June
2009
Page
Contract
Closeout Time Standards
3
Fixed
Priced Contract Closeout
6
Cost
Type Contract Closeout
14
Time
and Material/Labor Hour Contract Closeout
21
Early Closeout for IDIQ Contracts 29
Reconciliations and Section Four 33
MOCAS
Maintenance of BOAs and BASICS
Reopened Contracts in MOCAS 36
Other 37
Solutions for Problem Closures 41
Summary
52
Appendix A - R2 Delay Reason Codes 53
This guidebook provides instructions for correctly closing contracts. Users are encouraged to submit recommendations for improvements to the Defense Contract Management Agency (DCMA):
Defense Contract Management Agency
ATTN: Contract Closeout Performance Advocate
6350 Walker Lane
Alexandria, Virginia
22310
Closing cost contracts can be more difficult than closing other contracts and require coordination among the administrative, procurement, and payment offices. When closeout is accomplished properly, the administration, payment, and official contract files should close around the same time.
CONTRACT
CLOSEOUT STANDARDS
The standard timeframes for closing physically complete contracts are located in the Federal Acquisition Regulation (FAR) 4.804. A contract is considered physically complete when the contractor has completed performance and the Government has inspected and accepted the supplies and services. Furthermore, all optional provisions, if any, must have expired. Firm Fixed Price contracts should be closed not later than 6 months after the physical completion date. Cost Reimbursement, Time and Material (T&M) and Labor Hour (LH) contracts require settlement of indirect cost rates and should be closed not later than 36 months after the physical completion date. All other contract types should be closed not later than 20 months after the physical completion date.
|
Standard Closeout Timeframes (FAR 4.804) | |
|
Timeframes |
MOCAS Codes and Contract Types |
|
6 Months |
J FIRM FIXED PRICE |
|
36 Months |
L FIXED PRICE INCENTIVE R COST-PLUS AWARD FEE S COST CONTRACT T COST SHARING U COST-PLUS-FIXED-FEE V COST PLUS INCENTIVE FEE Y TIME AND MATERIALS Z LABOR HOUR |
|
20 Months |
A FIXED PRICE REDETERMINATION K FIXED PRICE W/ECONOMIC PRICE ADJUSTMENT O OTHER – BASIC ORDERING AGREEMENT/BLANKET PURCHASE AGREEMENT (BOA/BPA) |
OVERAGE CONTRACT CODING
DCMA ACOs are required to assign Delay Reason codes and input Estimated Completion Dates (ECD) for MOCAS Part A Section 2 overage contracts. As a result PKX notifications of delays in closing are transmitted to the POC. The ACO is required to assign an "Office of Primary Responsibility" (OPR) code in the R9 remark MOCAS Field when entering Delay overage reason codes F, H, M, P, V, or W. The OPR numeric codes are used to designate who has the primary responsibility to complete the coded closeout action: 71 - Services, 72 - Contractor, 73 - DCMA, 74 - DCAA, and 75 - DFAS. See appendix A for a complete listing of the R2 overage reason and OPR codes. ACOs are encouraged to place additional closeout comments in the ACO notebook. DFAS is responsible for automatic closeout of Part B contracts from CAR Section 2 following final payment.
The contract closeout process starts at contract receipt and review and proceeds throughout the life of the contract. MOCAS input data must accurately represent the contract in order to ensure proper management, payment, and closeout. When all contract requirements have been met and the contract is physically complete, it should be moved to MOCAS Section 2. The easiest contracts to close are short term Firm Fixed Price contracts with one Accounting Classification Reference Number (ACRN) for each Contract Line Item Number (CLIN) and no special provisions. Cost-Type contracts with multiple ACRNs for each CLIN and special payment provisions are the most difficult to close.
Many closeout problems increase in difficulty over time. The inability to locate transaction support documents and to read faded print in hard copies of documents are two recurring problems. Furthermore, if funds cancel before closure, appropriation law limits the types of adjustments that can be used to correct lines of accounting payment errors. Also, it can be difficult identifying and locating the responsible contracting officer because of reorganizations and closures directed by the Base Realignment and Closures Commission. In addition, over the past 20 years thousands of companies have gone out of business or been purchased by larger companies. Novation agreements may or may not have been signed by the gaining company. These activities have contributed to the difficulty in closing old contracts.
What You Can Do To Simplify
Closeout
Check for Payment
Instructions
ACOs are reminded to review contract payment instructions to determine compliance with DFARS Procedures, Guidance and Information (PGI) 204.7108 Payment instructions.
What Contractors Should Do To
Simplify Closeout
Physical
Completion
Once the contract is physically complete and moved to section 2, MOCAS will transmit a Contract Completion Statement (interim PK9/EDI 567) to the contracting office. The completion statement will automatically be sent to the buying activity to provide notice of physical completion. The contract should be closed within the FAR standard timeframe. However, it should not be closed if the contract is in litigation, under appeal, or pending termination (Ref. FAR 4.804-1(c)). These contracts should be assigned the appropriate dormancy code and moved to MOCAS section 3. Once contracts have been entered into section 3, they should be reviewed periodically to update their status. A contract, for example, was originally moved to section 3 awaiting review by the Armed Services Board of Contract Appeals. When the appeal was denied, the contractor filed for bankruptcy. Accordingly, the Dormancy Reason Code should be updated from BCA to BKRPT. In addition, if the closeout date is expected to exceed the overage date, an estimated closeout date must be entered into MOCAS and revised as necessary.
|
Section 3 Dormant Reason Codes | |
|
CODE |
EXPLANATION |
|
BCA |
Armed Services Board of Contract Appeals (ASBCA) Case |
|
TERM-C |
Termination for Convenience |
|
PL |
Public Law-Claim Pending (e.g., PL 85-804) |
|
BKRPT |
Bankruptcy |
|
CIL |
Contractor in Litigation |
|
CLL |
Under Investigation |
|
GUA |
Contract containing provisions for extended testing periods after shipment and before final notice of acceptance from an estimation where final payment is withheld from contractor |
|
LLD |
Labor Law Determination |
|
VE |
Contingent Value Engineering Payment |
|
DEBT |
Deferred DEBT - Request for Debt DEFERRAL has been approved by the Finance Officer |
|
NOTES:
| |
Now the actual closeout can
occur
If all contract terms and condition were met, then follow FAR 4.804-5, procedures for closing the contract. The administrative contracting office must review the contract funds status and notify the contracting office of excess funds available for deobligation. Next, follow the checklist of closeout administrative actions below that must be accomplished when applicable to the contract.
