While the fee withhold provision is currently discretionary, there is a proposal on the table to make it mandatory. The FAR Councils proposed a rule last August to do just that. In May, the Director of Defense Procurement and Acquisition Policy (DPAP) completed an assessment of public input on systemic issues related to contract closeout. As a result, certain changes were proposed to the FAR to improve contract closeout. One of those proposed changes was to make fee withholding mandatory to
protect the Government's interest and to encourage the timely submission of an adequate final indirect cost rate proposal
The comment period on this proposed regulation closed last October. Sixteen commentators weighed in but only about half commented on this particular provision. All who did, were opposed to it, believing that it lumped the timely contractors with the recalcitrant ones, that it would have a major impact on contractors' cash flow, and the current regulations already provide for fee withhold when necessary.
This is still an active case. The report by the Implementation Team tasked with reviewing public comments and drafting the final FAR rule was expected in late January. We were unable to determine current status. If implemented as proposed, it will certainly have a significant financial impact on many Government contractors.