Defense
Contract Management Agency
Contract Closeout Guidebook
June 2004
Page
Preface
3
Contract Closeout
Time Standards 8
Fixed Priced Contract
Closeout
20
Cost Type Contract
Closeout 32
Time and Material/Labor Hour Contract
Closeout 40
Early Closeout for IDIQ Contracts 51
Reconciliations and Section Four 57
MOCAS Maintenance of BOAs and BASICS 62
Reopened Contracts in MOCAS 63
Other
64
Solutions for Problem Closures 69
Summary
86
Attachments 87
This guidebook is designed to assist with the closeout of
contracts. Few issues within the defense
acquisition community today share the importance and visibility associated with
our efforts to improve the contract closeout process. This issue is critical to our mission.
There is a general belief that a contract is completed when final
delivery is made of the required goods and services and the Government has made
acceptance and final payment to the contract.
However, in the administrative contracting arena, a contract is not
complete and ready for closeout until the contractor complies with all the
terms of the contract. This includes
those administrative actions that are contractually required; i.e. property,
security, patents and royalties.
Closeout is completed when all administrative actions have been
completed, all disputes settled, and final payment has been made.
The closeout process can be simple or complex depending on the
contract type. Contract closeout requires
coordination between the contracting office, finance office, program office,
auditing office and the contractor.
The objective of this guidebook is to provide you with practical
techniques and practices that DCMA CMOs are using to close contracts. The contents are discretionary and are
intended only as a guide and may be supplemented locally. All DCMA personnel are encouraged to submit
suggestions to the HQ Performance Advocate for publication and sharing
throughout DCMA.
ACO Administrative
Contracting Officer
ACRN Accounting
Classification Reference Number
BOA Basic
Ordering Agreement
CA Contract
Administrator
CACO Corporate
Administrative Contracting Officer
CACS Contract
Audit Closing Statement
CAR Contract
Administration Report
CAS Contract
Administration Services
CLIN Contract
Line Item Number
CMO Contract
Management Office
COA Certificate
of Acceptance
COTR Contracting
Office Technical Representative
DACO Divisional
Administrative Contracting Officer
DCAA Defense
Contract Audit Agency
DCAAM Defense
Contract Audit Agency Manual
DCMA Defense
Contract Management Agency
DFARS Defense
Federal Acquisition Regulation Supplement
DLAM Defense
Logistics Agency Manual
DODAAD Department of
Defense Activity Address Directory
DIS Defense
Industrial Security
FAR Federal
Acquisition Regulation
FAD Final
Acceptance Date
FDD Final
Delivery Date
FNLA Final Notice
of Last Action
FOIA Freedom of
Information Act
FST Field
Support Team
FY Fiscal Year
GFE Government Furnished Equipment
GFM Government
Furnished Material
GFP Government
Furnished Property
IDIQ Indefinite
Delivery Indefinite Quantity
IS Industrial
Specialist
LISSR Line Item
Schedule Summary Record
MOCAS Mechanization
of Contract Administration Services
MOD Modification
NLA Notice of
Last Action
NULO Negative
Unliquidated Obligation
ODO Other
Disbursing Office
OPR Office of
Primary Responsibility
OT Other
Transactions
PA Property
Administrator
PCO Procuring
Contracting Officer
PSCN Production
Schedule Completion Notice
PIIN Procurement
Instrument Identification Number
PLCO Plant
Clearance Officer
POP Period of
Performance
QA Quality
Assurance
QAR Quality
Assurance Representative
R&D Research
and Development
SBA Small
Business Administration
SDW Shared Data
Warehouse
SPIIN Supplemental
Procurement Instrument Identification Number
ST Special
Tooling
STE Special Test
Equipment
TCO Terminating
Contracting Officer
T&M Time and
Material
ULO Unliquidated
Obligation
VECP Value
Engineering Change Proposal
VIQ Variation in
Quantity
WIP Work in
Process
FAR 4.804, Closeout of Contract Files
FAR 31.201-2, Determining Allowability
FAR 42.708, Quick Closeout Procedures
FAR 42.705, Final Indirect Cost Rates
FAR 52.211-16, Variation in Quantity
FAR 52.216-2, Economic Price Adjustment
FAR 52.216-7, Allowable Cost and
Payment
FAR 52.216-16, Incentive Price
Revision
FAR 52.232-7, Payments under Time and
Material/Labor Hour Contracts
DFARS 204.804, Closeout of Contract
Files
Trusted Agents Procedural
Guide
DLAM 8000.3, MOCAS Manual, Part
2, Chapter 4, Prime Contract Closeout Procedures
DCMA Contract
Closeout Center Web Page
DCMA
Integrity of MOCAS Delivery Performance Data Document
Acquisition
Community Connection: Contract Closeout
Air Force Material Command (AFMC) Contract
Closeout Guide
Indirect-Cost
Management Guide (Navigating the
Information
for Contractors by DCAA -
January 2004
CONTRACT CLOSEOUT TIME
STANDARDS
FAR 4.804 establishes specific time periods for closing
contracts. Timely closeout deobligates
and returns funds for possible use elsewhere.
