Thursday, November 14, 2013

Contract Closeouts - Help The Government With Its Risk Assessment

Yesterday we discussed the various methods and alternatives that the Government has at its disposal for estimating indirect rates to use for quick closeout purposes. The primary rationale to use quick closeout procedures is to close contracts prior to the audit of the indirect rates. The ACO is in charge of developing quick close rates and they usually ask for DCAA's input. DCAA will typically take rates from the unaudited incurred cost submissions and reduce them by a judgmental amount (a few tenths of a point perhaps) in order to "protect the Government's interest" in the event that a subsequent audit will result in unallowable costs.

Contractors then, in turn must decide whether to accept the decremented rates in the interest of closing out the contract(s) sooner rather than later. Where these decrements result in significant cost reductions, the decision is not so easy. Is it better to forgo some costs and get the rest of the fee now, or wait a few years and get more? Sometimes its a tough call. If a contract is in overrun status and there is no chance that the Government will fund the overrun, a few points off the rates isn't going to make any difference unless that decrement brings contract costs below the ceiling.

It is important to provide your position when DCAA is advising the ACO on quick close rates. If you have good internal controls over timekeeping and for identifying and excluding unallowable costs from any proposal, claim, or billing to the Government, you should let the Government know. If you have a history of no audit exceptions taken to your final indirect expense rates, you should let the Government know. If the contract(s) under consideration for quick close is already in overrun status and you have no plans to pursue additional funding from the procurement office, you should let the Government know. If your proposed final rates are capped (either voluntarily or by contract), you should let the Government know. Any kind of input that will support the reasonableness of your proposed final rates should be provided. Don't expect the Government to take the time to think through all of these factors. And, if DCAA won't listen to you, go directly to the ACO.

The quick closeout process can be beneficial but you don't want to get caught up in the thrill of closing out contracts at the expense of your bottom line.

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