Friday, March 16, 2012

Quick Closeout Procedures for Completed Contracts

Back in August 2010, we posted comments on the Government's quick close-out procedures for completed contracts. This program allows the Government to negotiate the settlement of direct and indirect costs for a specific contract, task order, or delivery order in advance of the determination of the final direct and indirect costs (i.e. the DCAA audit) when certain criteria are met. You can read that posting here.

Since that posting, the criteria for eligibility has changed (or, as the Government says, "enhanced") to broaden its applicability. Under the old criteria, the eligibility rules, total "unsettled" direct and indirect costs had to total less than $1 million and unsettled indirect costs couldn't exceed 15% of the estimated total indirect costs allocable to all cost-type contracts for that year.

Under the new rules (effective June 2011), the criteria for applying quick close-out procedures state that the total unsettled direct and indirect costs is "relatively insignificant". Costs are relatively insignificant when they do not exceed the lessor of

  • $1 million or
  • 10% of the contract amount.

They key here is that now, each contract stands on its own. Contractors do not need to perform the detailed analysis to determine whether indirect costs applicable to the contract exceed 15% of the indirect costs allocable to all cost-type contracts. Under the old rules, contractors with only one cost-type contract could never quick-close a contract because the indirect costs allocable to that contract would always exceed 15%.

If you have contracts that meet this criteria, you should ask your contracting officer to initiate quick-close procedures. You'll receive final payment that much quicker.

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