Once all applicable actions are completed, the contracting officer processes the Final Payment NLA in MOCAS or E-Tools. MOCAS transmits a contract completion statement (PK9/EDI 567) to the contracting office. If for some reason the contract is not in MOCAS, the ACO will prepare a contract completion statement on DD Form 1594.
Closed-Contract Database
(CCDB)
The
Closed-Contract Database (CCDB) system was
activated on December 4, 2000 and acts
as a repository of MOCAS contracts
closed
after the date.
It
stores contract data on an optical storage device that may be viewed on line for
ten years after the contract has closed (DLAM 8000.3 MOCAS Users Manual For Contract
Administration),
Chapter 11 contains instructions for using the CCDB.
FIRM
FIXED PRICED (FFP) CONTRACT CLOSEOUT
Difficulties closing fixed
price contracts are usually associated with documentation of deliverables and
unliquidated obligation balances. Contracts will remain in CAR section 1
until both of the following conditions have been met:
The final shipment document should alert the Industrial Specialists or Procurement Technician to input production history which generates a “Production Complete” remark on the R8 Remarks field within MOCAS. The contract should automatically move to section 2 after the final acceptance information has been processed. The movement of a contract into section 2 causes several things to happen.
Problems with FFP Contracts
Moving to CAR Section 2
If Firm Fixed Price contracts
do not automatically moving to section 2, the following checks are
suggested:
FPP Contracts Awaiting Final
Acceptance
Obtaining destination final
acceptance documents is DFAS' responsibility. However, when final
acceptance documents are not received by the contract management office (CMO)
Terminal or payment office, the ACO can then request a statement of final
acceptance from the customer and annotate the ACO notebook.
Data
items on a Contract Data Requirements List (DD Form 1423) that do not require a DD Form
250/Receiving Report are usually consolidated into a single ‘dummy’ service line
item in MOCAS. A DCMA Notice of
Completion can be utilized to signify completion of this item. See DCMA Integrity of
MOCAS Delivery Performance Data Document for information on how to
process a Notice of Completion.
The ACO reviews
the contract file to ensure that all modifications have been entered into
MOCAS. DFAS, Receiving Activity, Buying Activity and Contractor may be
able to provide copies of missing acceptance documents. In all cases, if no final DD Form
250/Receiving Report is available, the contractor history will be input using
“PROD001” as the shipment number.
The ACO should inform DFAS of actions taken by DCMA personnel to manually move contracts into CAR Section 2. This is usually accomplished by entering remarks into the ACO Notebook.
FFP Contracts After Movement to CAR Section
2
Movement of a contract into
section 2 will prompt the ACO to perform several actions.
Closeout
Checklist
All Deliveries Accepted
The ACO ensures
that all contract items such as hardware, data, software, spares, and support
equipment have been delivered and accepted by the government before the contract
is closed.
Identify and Remove Excess Funds on FFP Contracts
FAR 4.804-5 states that once a
CMO receives evidence of physical completion, they will review the contract
funds status and notify the PCO of any excess funds available for deobligation
at the outset of the closeout process.
It is recommended that this notification be done by e-mail with a return
receipt to confirm notification.
Final shipment and acceptance of the
product/service on firm fixed price contracts entitles the contractor to receive
final payment. Cost and Fixed Price
Incentive (FPI) contracts require settlement of final overhead rates and
incentives. In some cases, obligated funds are no longer required because
of quantity variance. Excess funds may exist on maintenance and repair
contracts where the repairs cost less than originally estimated. Because
ACO settlement of overhead rates with DoD contractors can be a lengthy process,
it is important to review contracts to identify and remove excess funds at the
time of physical completion. Working with the contractor, the ACO
should estimate the total government monetary liability under the contract. Historically, funds have generally not
been declared excess until after settlement of indirect rates; however, the
contracting officer should accomplish an initial funds review within 30 days of
contract completion. The PCO or ACO
should issue a deobligation modification to remove excess funds as early as
possible. It is equally important to avoid deobligating funds that may be
required for final payment.
The .01 ULO has often been
used to identify cancelled funds prior to the alpha cancelled funds
indicator. Send DCMA Form 1797 to
Occasionally, urgent or unusual circumstances necessitate authorizing a contractor to start work before the contract has been negotiated. The contract authorizing such effort must include a NOT-TO-EXCEED (NTE) or ceiling price and a schedule for definitization. Prior to contract close-out, the ACO and PCO must work together to ensure that all actions under the contract have been definized.
The prime
contractor must go through procedures with its subcontractors who are similar to
those used by the government. The
ACO must ensure that all of the prime's subcontracts have been paid and closed
before the prime contract can be eligible for contract
close-out.
Disposition of Government
Property
Government property provided to the
contractor during contract performance and not consumed must be dispositioned at
the end of the contract. Any
property acquired or manufactured by the contractor, but is excess to the
contract at completion, may also become government property under certain
conditions. This property also must
be dispositioned before the contract can be closed out. The FAR provides procedures for the
proper disposition of government property, which include contractor reporting of
all government property. The government will review the report and provide
specific instructions to ship, leave in place, or scrap the
property.
