Expedited Closeout for Contracts Greater Than 17 Years

Nearly a year ago, the Defense Department proposed a change to its FAR Supplement (DFARS or DoD FAR Supplement) that would allow contracting officers to close out contracts (or groups of contracts( without completing a reconciliation audit or other corrective action under certain circumstances (see DoD FAR Proposed Regulation to Expedite Closeout of Old Contracts). Although published as a proposed change, it followed a class deviation to FAR 4.804-5(a)(3) which effectively implemented the new policy (see Special Closeout Authority for Old Contracts).

Earlier this week, the Defense Department published its final rule on the subject. This special closeout authority applies to contracts that were (i) entered into on a date that is at least 17 fiscal years before the current fiscal year, (ii) that have no further supplies or services due, and (iii) 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, even if 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.

To accomplish the closeout process, the new regulations authorize a contract or groups of contracts to be closed out through a negotiated settlement with the contractor and 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 been closed.  This is a very desirable feature to the new policy. We know from our own experiences in assisting Government contractors through the contract closing process what a nightmarish task it can sometimes be to correlate incurred costs to contract line items to specific appropriation.

One of the comments on the proposed rule included a recommendation to define "disproportionate" as it is used to compare the time it takes to accurately close out a contract versus the amount owed the contractor. The DFARS Council didn't add a definition. It stated that the term was used to establish that DoD's estimate of time and effort are determined to be greater than the amount owed to a level of imbalance. DoD stated that it is not its intent to identify a threshold, but to leave the determination of disproportion to the contracting officer's discretion.

The text of the new rule is available here.