, Cost/Price, and Socioeconomic Status. Id. at 95. 

PMO-JV1 submitted a timely proposal to FTA by the September 4, 2009 deadline for 

receipt of proposals. The agency evaluated PMO-JV’s technical proposal, determined 

it was among the most “highly rated” technical proposals, and invited PMO-JV to 

participate in oral presentations on December 15. PMO-JV’s oral presentation took 

place on January 8, 2010. After oral presentations, the agency rated PMO-JV’s 

technical proposal as technically acceptable. AR, Tab 4B, Source Selection Decision, 

at 8-9. 

The RFP also requested that offerors complete and submit a cost proposal utilizing 

Attachment J-6, Contract Pricing Summary, included in the RFP. RFP at 87. 

Offerors were further required to state whether or not the Federal Government 

currently approves their accounting systems without conditions and whether 

proposed indirect rates have been “audited and accepted by any Federal Audit 

Agency.” RFP at 89, 93. Additionally, all offerors had to “make [their] records 

available for pre-award or post-award audits.” RFP at 89. 

In its proposal, PMO-JV included a completed Attachment J-6 for the joint venture 

and one of the joint venture partners, which referenced and incorporated supporting 

J-6 attachments for the other two joint venture partners. The completed attachments 

identified the various direct labor rates for required personnel, broken down by the 

partner from which the employee would be assigned--The Allen Group, LLC, 

Brindley Pieters & Associates, Inc., or EAC Consulting, Inc.--and calculated a total 

direct labor cost for each partner. In the “Labor Overhead” section of each 

Attachment J-6, PMO-JV provided a labor overhead rate that was applied to each of 

the joint venture partner’s total direct labor costs. Additionally, PMO-JV supplied 

Attachment J-6 costs for various subcontracted consultant services. PMO-JV’s J-6 

Attachments. 

 

1

 PMO-JV, a newly formed joint venture of The Allen Group, LLC, Brindley Pieters & 

Associates, Inc., and EAC Consulting, Inc., was formed as a joint venture under the 

laws of the state of Florida for the purpose of contracting with FTA under the 

current solicitation. AR, Tab 4C, Booth Management Consulting, LLC (BMC) Audit 

Report, at 6. FTA states that the joint venture is a small business concern. AR, 

Tab 5, Contracting Officer Determination and Findings, at 3. 

Page 2 B-401973.3, B-401973.5 
On June 9, 2009, FTA sent PMO-JV’s cost proposal for a pre-award audit to BMC.2

 

AR, Tab 4C, BMC Audit Report (Sept. 24, 2009), at 2. As part of the audit, BMC 

reviewed PMO-JV’s proposed costs, including proposed indirect rates, to determine 

if PMO-JV’s proposal provided an acceptable basis for negotiation of a fair and 

reasonable price and issued its final report to FTA on September 24. Id. BMC 

determined that “the cost/pricing data submitted by the offeror are not adequate to 

negotiate a fair and reasonable contract price for the direct labor, escalation, and 

indirect cost rates.” Id. at 3. BMC explained as follows: 

 

Indirect cost rates were not projected for the PMO Partnership and 

used in the cost proposal in accordance with FAR 31.203. Instead the 

indirect cost rates for each partner were used separately in the cost 

proposal. A budget should have been developed for the partnership 

entity and projected indirect rates should have been calculated from 

the budget and used in the cost proposal. As a result the indirect costs 

included in the cost proposal are questioned . . . 

The contract pricing summary lists Brindley P[i]eters & Associates and 

EAC Consulting as if they are sub-consultants on the project instead of 

partners and the Allen Group as if it is the prime contractor instead of 

a partner. The cost proposal should be for the PMO Partnership Joint 

Venture Entity and should not list the costs for each partner separately. 

The PMO Partnership Joint Venture is a separate entity in and of itself 

and that is how the costs should be presented in the cost proposal. . . . 

Id. at 5-6. 