If the contract contains
property clauses, a DD 1593, Contract Administration Completion Record, is
automatically generated by MOCAS when the contract becomes physically complete
and can be retrieved by the CMO through REVEAL. When the property has been cleared the
property administrator inputs the disposition into the DCMA Property
Administration Data System and an R9 code “55” will appear in MOCAS. If the Code 55 is missing, a DD 1593
should be submitted to the Property Administrator for review and clearance. The contract will not close unless the
Code 55 remark is indicated.
Disposition of Classified
Material
All classified documents must be
dispositioned in accordance with government security regulations and accounted
for by the contractor. This can be accomplished when a final DD Form 254, DoD Contract Security Classification
Specification, is issued, indicating disposition, or the contractor provides
written certification that all data has been properly processed. (See DODD 5220.22-M, National Industrial Security
Program Operating Manual about disposition and retention). Be sure the
prime contractor has cleared all subcontracting DD 254s.
Upon physical completion of a
contract, a copy of the DD
Form 1593, marked "Information Copy" is sent to cognizant Industrial Security
Office. The cognizant Industrial Security Office can be found on the contract DD
254. The ACO does not need confirmation or
certification of completed actions from the security office to proceed with
closeout.
If the contract contains a patent rights clause, FAR 52.227-11 or 13, a final patent report must be submitted by the contractor, preferably on a DD Form 882, Report of Inventions and Subcontracts, within 3 months after physical completion of the contract. It must list all patent claims made under the contract or certify that there were no inventions and list all subcontracts which include a patents rights clause or certify that no subcontracts were issued with this requirement. If the contract contains FAR 52.227-11, Patent Rights -- Ownership by the Contractor, a final patent report is required only if there is an invention. If DFARS 252.227-7039, Patents--Reporting of Subject Inventions, is also in the contract a final report is required within two (2) months after completion of the contracted work. The PCO should forward the clearance request and patent report to the cognizant patent counsel for clearance.
Negative DD 882s
If the final patent report is negative, the ACO may include language in their letter to the PCO "if the PCO fails to issue a response within 60 days, patent clearance will be deemed to have been issued." The following is required:
It is important to note that
pursuant to FAR 227-12(n)(3), the Government has a 3-year look-back period after
final payment on the contract to examine the books and records of the contractor
for the purpose of asserting title and/or determining ownership rights to
patentable subject inventions if the final patent report is found
unacceptable. The contractor has a
regulatory duty to retain its books and records for 3 years after final payment
on the contract. As such, if in the
unlikely event an unreported invention is discovered after closure, the contract
can be reopened and the invention issues addressed.
Other than Negative DD
882s
If the DD 882 contains a
report of patentable subject inventions or if the ACO has reason to believe that
a negative DD 882 has failed to disclose an invention, the ACO should not impose
a 60-day suspense for a patent clearance response.
If the contract contains a refund of
royalties’ clause, FAR 52.227-9, a final royalty report must be submitted by the
contractor stating the royalties paid or required to be paid. This report must be submitted before
final contract payment
Value Engineering Change
Proposals
If
the contract includes FAR
52.248-1, verify no outstanding Value Engineering Change Proposals
(VECPs) requiring payment or disposition exist before closing
contract.
All open actions and liabilities must be
resolved prior to closeout. The
government may at any time during contract performance fully or partially
terminate contracts for default or for convenience. The government may terminate a contract
for default when the contractor has materially breached the contract by failing
to perform in accordance with contract requirements. Under
termination for default, the contractor is liable for any additional costs to
the government to obtain terminated items.
The government may also terminate a contract for convenience. Termination for convenience can occur
when Congress or the program office withholds funding or the user determines
that the item is no longer required. Pursuant to the Termination for
Convenience clause the government is liable for certain costs.
A contractor at any time has a right to
submit a claim against the government for a perceived government liability which
at the time is not recognized in the contract. An example of such a claim is when the
contractor submits a proposal because it asserts that a government individual by
his actions required the contractor to accomplish effort not specified in the
contract.
If a claim is denied by the government or
the government and the contractor cannot agree on certain other contract issues,
the Disputes clause of the contractor the right to submit its dispute to a third
party such as the Armed Services Board of Contracts Appeal (ASBCA) for
resolution. Alternate Dispute
Resolution is another means available to both parties.
The contractor,
under the Disputes Clause, may appeal a decision of the contracting officer
directly to the Court of Federal Claims.
Also, the prime contractor may sue or be sued by a subcontractor for
damages related to the contract in question. The ACO and PCO must work together to
ensure that any litigation and resulting cost impact is resolved under the
contract before the contract is closed.
The
FAR contains a number of warranty clauses suitable for use in different
acquisition situations. Some of the warranty clauses can extend well beyond the
physical completion of the contract.
As
long as there is not a CLIN or money attached for extended warranty, the
contract should not be held open just for warranty. The contractor should have a process on
how to handle a warranty item and if necessary; the contract can always be
reopened through the CCDB. Just
because a contract is closed in MOCAS does not relieve the contractor of his
contractual responsibility to perform under the warranty clause. Contract containing provisions
for extended testing periods after shipment and before final notice of
acceptance where final payment is withheld from contractor should be moved to
MOCAS section 3 and coded “GUA”.
Excess vs. Remaining
Funds
After contracts are physically
complete and ready to be closed, except for funds, there may be instances where
unliquidated funding remains on the contract. In these instances a review must be
accomplished to determine if the funds are “excess” or “remaining” to the
contract requirements. Upon
completion of the review, the circumstances that cause the funds balance will
dictate whether funds must be deobligated via modification because they were
“excess” or Q final-ed because they are remaining funds.
Excess funds are funds relating to a specific line item or deliverable that was not performed on a contract. A contract modification must be issued to deobligate excess funds. Some examples of contracts that have excess funds follow:
“Remaining funds” are funds left on
contract due to price variance, rounding or cost underrun and where all contract
performance as required by the contract has been completed and paid in
full. The ACO Notebook will be annotated
with a remark that the $XX (Amount of Funds) funds are remaining funds. Some examples of contracts that have
“remaining funds” follow:
Movement to CAR Section
5
Once all required closeout
actions have been completed, the ACO should take the following actions to move
the contract out of MOCAS and provide closeout notification to the buying
activity.
