Federal Contracts: Quick-closeout procedure

In helping a client recently with some contract closures, it became quickly apparent that the DCAA was way behind in getting to the audit of the system to close out this contract.  It became quickly apparent that there are several risk factors for this happening.  First the contract work will be in the distant rear-view mirror by the time the audit takes place.  The chance of misplaced records and forgotten tasks becomes much greater as more time passes.  Such omissions could result in the government disallowing costs that would change the indirect rates.  This could end up costing the company money.  To mitigate this risk, it can be in a contractor's best interest to try to have the government perform what is called the quick closeout procedure.  This is described in FAR 42.708.  This clause allows the Contracting Officer (CO) to negotiate the settlement of indirect costs for a specific contract.  There are a couple of requirements to be able to use this clause.  First the contract must be complete.  Then the contract's unsettled cost must be relatively insignificant.  For the government, insignificant usually means unsettled indirect costs of less than a million dollars for one contract.  There are provisions for restrictions to not exceed 15% of the estimated total unsettled indirect costs allocable to cost-type contracts for that year too.  It is worthwhile to talk with your CO to see if an agreement could be reached to close out the contract so you don't have to wait for the DCAA to "wade" through their backlog and get to your specific contract.  By the time they get to it, you could end up with a penalty that you didn't anticipate.


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