September 28, 2018

GAO Upholds Proposal Rejection Over Conflicting CAGE Codes

Contractors with complex structures should beware.
Holland & Knight Government Contracts Blog
Robert K. Tompkins

Contractors with corporate structures involving more than one entity, such as parent and subsidiary, utilize multiple Commercial and Government Entity (CAGE) Codes. A recent Government Accountability Office (GAO) ruling is a caution to these organizations. In the decision, GAO upheld an agency's rejection of a proposal that used a CAGE Code of a subsidiary, which differed from the offeror's CAGE Code, to satisfy the RFQ's Facility Clearance (FCL) requirements. This case presents yet another instance of GAO focusing on the precise legal identity of offerors in its decisions.

The solicitation in question was a Request for Quotations (RFQ) issued under a GSA Federal Supply Schedule (FSS) contract. The RFQ required that contractors have and maintain a valid FCL, at the Secret level or higher, at the time of proposal submission, and that a Department of Defense Contract Security Classification Form (DD Form 254) be provided indicating this level of clearance.

The protester, BDO USA, LLC, submitted a quotation under its FSS Contract No. GS-16F-149CA. The CAGE Code corresponding to the FSS Contract was 32ZC7. However, in its cover letter, BDO USA identified a different CAGE Code, 6YTU0, and listed this CAGE Code on its DD 254. The addresses of the facilities associated with the two CAGE Codes were different as well.

To address the discrepancy the agency researched various contractor databases which revealed the following:

  • BDO, located at [DELETED] Virginia, with CAGE code 6YTU0, possessed an active secret FCL.
  • BDO, located in Bethesda, Maryland, with CAGE code 6YTU0 (and DUNS number 186516571), was not active in the SAM database, and had no information available for the immediate or highest level owner.
  • BDO, located in Chicago, Illinois, with CAGE code 32ZC7 (and DUNS number 047684840), was active in the SAM database, had no information available for the immediate or highest level owner, and was the immediate owner of BDO Public Sector, LLC (CAGE code 7PR40).

The agency sought clarification from BDO USA about the CAGE Code discrepancy. In response, BDO USA stated that CAGE Code 6YTU0 belonged to its wholly-owned subsidiary, BDO Public, LLC, and that the CAGE Code associated with its proposal should have been its own – 32ZC7.

Based on this response and its own research, the agency notified BDO USA that its proposal was being rejected:

The Government cannot award a task order using [GSA PSS contract number GS-00F-149CA] using CAGE code 6YTU0 as it is not the CAGE code for GS-00F-149CA. In addition, the CAGE code 6TYU0, does not have an active System for Award Management (SAM) registration.  CAGE codes and DUNS numbers are essential requirements of an offer and improper CAGE codes and/or DUNS numbers render such offers nonresponsive. . . . Further, the alternate CAGE code which you offered, 32ZC7 (GSA PSS # GS-00F-149CA, DUNS 047684840), does not have an active Secret facility clearance, which is a requirement.

In response, BDO USA filed a protest at the GAO.

BDO USA argued that it had satisfied all of the relevant RFQ requirements because it had, through clarifications, provided the CAGE Code associated with its FSS Contract and SAM registration, and supplied a BDO USA facility (CAGE code 6YTU0) with an active FCL.

The GAO summarized the Agency's response as follows:

BDO cannot aggregate the qualifications of two different entities, the parent possessing the GSA PSS schedule contract and the subsidiary possessing the secret FCL, to meet the RFQ's requirements.  The agency contends that the NISPOM, incorporated into the RFQ, requires as a general rule that a parent organization have an FCL at the same or higher level as a subsidiary.  The agency argues that it properly found BDO ineligible for award because the BDO entity with CAGE code 32ZC7 that holds a GSA PSS contract does not possess a secret FCL.

GAO's decision notes that, through the course of clarifications, BDO USA itself had referred to "BDO Public Sector" as a subsidiary (i.e. a separate entity). However, in the protest, BDO USA attempted to recast the relationship between the entities and noted that the location associated with CAGE Code 6YTU0 was for a facility it owned, not a "subsidiary." GAO rejected BDO USA's arguments and denied its protest.

Among other things, GAO rejected the assertion that the two entities were really one in the same. GAO noted that the evidence before the agency at the time of its decision reflected two separate legal entities and that BDO USA expressly identified BDO Public Sector as a "subsidiary."  GAO also expressed skepticism of BDO USA's post-hoc explanation that BDO Public Sector was merely housed in a different facility, and this was not indicative of a different corporate entity.

In support of its decision, GAO noted its prior holdings that "information readily available, such as CAGE codes and DUNS numbers, must reasonably establish that differently identified entities are in fact the same concern."  In addition, GAO noted that "CAGE codes and DUNS numbers are used to identify the entity that is the offeror for a given procurement."  

This case illustrates several important takeaways, including the following:

  • Contractors with complex organizations must be mindful of the legal status of their various business units; even though the business units may be part of a broader family of companies, each of their legal identities may in fact be separate.
  • Contractors should ensure their Government database filings are up to date and complete – this includes addressing requirements to disclose immediate owner and highest level owner – a requirement GAO specifically addressed in its opinion.
  • Procurements involving FCLs can be particularly problematic because the Defense Security Service (DSS) FCL coverage is very precise and typically constrained to specific entities and even specific locations.

Issues of entity mis-identification can render proposals unacceptable in a variety of ways – stay tuned for more on that.

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