Quick Closeout of a Government Contract
Many times the closeout of a federal contract can take years, especially with the backlog at the DCAA today in auditing Incurred Cost Reports to determine final indirect billing rates. This delay in closeout of a contract can be a problem for a contractor, sometimes resulting in a delay in collecting all the money due to them. It also can cause issues with determining final billing rates from data that is several years old. In certain situations there is an alternative path. This is called the Quick Closeout procedure.
The quick closeout is described in FAR 42.708. This procedure may be used if the following conditions are met:
- The contract is physically complete
- The amount of unsettled direct and indirect costs to be allocated to the contract is relatively insignificant
- Agreement can be reached on a reasonable estimate of allocable dollars
The ACO will coordinate between the contractor and the DCAA for candidates of the quick closeout procedure. In other words, the ACO really controls the decision for the quick closeout. Both cost type contracts and T&M type contracts are candidates for this procedure. Usually the T&M contract is more ideal for quick closeout because the only redeterminable amount is usually the G&A costs associated with other direct costs (ODC) in the contract. The DCAA can also request the ACO to consider contracts for a quick closeout, usually when a contractor requests this of an auditor. The contractor may also request a quick closeout to the ACO.
When the quick closeout procedure is used, the ACO will request certain information from the contractor. This information includes:
- Proposed/certified indirect cost rates for 3 years preceding the fiscal year for which the quick closeout is being requested
- The settled indirect cost rates for 3 years preceding the fiscal year for which the quick closeout is being requested
- The calculated variance factor between the proposed and settled rates
- The proposed/certified indirect cost rates covering the period of performance for the referenced contract
- Contract status
The ACO will use this information to determine the final rate for the quick closeout. There are several possibilities for the final rates. These include:
- The decrement factor method (requires the ACO to perform some analysis on the previous 3 year history to establish a factor to reduce the rate)
- Use the final indirect cost rates agreed upon for the immediately preceding fiscal year
- Use the provisional billing rates for the current fiscal year
- Estimate rates for the final fiscal year of contract performance based on the contractor's actual date adjusted for any historical disallowance found in prior year's certified final incurred cost proposals.
The DCAA is contacted after the final rate is determined and the auditor is allowed to comment on the rate and express any concerns related to the criteria. Once the final rate is determined and agreed upon the ACO will prepare an advance agreement. Both the ACO and the contractor will sign the agreement and the contract then can be closed.
If you have some contracts that have been held up you may want to check to see if the Quick Closeout procedure is an option. Give us a call and we can put you in touch with one of our experts to first see if that is possible in your situation and then help you resolve the process.