Based on BMC’s audit, the contracting officer determined that PMO-JV’s proposal 

was unacceptable. AR, Tab 5, Contracting Officer Determination and Findings, at 6. 

On October 5, the contracting officer advised PMO-JV of the rejection of its proposal 

for the following reasons: 

The cost proposal, submitted by the Joint Venture [JV] does not reflect that 

the JV is operating as an independent entity, which for Government 

contracting purposes would list an indirect rate structure that would be 

unique to the Joint Venture only and . . . was not prepared in all material 

respects in accordance with the appropriate provisions of the FAR Part 31 

and the Transportation Acquisition Regulation. It is also noted that the JV 

proposal proposed three (3) separate indirect rates that were both unique and 

specific to each of the 3 JV members. 

 

2

 This audit was requested by a FTA contracting officer. AR, Tab 4C, BMC Audit 

Report (Sept. 24, 2009), at 2. 

Page 3 B-401973.3, B-401973.5 
AR, Tab 1B, FTA Letter to PMO-JV (Oct. 5, 2009), at 2. 

PMO-JV received this letter on October 9, and filed a protest with our Office on 

October 20, arguing that the joint venture is and operates as an independent legal 

entity,3 explaining why its proposed overhead rate structure was proper particularly 

considering that it is a newly formed joint venture, and contending that because the 

RFP did not contain instructions on how joint venture offeror indirect rates were to 

be prepared, the rejection of its proposal was based on the application of unstated 

evaluation criteria. 

In addition, PMO-JV stated in its protest that the contracting officer contacted 

PMO-JV on September 9, and requested that PMO-JV submit one overall overhead 

rate. On September 10, PMO-JV states that it provided the requested rate, which was 

a weighted average of the three partner’s individual overhead rates, to the 

contracting officer. However, this offered rate was not provided to BMC by the 

contracting officer. Thereafter, according to PMO-JV, the contracting officer told 

PMO-JV that it could not provide clarifications regarding this offered overhead rate 

because it was “too late.” Protest at 3; AR, Tab 4D, BMC Revised Audit Report 

(Oct. 5, 2009), at 6.4

 

On November 19, the agency submitted its agency report in response to the protest. 

In response to PMO-JV’s allegations, FTA stated “None of the arguments presented in 

 

3

 On February 4, PMO-JV provided the contracting officer with a copy of the joint 

venture agreement, tax identification number, central contractor registration and 

Data Universal Number System number. Protest at 2. 

4

 On October 2, BMC held an exit conference with PMO-JV regarding its audit. AR, 

Tab 4D, BMC Revised Audit Report (Oct. 5, 2009), at 6. According to BMC, during 

that conference, PMO-JV was made aware of BMC’s audit results and given a chance 

to respond. BMC described PMO-JV’s response as follows: 

[PMO-JV’s representative] stated that they had several joint ventures 

with other government agencies that were prepared in this manner and 

that there were no clear instructions given in the RFP as to how the 

cost proposal for a joint venture should be prepared. She also stated 

that she had spoken with the contract[ing] officer about the cost 

proposal a few weeks prior to the exit interview and the contract[ing] 

officer explained to her that there needed to be indirect cost rates 

specifically for the joint venture. [She] stated that she prepared a 

weighted average of the three partner’s individual rates and provided 

that to the contract[ing] officer. 

Id.

Page 4 B-401973.3, B-401973.5 
the Protest . . . address the real issue in this case, and that is, PMO-JV’s failure to 

submit a single overhead rate in their Cost Proposal. The basic failure of [PMO-JV] is 

its non-compliance with Cost Accounting Standard (“CAS”) 401.”5 AR at 6. The 

agency also did not deny that it had asked PMO-JV for a revised single overhead rate 

or that upon receipt of the revised rate that it did not provide this rate to BMC or 

otherwise consider this solicited information. 

PMO-JV filed comments on the agency report, which noted that FTA had incorrectly 

applied CAS 401 to PMO-JV because it is a small business, erroneously required one 

indirect overhead rate be provided by the joint venture, and failed to consider the 

single overhead rate provided by PMO-JV at the request of the contracting officer. 