It also minimizes the costs associated with administration and closeout
processes. This benefits all parties and
allows all affected activities to concentrate on current and future
requirements.
Based on Physical Completion
The time period for closing a contract is based upon both the type
of contract and date of physical completion.
A contract is considered to be physically complete when:
o
The Government has given the contractor a notice of complete
contract termination.
o
The contract period has expired.
Time
Standards (in accordance with FAR 4.804)
Files for contracts using simplified acquisition procedures should
be considered closed when the contracting officer receives evidence of receipt
of property and final payment, unless otherwise specified by agency
regulations.
Files for firm-fixed-price contracts, other than those using
simplified acquisition procedures, should be closed within 6 months after the
date on which the contracting officer receives evidence of physical completion.
Files for contracts requiring settlement of indirect cost rates
should be closed within 36 months of the month in which the contracting officer
receives evidence of physical completion. (Cost-Reimbursement Contracts
including Time and Material (T&M) and Labor Hour (LH) contracts)
Files for all other contracts should be closed within 20 months of
the date in which the contracting officer receives evidence of physical
completion. (All Other Contract Types)
Closeout timeframe
prior to a contract becoming overage:
Contract Type*
Fixed Price Unilateral Contracts 3
Months J
Under
$25,000
All other Fixed Price Contracts 6 Months J
Contracts that require the
Settlement of overhead rates 36 Months L, R, S, T, U, V, Y and Z
All other contracts 20 Months A, K, and Basics/BOAs
*TYPE OF CONTRACT CODES
A FIXED PRICE REDETERMINATION
J FIRM FIXED PRICE
K FIXED PRICE W/ECONOMIC PRICE ADJUSTMENT
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
An Overage List can be obtained from the Reveal (UYCM 22) or by
reviewing section 2 of the Contract Administration Report (CAR) - (UYCM 16).
PCO Notification
DFARS 204.804-2(2) states that if
the Administrative Contracting Officer (ACO) cannot close a contract within the
specified time period, the ACO shall notify the Procuring Contracting Officer
(PCO). To accomplish this requirement,
the current DCMA policy requires the input of a reason for the delay (R2 Delay
Reason Code) and a new target date for closeout into MOCAS as soon as you know
the contract will become overage. If the
contract still is not closed out by the new target date, the ACO shall again
notify the PCO by updating the Delay Reason Code and a new target date for
closure. To facilitate timely
notification to the PCO, the ACO shall input an Estimated Completion Date (ECD)
and a Delay Reason code in the R2 line of MOCAS. This will transmit an unclosed contract
status notification (PKX) to the PCO (which is the DFARS allowed electronic
equivalent of the interim DD 1594).
R2 CODING FOR
OVERAGE CONTRACTS
The ACO is responsible for coding overage Part A,
section 2 contracts with an Estimated Completion Date (ECD) and R2 Reason for
Delay code. The
R2 codes identify factors that contribute to the delay in closing the contract
within the mandated FAR timeframes. DCMA policy requires the
input of a reason for the delay and new target date for closeout as soon as you
know that the contract will become overage.
To provide a better explanation as to why the contract is overage, you
may add information in the ACO notebook.