FIXED
PRICE CLOSEOUT CHECKLIST
|
Action |
Completed |
Date |
|
Final
Acceptance Received? |
|
|
|
Final
Acceptance Entered in MOCAS? |
|
|
|
LISSR Data
Balanced (Line Items)? |
|
|
|
PSCN Data
Entered ("Production Complete" in R8 Remarks field
)? |
|
|
|
Contract
Moved to Section 2? |
|
|
|
ULO
Balance Equal $0.00 |
|
|
|
PCO
Notified of Excess Funds? |
|
|
|
ACO
Deobligated Excess Funds with Modification? |
|
|
|
WIP ULO
Balance Equal $0.00? (Progress Payment ULO) |
|
|
|
Has
Government Property Been Cleared? |
|
|
|
Has
Industrial Security Office Been Notified, for classified
contracts? |
|
|
|
Final
Royalty Report Received from Contractor? |
|
|
|
Final
Royalty Report Clearance Received from PCO? |
|
|
|
Final
Report of Inventions (DD882) Received from
Contractor? |
|
|
|
Final
Report of Inventions Clearance Received from PCO? |
|
|
|
Final Pay
NLA or DD1593 Issued? |
|
|
|
Final NLA
or DD1593 Signed and Processed by ACO? |
|
|
|
Contract
Moved to Section 5? |
|
|
|
Non-MOCAS
Contracts - DD1594 Completed for Contract File? |
|
|
Closing DLA Other Disbursing
Office (ODO) Contracts
When DCMA entered into the
agreement to administer contracts paid out of SAMMS for DLA, a Class Deviation
was issued which relieved the ACO from the FAR/DFARS requirement to track final
payment and perform an excess funds review/recommendation on these
contracts. DLA ODOs close
automatically if they are in MOCAS Part A and coded correctly.
Criteria
for DLA ODO Auto Closeout:
*If the ACO
wants to prevent automatic closeout of a DLA ODO contract, enter code 56 in the
R9 remarks field. Code 56 will cause the contract to be bypassed by the
automatic closeout process. The ACO must manually close the contract by
entering a G and F NLA to close these contracts.
Closing Non DLA Other
Disbursing Office (ODO) Contracts
For Other Disbursing Office
(ODO) contracts, with the exception of DLA ODOs verification should be made with
the payment office that final payment has been made and that the ULO balance
equals zero.
Criteria
for NonDLA ODO:
Cost type contracts are the
most complex contracts to administer and close. Their final price is based mostly on a
negotiated settlement of allowable and allocable cost that may not be decided
for several years after physical completion. There are several initiatives
in place such as Real Time Rates and Quick Closeout (further detail provided
below) that can minimize the impact that delays in settling indirect cost rates
often have on closeout. However, to prevent closeout problems, the
contractor and contract should be monitored.
Monitoring Cost-Reimbursable
Contracts
Contractor areas that should
be monitored include:
It is helpful when individual contracts are
monitored in the following areas:
By monitoring contractor and
individual contract status, the problems associated with the closeout process,
including final reconciliation of funds, will be minimal.
Movement to Section 2 –
Physical Completion
Cost type contracts will remain in section 1 until completion of contract performance. Upon evidence of contract completion (receipt of final acceptance document or PCO statement), the Industrial Specialist or Procurement Technician will input the production history and balance the Line Item Schedule and Shipment Record (LISSR).
After final acceptance, if the
contract does not automatically move to section 2, then the ACO shall request
that the Trusted Agent move the contract to section 2, which causes several
things to happen:
Awaiting Final Acceptance
Contracts with destination
acceptance requirements may hold up movement to section 2. Obtaining this acceptance is a
Data items on Contract Data
Requirements List (DD Form 1423) that do not require a DD Form
250/Receiving Report are consolidated into a single ‘dummy’ service line item in
MOCAS. A DCMA Notice of Completion
may be utilized to signify completion of this item. See DCMA
Integrity of MOCAS Delivery Performance Data Document for information on how
to process the DCMA Notice of Completion.
After Movement to CAR Section
2
Movement of a contract into
section 2 will prompt the ACO to perform several actions described
below.
Closeout
Checklist
The completion of the DLA Form 1597 should be used as a tool for ensuring all necessary steps in the closeout process are completed on other than firm-fixed-price type contracts and firm-fixed-price contracts with special closeout actions. The DLA 1597 is optional for all other contracts. It is a good idea to begin filling out a checklist when a contract moves into section 2.
These actions are explained in
Firm Fixed Price Section of the Guidebook.
Work with DCAA on Final
Indirect Rates
Determination of final overhead rates is dependent on a review of the contractor’s incurred direct and indirect costs. FAR 52.216-7 and FAR 52.216-13 requires the contractor to submit a final indirect cost proposal to the Government within 180 days of the close of its fiscal year.
DCAA is responsible for auditing the yearly
submission of the contractor's final overhead cost proposals and providing a
formal report of its findings to the ACO. The agency is responsible for
ensuring that all proposed overhead costs are consistent with both the Cost
Accounting Standards (CAS), if applicable, and the cost principles in FAR
Part 31. The "Allowable Cost and
Payment" clause, FAR
52.216-7, provides for
reimbursement of costs incurred in contract performance that are deemed
"allowable" by the contracting officer, in accordance with procurement
regulations and contract terms. In
establishing the allowable indirect costs under a contract, indirect cost rates
are applied to the allowable contract base cost. Indirect cost rates are generally
accumulated into logical cost groupings to permit distribution of expenses in
relation to benefits received by the cost objectives. One such example of these indirect costs
pools is manufacturing overhead, which represents costs incurred by the company
that cannot be directly attributed to the contract (such as management salaries,
buildings and maintenance). The ACO
must determine whether or not all overhead rates that apply to a contract have
been negotiated. The contractor is
not eligible to submit a final voucher until all the applicable indirect costs
and overhead rates have been negotiated or established.