The GAO attorney handling this case for our office, after a complete review of the 

entire record, conducted an outcome prediction alternate dispute resolution (ADR) 

conference, during which she stated that the agency had not provided a reasonable 

basis for excluding PMO-JV’s proposal based on the documentation in the record and 

had unreasonably failed to consider the single weighted average overhead rate that 

had been requested by the contracting officer. The agency did not initiate corrective 

action in response to the outcome prediction ADR, but provided further argument as 

to the applicability of CAS 401 and submitted a statement from a BMC representative 

addressing this issue. 

We first note that FTA’s rejection of PMO-JV’s proposal due to evaluated problems in 

its accounting system concerns a matter of a prospective contractor’s responsibility, 

not technical acceptability. See Pacificon Prods., Inc., B-196371, July 22, 1980, 

80-2 CPD ¶ 58 at 4. In this regard, Federal Acquisition Regulation (FAR) § 9.104(e) 

provides that “to be determined responsible, a prospective contractor must . . . have 

the necessary organization, experience, accounting and operational controls, and 

technical skills, or the ability to obtain them.” FAR § 16.301-3(a)(1) states that a 

cost-reimbursement contract may only be used when a contractor’s accounting 

system is adequate for determining costs applicable to the contract. 

Responsibility is to be determined based on any information received by the agency 

up to the time award is proposed to be made. American Tech. & Analytical Servs., 

Inc., B-282277.5, May 31, 2000, 2000 CPD ¶ 98 at 3. In this regard, FAR § 9.105-

1(b)(3) requires that information on financial resources and performance capability 

shall be obtained or updated on as current a basis is as feasible up to the date of 

award. The determination of a prospective contractor’s responsibility rests within 

the broad discretion of the contracting officer, who, in making that decision, must 

necessarily rely on his or her business judgment. We therefore will not question a 

negative determination of responsibility unless the determination lacked any 

reasonable basis. Oertzen & Co. GmbH, B-228537, Feb. 17, 1988, 88-1 CPD ¶ 158 at 3. 

 

5

 This was the first time that CAS 401 was mentioned by FTA or BMC as the basis for 

the rejection of PMO-JV’s proposal. 

Page 5 B-401973.3, B-401973.5 
In this respect, while a contracting officer has significant discretion in this area, a 

negative responsibility determination will not be found to be reasonable where it is 

based primarily on unreasonable or unsupported conclusions. Decker and Co.; 

Baurenovierungsgesellschaft, m.b.H., B-220807 et al., Jan. 28, 1986, 86-1 CPD ¶ 100 

at 7. Moreover, an agency’s reliance upon the advice of an auditor, such as the 

Defense Contract Audit Agency, does not insulate the agency from responsibility for 

error on the part of that advisor. See ASRC Research & Tech. Solutions, LLC, 

B-400217, B-400217.2, Aug. 21, 2008, 2008 CPD ¶ 202 at 11 n.12. 

As noted, FTA now asserts that PMO-JV’s accounting system is inadequate because 

PMO-JV’s failure to submit a unique indirect rate for the joint venture violates 

CAS 401. CAS 401 states: 

(a) A contractor’s practices used in estimating costs in pricing a 

proposal shall be consistent with his cost accounting practices used in 

accumulating and reporting costs. 

(b) A contractor’s cost accounting practices used in accumulating and 

reporting actual costs for a contract shall be consistent with his 

practices used in estimating costs in pricing the related proposal. 

(c) The grouping of homogeneous costs in estimates prepared for 

proposal purposes shall not per se be deemed an inconsistent 

application of cost accounting practices under paragraphs (a) and (b) 

of this section when such costs are accumulated and reported in 

greater detail on an actual cost basis during contract performance. 

48 C.F.R. § 9904.401-40 (2009). That is, CAS 401 requires a contractor’s accounting 

practices in estimating costs for a proposal to be consistent with cost accounting 

practices used by the contractor in accumulating and reporting costs. 48 C.F.R. 

