Direct and indirect costs incurred on an individual contract in the last fiscal year of its performance may be relatively small in amount, particularly if the contract is physically completed early in the year. In such cases it is generally mutually advantageous to the Government and the contractor to close such contracts as soon as possible without waiting until after the end of the fiscal year and the subsequent final determination or negotiation of the indirect expense rates for the entire period.
FAR 42.708 provides quick-closeout procedures which allow the contracting officer to negotiate a settlement of indirect costs for a specific contract in advance of the determination of final indirect cost rates under specified circumstances. The provision for quick closeout procedures can be applied not only to the final fiscal year of a contract but also to all other open fiscal years with unsettled indirect cost rates if the criteria contained in FAR 42.708 are met.
To encourage the use of quick-closeout procedures, FAR 42.708 was revised effective August 1996. The revised procedures require that the contracting officer negotiate the settlement of indirect costs for a specific contract in advance of the determination of the final indirect cost rate if the criteria in FAR 42.708 are met. The FAR 42.708 criteria for applying quick-closeout procedures are:
- the contract is physically complete;
- the total unsettled indirect cost allocable to that contract does not exceed $1 million,
- the cumulative unsettled indirect costs allocated to all contracts closed using quick closeout procedures in a single fiscal year do not exceed 15 percent of the estimated total unsettled indirect costs allocable to cost-type contracts for that year; and
- agreement can be reached on a reasonable estimate of allocable dollars.
The contracting officer may waive the restriction on the amount of cumulative unsettled indirect costs based upon a risk assessment that considers the contractor’s accounting, estimating, and purchasing systems; other concerns of the auditor; and any other pertinent information.
If you have a cost-type contract and can meet these criteria, we recommend you contact your contracting officer to explore the quick closeout route.