Contractor Submission of Final
Voucher
Once final annual indirect
cost rates are settled for all years of a physically complete contract, the
contractor must submit a completion invoice or voucher reflecting the settled
amounts and rates within 120 days, unless an extension has been approved in
writing by the contracting officer. To determine whether a period longer
than 120 days is appropriate, the contracting officer should consider whether
there are extenuating circumstances as listed in FAR
42.705 (b) (1) through (5). If
the contractor fails to submit a completion invoice or voucher within the
specified time period, the contracting officer may:
FAR
42.705 explicitly states the right of
the contracting officer to unilaterally determine the final contract payment
amount when the contractor does not submit the final invoice or voucher within
the time specified in the contract. The contracting officer
determination must be issued as a final decision in accordance with FAR
33.211.
DCAA Audit of Final
Voucher
A CACWS summarizes total cumulative allowable costs for all open flexibly priced contracts. (see Cumulative Allowable Cost Worksheet). ACO should encourage contractors to submit a CACWS with their annual indirect cost rate proposal for audit by DCAA and update it within a reasonable time after rate settlement. The Contractor's ability to track cumulative allowable cost by contract is essential for an adequate billing system and necessary to ensure that cumulative amounts billed do not exceed total estimated contract cost ceilings.
The CACWS is designed to expedite contract closeout by eliminating the need for DCAA to audit the final voucher and prepare a separate contract audit closing statement. This saves time and resources for both the contractor and government. The ACO can ensure that the total payment amount stated in the CACWS equals the total amount requested for each contract as stated in the final voucher payment support documentation. However, if the ACO cannot determine the cumulative allowable costs by contract using the CACWS, or if there are subcontractor costs, he should request that DCAA audit the final voucher.
Credit
Final Vouchers
Credit Vouchers cannot be submitted electronically. In the past, an ACO would receive a contractor refund check attached to a final voucher reflecting a credit amount. However, by the time all government parties processed the voucher and check, the date of the refund checks was over 6 months old. The National City Bank Corporation received these checks from DFAS. Their policy prohibited accepting non-Treasury checks older than six months unless the check explicitly specified a longer period. These checks were known as "stale dated checks."
To eliminate the above circumstances, and to comply with the government's paperless goals, the Automated Cash Collection System (http://www.pay.gov/) was created. ACCS provides the ability for contractors to submit refunds/payments to DFAS electronically. When contracts are ready to close and contractors are required to submit a refund/payment to the Government, they are encouraged to use ACCS to process a credit interim voucher. After the refund/payment posts to the contract, then the contractor should submit a zero-final voucher to the ACO for review/approval.
Excess vs. Remaining
Funds
After contracts are physically
complete and ready to be closed, except for funds, there may be instances where
money remains on the contract. In
these instances a review must be accomplished to determine if the funds are
“excess” or “remaining” to the contract requirements. Upon completion of the review, the
circumstances that cause the funds balance will dictate whether funds must be
deobligated by modification because they were excess or Q final-ed because they
are “remaining” funds.
ACO review/approval of a final
voucher should include:
Personnel
involved in the final payment process should be aware of the significant
differences in the appointment qualifications and responsibilities for a
certifying officer and a contracting officer.
Considering these differences, it is important that ACOs exercise care when approving final/completion vouchers
Closeout of Cost
Contracts
Upon processing and payment of
the final voucher by
Contract Completion
Statement
The ACO is required to report
final payment and completion of all administrative actions to the buying
activity on DD 1594. When contracts
close in MOCAS, the system will generate a MILSCAP Format PK9/EDI 567 Notice
which is used in lieu of the DD 1594.
If a contract is closed with a
ULO balance, MOCAS will automatically generate a Q Final transaction to reduce
the ULO to zero. As a result of the
Q Final transaction, a “CLR Obligation Auto-Adjustments Resulting From CNN
Action” list is generated.
Canceled Funds (Replacement
Funds Required)
If adequate funding is still
on the contract but has since canceled, the ACO will submit the final voucher to
ACOs should monitor final
vouchers that require replacement funds ensuring that the invoice is coded as
“
TIME
AND MATERIAL/LABOR HOUR CLOSEOUT
Where early closeout is not
applicable, the closeout procedure is identical to the cost-reimbursable
closeout procedure. If an audit is
required, DCAA will review material costs and labor hours expended to make sure
that the charges are consistent with the contract.
Upon receipt of a contract
audit completion statement, the ACO should proceed with
closeout.
Note: These contracts will close automatically in MOCAS based on the presence of a payment coded as a type 1 final payment and R9 Remarks code 55 to indicate that all property actions are complete if a government property clause is in the contract.
INCENTIVE
FEE CONTRACT CLOSEOUT
Incentive type contracts are still subject
to submission and negotiation of the cost elements that will be used in the
formula for the incentive arrangement.
Final Settlement Proposal
Submitted
If the contract is an incentive contract and
all overhead rates applicable to the contract have been negotiated, the
contractor is eligible to submit its repricing settlement proposal. The provisions of the incentive
arrangement incorporated in the contract provide a formula procedure to
determine the amount of profit the contractor has earned and this formula is not
renegotiated. However, cost
elements used in incentive formulas, or cost type CLINs, are subject to this
final settlement proposal. The
final repricing proposal would include all outstanding cost issues including
such items as unsettled claims and undefinitized contract modifications.
DCAA Audit and PCO Negotiates
Settlement
Based on DCAA
and ACO input, the PCO negotiates the final settlement proposal, and then
normally processes a contract modification adding or subtracting funds. The
negotiating of final settlement proposal may be delegated by the PCO to the
ACO.