§ 9904.401-20. This requirement is imposed because “[c]onsistency in the application 

of cost accounting practices is necessary to enhance the likelihood that comparable 

transactions are treated alike,” so that, among other things, there is “financial control 

over costs during contract performance.” Id. 

FTA has provided a memorandum from BMC in support of its argument that 

PMO-JV’s failure to submit a unique indirect rate for the joint venture violates 

CAS 401, which states that “the contractor’s proposal did not comply with CAS 401

as the contractor’s proposal failed to identify a unique rate structure, for the [joint 

venture] which an independent and professionally operated organization would have 

established in the regular course of doing business. . . . The CAS/FAR noncompliance 

issue is not the number of indirect rates,” but rather PMO-JV’s “failure to identify its 

own rate structure for allocating costs to Government contracts.” BMC 

Memorandum (Dec. 16, 2009) at 2. 

Page 6 B-401973.3, B-401973.5 
However, CAS 401 is clearly inapplicable to PMO-JV because FTA has conceded that 

PMO-JV is a small business concern. AR, Tab 5, Contracting Officer Determination 

and Findings, Source Selection Decision, at 3. The applicable regulation, 48 C.F.R. 

§ 9903.201-1(b)(3), states: “The following categories of contracts and subcontracts 

are exempt from all CAS requirements: (3) Contracts and subcontracts with small 

businesses.” The agency nevertheless argues that “if the current award is 

$7.5 million or more the award is CAS covered. . . . Even if the proposer would 

otherwise be entitled to claim exemption from CAS as a small business, the 

[$7.5 million] trigger applies and the award would be CAS covered.” This 

argument represents a misunderstanding of the CAS regulations. The “trigger” relied 

upon by FTA is set forth in 48 C.F.R. § 9903.201(b)(7), which exempts “from all CAS 

requirements” “[c]ontracts or subcontracts of less than $7.5 million, provided that, at 

the time of award, the business unit of the contractor or subcontractor is not 

currently performing any CAS-covered contracts or subcontracts valued at 

$7.5 million or greater.” That is, as indicated by the provision itself, this section is 

another exemption from all CAS requirements, not a rationale for ignoring the small 

business exemption. Since PMO-JV is a small business for which CAS does not 

apply, the agency’s rationale for excluding PMO-JV on the basis of CAS 401 is 

unreasonable. 

In any case, except for the conclusory statements made by BMC quoted above, 

neither FTA nor BMC has provided any analysis or legal authority as to why the 

PMO-JV indirect rate structure, which adopts the individual overhead rates of the 

joint venture partners for PMO-JV’s own use and describes how the rates will be 

applied, violates CAS 401. Nor is it apparent to our Office why this would violate 

CAS 401, given that FTA and BMC have not explained why the particular overhead 

rate structure proposed by PMO-JV would lead to an inconsistency in the application 

of cost accounting practices or a loss of financial control over costs during contract 

performance. In this regard, it is notable that BMC’s audit report and FTA’s 

determination and findings supporting the rejection of PMO-JV’s proposal because of 

its unacceptable accounting system did not make any mention of a CAS 401 

Page 7 B-401973.3, B-401973.5 
violation.6

 Moreover, we have found no other authority that explicitly prohibits 

PMO-JV’s proposed rate structure.7

 

