Threshold for Audit of Termination Settlement Proposals to Increase

The FAR (Federal Acquisition Regulation) Councils have proposed to increase the dollar threshold for requiring audit of termination settlement proposals from $100,000 to $750,000. The proposed new threshold will be tied to the threshold for obtaining cost or pricing data (FAR 15.403-4(a)(1), thus whenever that threshold increases (once every five years based on inflation), the audit threshold for termination settlement proposals will increase as well.

According to the FAR Councils, this increased threshold will significantly reduce the number of termination settlement proposals requiring audit, help alleviate contract close-out backlogs and enable contracting officers to more quickly de-obligate excess funds from terminated contracts. Additionally, (and unstated) it removes a significant source of audit work from DCAA (Defense Contract Audit Agency) who, in recent years, hasn't been quite as nimble as it once was in completing audits low risk/low dollar termination settlement proposals - much to the consternation of contracting officers.

The proposed revision does provide an option for referring termination settlement proposals under the $750,000 threshold to the auditor. Such referrals must indicate any specific information or data that the contracting officer considers relevant and include facts and circumstances that will assist the audit agency in performing its function. This referral is not an audit however. The audit agency merely "develops requested information and make further accounting reviews it considers appropriate". Then, the audit agency will submit written comments and recommendations (something less than a full-audit report).

The new threshold will apply to subcontractors as well as primes.

This is a proposed regulation and the comment period is open for 60 days. If anyone bothers to submit comments, they follow the familiar refrain of support from contractors and industry groups and dismay by government and watchdog groups.

Read more here.