Threshold for Audit of Termination Proposals Set to Substantially Increase

Well, it looks like more of DCAA's (Defense Contract Audit Agency) is going away. The FAR (Federal Acquisition Regulation) Councils are about ready to raise the audit threshold for termination settlement proposals.

Currently, the threshold sits at $100,000. If a settlement proposal exceeds that amount, the TCO (terminating contracting officer) is required by FAR 49.107 to refer the proposal to the appropriate audit agency (DCAA, in the great majority of cases) for review and recommendation (i.e. audit).

A revision in the "Final Rule Stage" will increase that $100,000 threshold to the Truth-in-Negotiation Act (TINA) threshold currently at $750,000. That would be a 750% increase in the threshold and will certainly impact (i.e. reduce) the workload at audit agencies who perform these audits.

According to the FAR Councils, the new threshold is necessary to help alleviate the backlog of contract close-outs (i.e. let DCAA focus on winnowing its backlog of incurred cost audits) and to enable contracting officers to more quickly de-obligate excess funds from terminated contracts (i.e. TCOs won't have to wait months to receive audits).

Under the new provisions, TCOs will still have the opportunity to request audits of termination settlement proposals under the new $750,000 threshold if they want to. That usually means that some level of risk has been identified in contractor proposals.