The ACO must input an “Office of Primary Responsibility” (OPR) code in
the R9 remark line
when certain R2 Delay overage reason codes (Codes F, H, M, P, V, or W) are
used. The OPR codes (70 Series) are:
71 –
Services
72 –
Contractor
73 –
DCMA
74 –
DCAA
75 –
The
ACO is not
responsible for inputting codes for Part B, section 2 contracts.
List of reason codes
|
R2 Codes |
MOCAS/MILSCAP Description |
Clarifications |
OPR |
|
A |
Contractor has not submitted final
invoice/voucher |
Contractor has not submitted a final
bill for payment. For cost contracts,
final indirect rates have been established. |
Contractor (72) |
|
B |
Final acceptance not received |
Awaiting destination acceptance from
the Buying or Receiving Activity. |
Services
(71) |
|
C |
Contractor has not submitted
patent/royalty report |
For Patents—DD Form 882 or equivalent
has not been received from the contractor per applicable FAR clauses. |
Contractor (72) |
|
D |
Patent/royalty clearance required |
Contractor has submitted the final DD
Form 882, or equivalent. The Form has
been forwarded to the Buying Activity for approval. |
Services
(71) |
|
E |
Contractor has not submitted proposal
for final price redetermination |
Use this code until the contracting
officer receives an adequate final price redetermination proposal. |
Contractor (72) |
|
F |
Supplemental agreement covering final
price redetermination required |
Use this code while the final price
redetermination proposal is being reviewed or negotiated. An OPR
code is required to signify which party’s actions are currently open. |
Services
(71) |
|
G |
Settlement of subcontracts pending |
Pending settlement of subcontract(s);
may impact final voucher submission. |
Contractor (72) |
|
H |
Final audit in process |
DCAA performing final Contract Audit
Closing Statement on final voucher or DCMA
using Cumulative Allowable Cost Worksheet (CACWS) and/or risk based approach
for auditing final voucher. |
DCMA (73) |
|
J |
Disallowed cost pending |
ACO in process of resolving DCAA Form
1 issue or similar disallowed cost issue. |
DCMA
(73) |
|
K |
Final audit of Gov property pending |
DO NOT USE: |
N/A |
|
L |
Independent research &
development rates pending |
DO NOT USE: |
N/A |
|
M |
Negotiation of overhead rates pending |
Identification of OPR combined with
“M” code will provide visibility of the current O/H action (e.g. awaiting KTR
proposal, audit or negotiation. |
Contractor (72) |
|
N |
Additional funds requested but not
yet received |
The PCO has been requested to provide
additional funds for various reasons (e.g. cost overruns). When contract is awaiting replacement funds for canceled
appropriations, use Reason Code "Y" when final invoice/voucher has
been forwarded to |
Services
(71) |
|
P |
Reconciliation with paying office and
contractor being accomplished |
Provide visibility as to the basis
for the reconciliation delay (e.g. disbursement audit in process ( |
Contractor (72) |
|
Q |
Armed Services Board of Contract
Appeals case |
Contract should be moved to Section 3
once the ASBCA docket number is assigned.
The docket number should be entered in the R3 Remarks. |
DCMA
(73) |
|
R |
Public Law 85-804 case |
50 USC [Chapter 29] 1431 - P.L.
85-804 applies to Extraordinary Contractual Actions. |
DCMA
(73) |
|
S |
Litigation/investigation pending |
Either fraud investigation activity
is in process, or contractual issue is not resolved or claim has been
received by contracting officer.
Contract should be moved to Section 3 (BCA/CIL/CLL) once contract is
in Federal Courts and/or DOJ opens a case. |
DCMA
(73) |
|
T |
Termination in process |
Mainly used for Termination for
Default. DCMA provides assistance to PCO on contract history (e.g.
delivery, financing payments, excess funds, reprocurement costs, etc.)