Completion Statement and Final Voucher
Submitted
After either
receipt of the final modification adding or reducing funds for an incentive
contract, the contractor submits its voucher (SF 1034) or commercial invoice for
the final payment. The final
voucher/invoice is part of the "contract completion package," which includes the
release of claims and other required documents. The release of claims is a signed dated
statement from the contractor, substantially the same as the following:
"Release of Claims, Contract No. _______,
(Program Name), Pursuant to the terms of the above contract, the
government of the United States, its officers, agents, and employees are hereby
released and discharged from all liabilities, demands, obligations, and claims
arising under or by virtue of said contract."
Background
The quick closeout process
offers an alternative to holding contracts open until indirect cost rates are
settled. When it becomes apparent
that there will be a delay in the settlement of final indirect rates, it is
recommended that the ACO utilize quick closeout where applicable.
Use of quick close-out procedures should be
the first area looked at when deciding how to close a contract. Frequently current billing rates are
used as the quick close-out rates.
Because these rates are established by the contractor and reviewed by
DCAA and the ACO, they are considered credible and can be used to invoice and
close the contract at a relatively small cost.
FAR
Regulation
The procedure is identified in
FAR
42.708. Specifically, quick
closeout procedures may be used if:
·
The contract is physically
complete.
·
The amount of unsettled
indirect cost to be allocated to the contract is relatively insignificant. Indirect cost amount are insignificant
when:
o
The total unsettled indirect
cost to be allocated to any one contract does not exceed $1,000,000.00.
o
Unless otherwise provided in
agency procedures, the cumulative unsettled indirect cost to be allocated to one
or more contracts in a single fiscal year do not exceed 15% of the estimated
total unsettled indirect costs allocable to cost-type contracts for that fiscal
year. The contracting officer may
waive the 15% restriction based upon risk assessment that considers contractor’s
accounting, estimating and purchasing systems; other concerns of the cognizant
contract auditors, and any other pertinent information.
·
Agreement can be reached on a
reasonable estimate of allocable dollars.
Quick Closeout Not a Binding
Precedent
Unlike early closeout
procedures, the determinations of final indirect costs under 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
the contracts covered by the advance agreement. Additionally, indirect cost rates used
in the quick closeout of a contract are not considered a binding precedent when
establishing the final indirect cost rates for other
contracts.
Identifying Quick Closeout
Candidates
The ACO should maintain close
coordination between DCAA and the contractor in determining quick closeout
candidates. The candidates can be
identified in various ways:
·
ACO – The ACO usually is the
primary person who can identify candidates for quick closeout. The ACO should consider the volume of
contracts awaiting settlement of indirect rates and that will be affected by
canceling funds. Quick closeout is
an excellent way to close contracts and preclude millions of dollars from
canceling. Another area that ACOs
may consider is time and material type contracts. These contracts are ideal for quick
closeout because the only redeterminable amount is usually the general and
administrative (G&A) costs associated with the other direct costs (ODCs) in
the contract.
· DCAA – Sometimes the auditor
will contact the ACO and recommend particular contracts for quick closeout. Often times the auditor is approached by
a contractor regarding quick closeout.
When these recommendations are received, the ACO should review the
contracts and any other contracts for that particular fiscal year and determine
if quick closeout procedures are practicable.
·
PCO – A PCO will sometimes
contact an ACO concerning closeout status of a particular contract and will
often inquire about quick closeout possibilities.
·
Contractor – The contractor
will occasionally request quick closeout procedures for a given contract or
group of contracts.
Negotiating Quick Closeout
Rates
Once the quick closeout
candidates are identified, the ACO should coordinate with the contractor and
DCAA before beginning the negotiation of quick closeout
rates.
XYZ
COMPANY
INDIRECT
COST RATE HISTORY
LAST 3 SETTLED YEARS
PROPOSED CERT. RATE
FINAL RATE
FY
00
Overhead
123.22%
122.10%
G&A
10.00%
9.50%
FY
01
Overhead
124.51%
122.50%
G&A
10.50%
10.00%
FY
02
Overhead
125.00%
123.59%
G&A
12.00%
10.00%
Unsettled
Year
FY
03
Overhead
125.79%
G&A
12.57%
ACO Analysis of the
above
The
contractor has proposed using FY 03 certified rates for quick-closeout of
contracts completed in their fiscal year 02 (fiscal year 03 rates have not been
determined by DCAA). In looking at
this history, it is clear that contractor proposed rates were higher than the
final determined rates in the past three years. If the ACO should use the contractor
proposed FY 03 rates for use in quick-closeout, it is likely that the Government
will be overcharged. Since the last
three years proposed rates were higher than the audited rates, it is likely that
FY 03 proposed rates are higher than what the final determined rates will
be. The ACO should consider
decrementing the proposed FY 03 rates using the following
options.
The ACO has two options for
determining a rate decrement
When using the decrement
factor method, the ACO would
Calculate the difference
between the proposed/certified rates and the settled rates for the last three
years, which will be the basis for the decrement factor.
Calculate the average
decrement factor
Apply the average decrement
factor to the unsettled rate to determine the proposed final
rate.
Fiscal Year Proposed Audited Factor Formula
2000
15.23%
15.57%
-.0223
(15.23 - 15.57) / 15.23
2001
22.00%
21.85%
.0068
(22.00 - 21.85) / 22.00
2002
22.30%
19.86%
.1094
(22.30 - 19.86) / 22.30
2003
18.41%
Factor Sum:
.0939
(.0223) + .0068 + .1094
Average: .0939 / 3 = .0313
Decrement Factor: 18.41 x 3.13 =
.57
Proposed Rate: 18.41 - .57 =
17.84
Fiscal year
2003: G&A: 18.41 - .57 =
17.84%
When using the decrement
percentage method, the results are as follows:
Fiscal Year Proposed Audited Factor
Formula
2000
15.23%
15.57%
102.23% (15.57 /
15.23)
2001
22.00%
21.85%
99.32%
(21.85 / 22.00)
2002
22.30%
19.86%
89.06%
(19.86 / 22.30)
2003
18.41%
Factor Sum: 290.61% (102.23 +
99.32 + 89.06)
Average:
290.61 / 3 =
96.87
Decrement Factor: 18.41% X 96.87% = 17.83%
Proposed Rate: 17.83%
Fiscal year
2003: 18.41% x 96.87% =
17.83%
o estimated rates for the final fiscal year of contract performance based on the contractor's actual data adjusted for any historical disallowance found in prior years' certified final incurred cost proposals.
