DoD FAR Proposed Regulation to Expedite Closeout of Old Contracts

Earlier this month we reported DoD's class deviation to FAR 4.804-5(a)(3) that allows contracting officers to close out contracts (or groups of contracts) without completing a reconciliation audit or other corrective action under certain circumstances (see Special Closeout Authority for Old Contracts).

DoD has now followed that up with the publication of an amendment to DFARS that would make that provision a permanent part of DFARS (DoD FAR Supplement). This action is necessary to implement sections of the NDAA (National Defense Authorization Act) for Fiscal Years 2017 and 2918.

This new authority applies to contracts entered into on a date that is at least 17 fiscal years before the current fiscal year, that have no further supplies or services due, and for which a determination has been made that the contract records are not otherwise reconcilable because

• the contract or related payment records have been destroyed or lost; or
• although contracts records are available, the time or effort required to establish the exact amount owed to the U.S. Government or amount owed to the contractor is disproportionate to the amount at issue.

Negotiated settlements and offsets. To accomplish closeout of such contracts, the NDAAs further authorize the following

• a contract (or groups of contracts) be closed out through a negotiated settlement with the contractor
• the remaining contract balances to be offset with balances within the contract or on other contracts regardless of the year or type of appropriation obligated to fund each contract or contract line item, and regardless of whether the appropriation has closed.

The DoD estimates that about 11,300 contracts fall into this category of being awarded 17 years ago, or earlier and for which records are in such bad shape that the work to close them is not commensurate with the benefits. DoD also estimates that half of the 11,300 are awards to small businesses. Frankly, we were surprised to learn the number was so large.

Some contractors have bemoaned the fact that the period should be shorter than 17 years. That could happen in future NDAAs but first, it needs to be seen how effective this new rule will be in working off the current backlog of 11,300 contracts.

Note that this provision applies only to DoD contracts at this time.

Comments to the proposed rule are welcome. Click here for instructions on submitting your comments and to read more about the proposed rule.