Tuesday, February 5, 2013

Quick Closeout Procedures

The Federal Acquisition Regulations (FAR) contains provisions that allow the Government and contractors to close out contracts ahead of the final audit. With the well-documented and oft-discussed failures of DCAA to complete their audits of contractor incurred cost proposals in a timely manner, these provisions may be an alternative to waiting for audits to be completed. If you think they apply to your situation, you should contact your contracting officer and initiate a quick-closeout process.

FAR 42.708 provides quick-closeout procedures which allow the contracting officer to negotiate a settlement of direct and indirect costs for a specific contract, task order, or delivery order, to be closed in advance of the determination of final direct and indirect costs. The provisions for quick-closeout procedures can be applied to all open fiscal years with unsettled direct and indirect costs.

The FAR 42.708 criteria for applying quick-closeout procedures are

  • The contract, task order, or delivery order is physically complete
  • The total unsettled direct and indirect costs allocable to that contract, task order or delivery order is relatively insignificant. The cost is considered relatively insignificant when the total unsettled direct and indirect cost to be allocated to any one contract, task order, or delivery order does not exceed the lesser of $1 million or 10 percent of the total contract, task order, or delivery order amount.
  • The contracting officer performs a risk assessment and determines that the use of the quick-closeout procedure is appropriate. The risk assessment should include
    • consideration of the contractor's accounting, estimating, and purchasing systems
    • other concerns of the cognizant contract auditors, and
    • any other pertinent information.
  • Agreement can be reached on a reasonable estimate of allocable dollars.

As you can see from the foregoing criteria, the contracting officer is afforded some flexibility and must exercise judgment in the process. We've seen a lot of inconsistency among contracting officers in applying these criteria but persistence does seem to pay off. It's your cash flow.

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