Preparing an Advance
Agreement
Once an agreement is reached
for the final rate, the ACO should prepare an advance agreement. Both the contractor and the ACO should
sign the agreement. A sample
Advance Agreement follows:
QUICK
CLOSEOUT AGREEMENT with XYZ COMPANY
1. This agreement is entered into by and
between the Defense Contract Management Agency [name of office], a Department of
Defense activity and XYZ COMPANY organized and existing under the laws of
[State], having offices in [City].
2. This agreement is entered into under the
authority of Federal Acquisition (FAR) 42.708, “Quick-Closeout Procedure” and
FAR 52.232-7 “Payments under Time-and-Materials and Labor-Hour Contracts” and/or
FAR 52.216.7 “Allowable Cost and Payment.”
3. The purpose of this agreement is to set
forth indirect cost rates for fiscal year 2002 to be assessed against: “other
direct costs” only, which are included in contracts priced on a time and
material basis (unless otherwise specified in the contracts) and/or appropriate
direct costs only, which are included in contracts priced on a cost plus fixed
fee basis (unless otherwise specified in the contracts).
These contracts will be closed prior to the establishment of indirect cost rates for fiscal year 2003. The subsequent audit of and the establishment of final indirect cost rates for this year will have no affect on the final price and closure of these contracts. There will be no adjustments made to other contracts for over or under recoveries of costs allocated to the contracts covered by this agreement. These indirect cost rates are hereby established for applicable to Government contracts as listed in ATTACHMENT A only.
FISCAL YEAR: 2003
OVERHEAD RATE: 124.28%
G&A RATE: 11.57%
Establishment of these rates
shall not be considered a binding precedent when establishing the final indirect
cost rates for other contracts.
4. Upon full execution of this agreement,
XYZ Company will perform audits of the affected contracts and reconcile all
applicable accounts using the indirect cost rates established herein. Once this is accomplished, or within
thirty (30) days after full execution of this agreement, whichever is sooner,
XYZ Company will submit to the Administrative Contracting Officer, a final
voucher for each of the affected contracts.
5. It is understood and agreed that the
affected contracts are physically complete. It is also understood and agreed that
the amount of redeterminable indirect costs associated with any one of the
affected contracts is less than $1,000,000.00 and the total amount of
determinable indirect costs to be allocated to the affected contracts in 2002 is
less than 15% of the total redeterminable indirect in that
year.
6. Notwithstanding the provisions of
paragraph 3, 4 and 5 above, this agreement shall not change any monetary
ceiling, contract obligation or specific allowance or disallowance established
by the terms and conditions of the affected contracts.
IN WITNESS WHEREOF, each of
the parties hereto has caused this Agreement to be executed by its duly
authorized representative.
DEFENSE CONTRACT MANAGEMENT
AGENCY
XYZ COMPANY
[OFFICE
NAME]
DEPARTMENT OF
DEFENSE
BY: _____________________________
BY:
__________________________
TITLE: ___________________________
TITLE:
________________________
DATE: ___________________________
DATE:
_________________________
Important: If Quick Closeout Rates are established
based on the DCMA Deviation, paragraph 5 of the agreement will need to be
revised.
DCMA Class Deviation (Quick
Closeout Rates)
This deviation authorizes
Administrative Contracting Officers (ACOs) to close specific contracts prior to
the establishment of final indirect cost rates regardless of dollar value or the
percent of unsettled indirect costs allocable. This deviation may be used provided the
contractor has submitted a final certified indirect cost rate proposal which is
audited by the Defense Contract Audit Agency (DCAA). This deviation is subject to the
following conditions:
Submission of Final Vouchers
for Quick Closeout
As stated in the Advance
Agreement, the contractor will have 30 days after execution of the advance
agreement to submit a final voucher on the affected contracts. The final voucher should be provided to
DCAA for final audit. The Defense
Contract Audit Manual (DCAAM)
paragraph 10.903 “Quick Closeout Procedure
Reports” indicates that:
“The auditor should issue a contract
audit closing statement when (i) a contractor requests final payment on a
contract meeting the criteria for quick closeout under FAR
42.708 (also see DCAAM paragraph 6-1010) and (ii) the contracting officer
requests DCAA’s advice regarding the final payment and use of quick closeout
procedures. This is an application of agreed-upon procedures; follow the
guidance in DCAAM paragraph 10-1000, as supplemented in the following
paragraphs. When preparing the
closing statement in this situation, the report will clearly indicate what costs
and fiscal periods have been audited and which have not been audited. Suggested wording for the “Scope”
paragraph follows:
“This application of agreed-upon procedures is in response to your
request for assistance in closing out the contract using the administrative
quick closeout procedures under FAR 42.708. The costs of $___________ claimed on the
subject contract represent costs recorded for the contract performance during
FYs ______. Of this amount,
$__________ represents amounts incurred during FYs _______. We have completed the annual audits of
incurred costs for these years. The
remaining claimed cost of $__________ were recorded during FY ____. The audit of [contractor’s name] FY___
incurred costs is in process. We do
not expect that the FY ____ audit results will find a significant exception to
the claimed costs.”
Once the final audit report is
received, contract closeout may proceed as normal.