Finally, the agency improperly failed to consider the “weighted average” overhead 

rate that combined the various overhead rates of the joint venture partners, which 

the contracting officer requested PMO-JV to submit a month prior to rejecting 

PMO-JV’s proposal. As noted above, this is a matter that concerns PMO-JV’s 

responsibility. An agency can and should reverse a previous non-responsibility 

determination based on additional information brought to its attention prior to 

award. Henry Spen & Co., Inc., B-183164, Jan. 27, 1976, 76-1 CPD ¶ 46 at 4. In this 

regard, where an agency requests information pertaining to an offeror’s 

responsibility, it is required to reasonably consider this information if there is 

sufficient time to do so prior to making award. See Tomko, Inc., B-210023.2, 

B-212217, Feb. 13, 1984, 84-1 CPD ¶ 202 at 3-4. While the agency has not responded 

to this protest basis, it may be that the agency believed considering this information 

would constitute discussions that would require opening discussions with all 

competitive range offerors. However, communicating with an offeror concerning its 

responsibility, that is, addressing agency concerns about the offeror’s ability to 

perform, do not constitute discussions, so long as the offeror does not change its 

proposed cost or otherwise materially modify its proposal. See Luhr Brothers, Inc.--

Recon., B-248423.2, Nov. 9, 1992, 92-2 CPD ¶ 328 at 3-4. It appears that considering 

and accepting a weighted average overhead rate would not constitute discussions 

because this would only involve a change to PMO-JV’s accounting system, not its 

cost proposal. 

While the agency acted properly in choosing to investigate whether or not PMO-JV 

had an adequate accounting system to support this cost-reimbursement contract, the 

FTA has not provided on this record a reasonable explanation why PMO-JV’s 

accounting system was unacceptable. FTA also unreasonably failed to consider 

additional information pertaining to this issue that it specifically requested from 

PMO-JV, and we sustain the protest on these bases. 

 

6

 While BMC asserts that FAR §§ 31.201-1 and 31.203(d) address the objectives of 

CAS 401, the fact is that CAS 401, unlike some other CAS provisions, has not been 

incorporated into FAR part 31. See The Future Role of the Cost Accounting 

Standards Board, Cost Accounting Standards Board Review Panel Report to 

Congress, GAO SP-99-1, Apr. 2, 1999, at 106-07. FAR §§ 31.201-1 and 31.203(d) 

address the allocation of a contractor’s costs during contract performance and do 

not, by their terms, address the acceptability of the indirect rate structure proposed 

by PMO-JV. 

7

 It may be that there are legitimate legal or accounting reasons for questioning 

PMO-JV’s indirect rate structure that have not been provided to our Office. 

Page 8 B-401973.3, B-401973.5 
Page 9 B-401973.3, B-401973.5 

 

We recommend that FTA reevaluate PMO-JV’s accounting system to determine 

whether it is adequate. In so doing, we note that if the agency has problems with 

PMO-JV’s accounting system, it may open a dialogue to resolve these issues without 

such dialogue necessarily being considered discussions, given that this is a matter 

relating to PMO-JV’s responsibility, so long as PMO-JV does not change its proposed 

cost or otherwise materially modify its proposal. If PMO-JV’s accounting system is 

found adequate, the agency should determine whether PMO-JV’s proposal is 

otherwise acceptable and in line for award, and if so award should be made to that 

firm. If PMO-JV’s accounting system is found inadequate and its proposal rejected 

for this reason, the matter, which involves the responsibility of a small business 

concern, must be referred to the Small Business Administration for a Certificate of 

Competency (COC) determination.8

 We also recommend that the agency reimburse 

the protester for the reasonable costs of filing and pursuing the protest, including 

reasonable attorneys’ fees. Bid Protest Regulations, 4 C.F.R. § 21.8(d)(1) (2009). 

The protester’s certified claims for cost, detailing the time expended and costs 

incurred, must be submitted directly to the agency within 60 days of receiving this 

decision. 4 C.F.R. § 21.8(f)(1). 

The protest is sustained. 

Lynn H. Gibson 

Acting General Counsel 

8

 Under the Small Business Act, 15 U.S.C. § 637(b)(7) (2006), the SBA has conclusive 

authority to determine the responsibility of small business concerns. Thus, when a 

procuring agency finds that a small business is nonresponsible, the agency is 

required to refer the matter to the SBA for a final determination under COC 

procedures. ECS Metals Ltd., B-229804, Feb. 10, 1988, 88-1 CPD ¶ 136 at 3.