Tuesday, November 12, 2013

Contract Closeouts - Quick Closeout Procedures

The Federal Acquisition Regulations (FAR) provide for "quick closeout" of contracts under limited situations. In theory, the administrative contracting officer (ACO) is the primary person responsible for identifying contract candidates for quick closeout. However, in practice, it is usually the contractor that seeks ACO help in using quick closeout procedures. For contractors preferring immediate settlement and payment rather than expending costly administrative time waiting for the normal closeout process to be completed, quick closeout might be the way to go. Who wouldn't want that. The downside is that in some cases, contractors might need to sacrifice some of their indirect costs.

The Government will not use quick closeout procedures at contractors that have had a history of significant adjustments between allowable and allocable costs reimbursed during contract performance. Nor will they entertain quick closeout if prior audits reflect a history of significant questioned costs. For contractors that pass this barrier, there's hope.

A delay in closing out contracts is usually attributable to delays in finalizing indirect expense rates. Recently, these delays have been the result of DCAA's backlog of incurred cost audits. Sometimes its because the contractor is late in submitting its final indirect expense rate proposal. If the delay is not a result of finalizing the indirect rates, its probably because the contract administration office (e.g. ACO) has a shortage of manpower to devote to the closeout process.

Quick closeout procedures may be used if:

  1. The contracting officer and the contractor bilaterally agree to the use of quick closeout
  2. DCAA is contacted and has no reason to recommend against quick closeout
  3. The contract is physically complete and all services and commodities have been accepted; and
  4. The amount of unsettled indirect cost to be allocated to the contract is relatively insignificant
This fourth item involves some effort on both the ACO's and the contractor's part. According to FAR 42.708, indirect cost amount is insignificant when:

  • The total unsettled indirect cost to be allocated to any one contract does not exceed $1 million
  • The cumulative unsettled indirect costs to be allocated to one or more contracts in a single fiscal year do not exceed 15 percent of the estimated total unsettled indirect costs allocable to cost-type contracts for that fiscal year (The ACO may waive the 15 percent rule based upon risk assessment that considers the contractor's accounting, estimating and purchasing systems and other pertinent information)
  • Agreement can be reached on an estimate of allocable dollars; and
  • The determination of final indirect costs under the quick closeout procedures are final for the contracts it covers and no adjustments are made to other contracts for over or under recoveries of costs allocated or allocable to those contracts.

Tomorrow we will look at methods for estimating indirect expense rates to be used for quick closeout purposes.

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