EARLY
CLOSEOUT FOR IDIQ CONTRACTS
Background
Early closeout for Task Orders
on T&M and LH type IDIQ contracts offers a solution to problems resulting
from delays in audit of indirect cost rates. The utilization of early closeout
not only allows timely closeout of task orders but the
procedure:
The process was initiated as a
method for ACOs to close task orders prior to settlement of indirect cost
rates. The practice is acceptable
because the task orders are not considered to be individual contracts. Quick Closeout procedures may be used in
conjunction with Early Closeout.
Candidates for Early
Closeout
Candidates for early closeout
procedures are those IDIQ contracts that contain FAR
Clause 52.232-7. The clause provides the Government the right to withhold 5%
of payments otherwise due, up to a maximum of $50,000. Withholds are directly linked to the
contractor release which discharges the Government from all liabilities,
obligations and claims. In
addition, withholds are applied against the estimated amount of the entire
instrument - not against individual task orders.
ACOs should consider the
adequacy of contractor accounting and billing systems. Adequate systems indicate that minimal
adjustments would be required for the final voucher. If a contractor has inadequacies in
their accounting and billing system, the nature of the inadequacy should be
considered.
While it is recommended that
early closeout procedures be established at the on-set of the contract, the
procedure may be implemented:
By establishing early closeout procedures at the on-set of the contract, the ACO will be better able to monitor the process in accordance with FAR Clause 52.232-7.
The following is offered as a guide in establishing early closeout:
Detailed early closeout procedures are as follows:
Establishing Early Closeout - After Performance
When it is not practical or
cost effective for the contractor to submit a completion voucher, a bilateral
modification may be executed to administratively close the orders. The modification would not include those
orders held open for withholding purposes.
If the ACO is establishing
Early Closeout after the fact, the following procedures are
recommended:
Maintaining Early Closeout
Records
The key to successful
execution of early closeout is maintaining information on the orders that were
closed by completion vouchers.
Upon physical completion of
the last order and settlement of indirect cost rates, the contractor will
prepare a final voucher showing a recapitulation of all task order issued.
As part of the review of the
final voucher, the ACO should verify billings, payments and in some cases, hours
of all delivery order closed under the early closeout process. Therefore, it is suggested the ACO
maintain information regarding:
If the Contract is Level of Effort (LOE), the ACO should also maintain information regarding:
Early Closeout for Cost Plus
Fixed Fee Type Task Orders Issued Under an IDIQ
The use of early closeout for
cost plus fixed fee type orders issued under an IDIQ contract is considered to
be an acceptable practice because the task orders are not considered as
individual contracts. In addition,
the clauses governing the closeout process do not prohibit the use of this
procedure.
When implementing early
closeout for Cost Plus contracts, the ACO should follow the procedures in Early
Closeout Procedures and Establishing
Early Closeout - After Performance.
FAR Clause 52.216-8, Fixed
Fee, states that ". . . the Contracting Officer may withhold further payment of
fee until a reserve is set aside . . ." and "This reserve shall not exceed 15
percent of the total fixed fee or $100,000, whichever is less."
If the ACO decides to withhold
fee, a sufficient number of orders should be held open to maintain the 15% or
$100,000 withhold. This should
satisfy the requirements of the FAR clause. There
should be no need to exercise the option of withholding fee for a contractor
with a record of timely submission of final cost vouchers and certified final
indirect cost proposals, and that complies with other contract terms and
conditions.
When
an ACO determines that fee withholds are necessary, the ACO should advise the
contractor as to the specific reasons why fee withholds are necessary, and
should describe the curative measures that the contractor can take to eliminate
the need for fee withholds. If the ACO
determines that it is necessary to withhold fee to protect the Government's
interests, written direction should be issued to the contractor by modification
of the contract. The following paragraph provides suggested wording for the
modification:
o
This
modification is issued to incorporate fee withholding in accordance with FAR
Clause 52.216-8 (or -9 or -10, as appropriate). In order to protect the
Government's interest, [contractor] is hereby directed to begin withholding fee
from billings under this contract until a reserve is set aside in the amount of
$______ (amount of reserve shall not exceed 15% of the total fixed fee or
$100,000, whichever is less). Fee shall be released in accordance with FAR
Clause 52.216-8 (or -9 or -10, as appropriate).
RECONCILIATIONS
AND SECTION FOUR
Normally, at the end of the contract the
total of funds obligated should match the total payments made to the contractor,
inclusive of the final payment. Cost underruns, mistakes in payments, unearned
incentives, withheld fees, etc., result in unliquidated obligations at the
completion of the contract. When
remaining funds balances or unliquidated obligations exist that can't be
explained, reconciliation is required to compare hard copy documents with the
MOCAS database.
This section covers how to
ensure a contract gets into the reconciliation “pipeline" at
When all administrative
closeout actions are completed,
Reconciliation
Requests for
o
Requests for disbursement reconciliation are
accompanied by a spreadsheet showing contract obligations to the ACRN level.
This includes the identification of all funding obligated/deobligated by the
basic contract and all subsequent modifications. The audit is required to be performed to
the Contract Line Item Number (CLIN) and Accounting Classification
Record Number (ACRN)
levels.
o
The ACO
signature on the DCMA Form 1797 is the certification that the obligation
information is accurate.
Submission of Contract
Obligation Data
The recommended format for
submitting contract obligation data in support of a request for disbursement
reconciliation is an Excel spreadsheet.
Use of E-Mail for Submitting Requests for
Adjustment and Disbursement Reconciliation
Requests for adjustment and disbursement
reconciliation may be submitted to
o
Add the
appropriate indicator to "MOC_" so that
MOCAS Delay Reason Code
"P"
One of the MOCAS section 2
delay reason codes is "P" -- reconciliation with the paying office and
contractor being accomplished.
Entry of code "P" into MOCAS does not by itself trigger
When
Movement of Contracts to MOCAS Section
4
MOCAS Part A and B contracts, requiring