August 13, 2019
Do you have U.S. government cost-reimbursable or time-and-materials contracts, task orders or delivery orders that are physically complete awaiting audit and establishment of indirect rates for your final fiscal year of contract performance? If so, you may qualify for use of quick-closeout procedures.
The Federal Acquisition Regulation (FAR) 42.708, Quick-closeout Procedure, requires the contracting officer responsible for contract closeout to negotiate the settlement of direct and indirect costs for a specific contract, task order or delivery order ready to be closed, in advance of the determination of final direct costs and indirect rates under certain conditions.
- First, the contract, task order or delivery order has to be physically complete.
- Second, the amount of unsettled direct costs and indirect costs to be allocated to the contract, task order or delivery order must be relatively insignificant. The government will consider cost amounts to be relatively insignificant when the total unsettled direct costs and indirect costs to be allocated to any one contract, task order or delivery order does not exceed the lesser of $1,000,000, or 10 percent of the total contract, task order or delivery order amount.
The contracting officer must also perform a risk assessment and make a determination whether or not the use of the quick-closeout procedure is appropriate. The risk assessment includes consideration of the adequacy of your accounting, estimating and purchasing systems. The contracting officer will also consider any concerns of your cognizant contract auditors and any other pertinent information.
Other pertinent information affecting the determination to use quick-closeout procedures include:
- Your documented history of approved indirect cost rate agreements, and
- A comparative analysis of your unaudited rates with prior years’ costs and rates.
Circumstances may result in the contracting officer determining the government risks to be too high to use quick-closeout procedures for your final fiscal year of performance. Reason: Your final year of performance may be considered too risky for quick closeout if a comparative analysis indicates that you have made any changes to your rate structure, or if your indirect rates have fluctuated significantly within the fiscal year or when compared to the previous fiscal year.
You may also be considered high risk for use of quick closeout if mergers or acquisitions have affected your rates, or you have any special contract provisions limiting your recovery of otherwise allowable indirect costs under cost reimbursement or time-and-materials contracts.
If your closeout action meets the thresholds and the contracting officer determines the risk to be satisfactory, the final hurdle is the abilities of the parties to agree on a reasonable estimate of allocable dollars. Once agreement is reached and final indirect costs are determined under quick-closeout procedures, the amount is considered final for the contract, task order or delivery order it covers. No adjustment will be made to other contracts for over or under recoveries of costs allocated or allocable to the contract covered by the agreement that may result from a subsequent final audit of the direct or indirect costs and rates.
Also, the indirect cost rates used in the quick closeout of a contract are not to be considered a binding precedent when negotiating the final indirect cost rates for other contracts. Upon establishment of the quick-closeout amount, and completion of other required closeout actions, you will be able to bill any amounts due for the closed out contract, task order or delivery order.