Thursday, February 23, 2017

Contract Close-Out Process - Part 4

This week we've been discussing the contract closing process - the steps required to close out a flexibly-priced contract. It is not a simple, straight-forward or perfunctory process. The Government, especially administrative contracting officers spend a lot of time ensuring that all the paperwork is in order. Contractors should also be prepared to spend a fair amount of effort doing the same.

By the time it becomes necessary to prepare and submit a final voucher (or, a completion voucher), there should be no more costs left to bill on the contract. All the costs that are properly allocable and allowable under the contract should have already been billed. As contractor fiscal years are settled, contractors should be truing up costs for that year - whether it be an upward or downward adjustment representing differences between provisional billing rates and final negotiated or settled indirect rates. The only thing left to bill on a final voucher is whatever fee amounts have been retained by the Government.

Initially, the Government withholds 15 percent of the fee up to $100 thousand. After receipt of an adequate incurred cost proposal covering the year of physical completion of the contract, the contracting officer shall release 75 percent of the 15% withhold. That should prompt contractors to submit a voucher for payment. The contracting officer may then release up to 90 percent of fee withholds based on past performance related to the submission and settlement of final indirect cost rate proposals.

So, putting this into figures, assume a $1 million with a 10% fixed fee. The fee would be $10,000. The Government is going to withhold 15% of that fee or $1,500. After submitting all of the incurred cost proposals covering the years of performance, the contracting officer must release 75% of that $1,500 withhold or $1,125 leaving $375 yet to bill. Or, if past performance justifies such, the contracting officer may release 90% of the withhold or $1,350 leaving only $150 remaining to be billed. That's not very much on a $10,000 fee.

Here's the most important thing a contractor should do when submitting a final or completion voucher: (i) compare it to the amounts contained in the annual indirect rate submissions, (ii) identify and analyze any differences, (iii) correct the final voucher is that is necessary, or (iv) notify the Government as part of the transmittal of the differences and explain why those differences occurred. The Government will be making the same comparisons and any discrepancies will be kicked back to the contractor anyway so contractors need to be pro-active. It will speed up the contract closeout process. Contractors will have all of the information necessary to compare and analyze discrepancies so reliance on Government involvement is not necessary.

Tomorrow we will end this series with some final thoughts.

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