Proposed Regulations for Expediting Contract Closeout

Last Monday we reported on a proposed change to FAR that, if enacted, will make fee withholds automatic rather than discretionary. This proposal is but one of several ideas being proposed by the Government as a means of expediting contract close-out. Today and tomorrow we will share some of the Government's other proposals.

Historically, cost reimbursable contracts take a long time to close. There are several legal-type documents to generate (contractor's release, assignment of credits, patent report), a final report has to be submitted, and contract costs need to be audited. Its drudgery. The work is finished, the excitement is over, and everyone has moved on. The process of closing contracts is often a low priority for both contractors and the Government. Right now however, the major impediment to closing contract in a timely manner seems to be DCAA's incurred cost audit backlog - an issue that these proposed regulations will not remedy.

Quick closeout procedures. The proposed regulations represent a significant expansion on existing quick closeout procedures. Currently, FAR 42.708 allows the use of quick closeout procedures when unsettled indirect costs are less than $1 million on a particular contract and less than 15 percent of the total indirect costs to be allocated for that particular year. The proposed revision to FAR 42.708 applies to both direct and indirect costs (as opposed to indirect costs only) and the threshold increases to $4 million or 20 percent of the total contract. The 15 percent limit on total indirect costs to be allocated, is gone. By the way, DCAA opposed this provision, asserting that the 20 percent threshold would present undue risk for the taxpayer. DCAA is in favor of reducing it to 10 percent.

The Government's use of quick closeout procedures also requires that the contracting officer perform a risk assessment and determine that the use of the quick closeout procedure is appropriate. The risk assessment includes consideration of accounting, estimating, and purchasing systems; direct and indirect costs; other concerns of the cognizant contract auditors and any other pertinent information.

Final patent report. The proposed regulations set forth procedures allowing the contracting officer to proceed with contract closeout when a required final patent report is not received.

Requirement to Submit an Adequate Incurred Cost Proposal. The current version of FAR 42-705-1(b) required contractors to submit a final indirect cost rate proposal. The revised regulation inserts the term "adequate" into the requirement. This is no small matter because the proposed provision also defines the components making an "adequate" submission. We will look at that aspect tomorrow.