Termination settlement proposals have always had a low threshold for audit. It currently sits at $100,000 meaning that contracting officers are required by regulation to request an audit of any termination settlement proposal that exceeds $100,000. That is about to change.
A new regulation published today that becomes effective on May 31, 2018, raises that dollar threshold from $100,000 to whatever the threshold for obtaining certified cost or pricing data. Right now, that threshold sits at $750,000 but on July 1, 2018, raises to $2 million (for DoD contracts).
The FAR (Federal Acquisition Regulations) Council believes that contractors will save costs associated with the preparation and support for termination settlement audits and will enable faster final settlement and improve contractor cash flow. No doubt, doing away with audits will do all of those things but it may come at the cost of reimbursing contractors for costs that should not be included in settlement proposals. Evidently the Government is willing to take that risk.
The Council was quick to point out that this new threshold does not violate the President's freeze on new regulations as it is administrative in nature - it simply raises an already prescribed threshold. The rule imposes no reporting, record keeping, or other information collection requirements.
One final note. The new rule does not preclude the TCO (Terminating Contracting Officer) from requesting audits of settlement proposals below that threshold. If the TCO deems it warranted, the TCO can refer the proposal to the audit agency along with any specific information or data that the TCO considers relevant along with any other facts and circumstances that will assist the audit agency in performing its function. In other words, if for any reason the TCO thinks an audit needs to be performed, it has the authority to request one.
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