Friday, July 1, 2011

Getting Your Fixed Fee Paid

There are hundreds of small contractors that have been waiting years for DCAA to audit their annual incurred cost proposals. Right now, DCAA is hopelessly behind in performing these reviews and the Government is contemplating "outsourcing" these audits as a way of catching up. Because incurred cost audits have not been completed, contractors are unable to close out their contracts and collect fee withholds. In some cases, fee withholds are significant to a small company's cash flows.

There is some relief available under existing contract clauses and contractors should be aware of limitations on how much fee can be withheld. For example, FAR 52.216-8, Fixed Fee, states: 
(a) The Government shall pay the Contractor for performing this contract the fixed fee specified in the Schedule.
(b) Payment of the fixed fee shall be made as specified in the Schedule; provided that after payment of 85 percent of the fixed fee, the Contracting Officer may withhold further payment of fee until a reserve is set aside in an amount that the Contracting Officer considers necessary to protect the Government’s interest. This reserve shall not exceed 15 percent of the total fixed fee or $100,000, whichever is less. The Contracting Officer shall release 75 percent of all fee withholds under this contract after receipt of the certified final indirect cost rate proposal covering the year of physical completion of this contract, provided the Contractor has satisfied all other contract terms and conditions, including the submission of the final patent and royalty reports, and is not delinquent in submitting final vouchers on prior years’ settlements. The Contracting Officer may release up to 90 percent of the fee withholds under this contract based on the Contractor’s past performance related to the submission and settlement of final indirect cost rate proposals.
The first thing to note is that the contracting officer "may" withhold fee. The clause does not require that fee be withheld even though many contracting officers and government auditors believe (or assume) it does. If a contracting officer determines that fee must be withheld in order to protect the government's interests, it must modify the contract accordingly. We've written about this in the past.
Assuming that fee has been withheld, the contracting officer must release 75% of the withheld amount after the contractor has submitted a certified final indirect rate proposal covering the year of physical completion of the contract.

Finally, the contracting officer may release up to 90 percent of the fee based on past performance.

If you are up to date on your incurred cost submissions but still have contracts with 15 percent of the fixed fee withheld, you should contact your contracting officer to get most of the contract fee released.

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