Termination for Convenience contracts should be moved to Section 3. |
DCMA
(73) |
|
U |
Warranty clause action pending |
Open warranty action(s) currently being processed IAW FAR 46.709
and -10. |
DCMA
(73) |
|
V |
Disposition of Gov Property pending |
Identification of OPR combined
with "V" will provide visibility into delay (e.g. awaiting
PCO disposition instructions (Services), contractor submittal of inventory
schedules (KTR), or actions by Property Administrator (PA) and/or Plant
Clearance Officer (DCMA). PA inputs R9
55 once all property actions are closed. |
Services (71) |
|
W |
Contract modification pending |
Contract modification awaiting
contractor signature, PCO issuance of modification or ACO modification
actions. |
Services
(71) |
|
X |
Contract release and assignment
pending |
Awaiting contractor’s submission of
the release and assignment. |
Contractor
(72) |
|
Y |
Awaiting notice of final payment |
Proper final invoice/voucher
forwarded to |
|
|
Z |
Disposition of classified material
pending |
Awaiting disposition instructions on
classified materials from the Buying Activity. The ACO is responsible for notifying DIS
that the contract is complete and classified material should be
dispositioned. |
Services
(71) |
|
1 |
Canceled Funds |
DO NOT USE: |
N/A |
|
2 |
Appropriations in Red |
DO NOT USE |
N/A |
|
3 |
Prevalidation Action Pending |
Voucher/invoice at |
|
|
6 |
Fee Withheld |
Fee withheld awaiting resolution of
issue before final payment can be made. |
DCMA
(73) |
|
7 |
Awaiting Removal from Excess Funds |
The ACO has deobligation authority.
(Reference Policy Change Notice 00-212) |
DCMA
(73) |
This section will focus on the basics of closing a contract. In closeout, the contract administration
office files feeds into the closeout process at the buying office. “All other contract files shall be closed as
soon as practicable after the contracting officer receives a contract
completion statement from the contract administration office.” (Ref. FAR
4.804-2(b)) In general, closeout of a
contract should not be a very difficult task.
The easiest contracts to close are Firm Fixed Price contracts without
special provisions, short term and with simple funding (as opposed to complex
funding with multiple ACRNs to CLINs).
The most difficult are Cost-Type contracts with special provisions, long
term (years of effort), complex funding (CLINs have multiple ACRNs for various
funding sources).
In addition, the biggest factor that drives the level of
difficulty in closeout of a contract is how well the contract was managed from
the start of the period of performance though physical completion to the point
of closeout. Contracts that require the
most effort to close are the ones that have had the least amount of attention
during the life of the contract. Waiting
this long can allow difficulties to develop, for example, if it is a Firm Fixed
Price contract you may have difficulty finding evidence of acceptance
(Destination Acceptance), as the amount time that passes increases, so can the
difficulty. Contracts that are other
than Firm Fixed Priced have the potential for even more difficulties to develop
as time passes. These difficulties range
from tracking down such things as Patent Reports that were required years ago
during the life of the contract to balancing the Line Item Schedule Summary
Record (LISSR) or reconciling the funds in the contract file with those in the
payment office or customer office. The
basic assumption for this section, Basic Contract Closeout, is that if during
the contract receipt and review process any special provisions were identified
and the contract was managed through it’s active life, the contract should be
able to be closed without difficultly.
The contract closeout process should start with the contact
receipt and review process and proceed throughout the life of the
contract. Special provisions of the
contract should be identified and annotated in any way that will flag the need
for some type of action as required by the special provisions. This is especially true for the MOCAS remarks
sections (i.e. R9 or ACO remarks) both for data integrity and management of the
contract. With all contract requirements
having been met and the contract physical complete, it should automatically
move to section 2 in MOCAS.
What You Can Do To
Simplify Closeout
Check for Payment
Instructions
What Contractors Should Do To
Simplify Closeout
Physical Completion
If the contract is physically complete and not in section 2, the
first step would be to verify that the contract is physically complete and if
so, determine why it did not move to section 2.
After identifying the error(s) preventing the contract from moving to
section 2, correct the error(s) and move the contract to section 2 and proceed
with closeout.
Once
the contract moves to section 2, MOCAS will generate an interim PK9 (which is
required by DFARS 204.804-2 (1)(i), “Provide
the contracting office an interim contract completion statement when the
contract is physically completed and accepted. The interim PK9 will automatically
be sent to the buying activity providing notice of physical completion and
represents a start date for contract closeout.
The contract should be ready for closeout and closeout of the contract
should happen within the FAR required time periods (see CONTRACT CLOSEOUT TIME STANDARDS). Caution, even if a contract is physically
complete, it should not be closed if the contract is in litigation or under
appeal or in the case of a termination, all termination actions have not been
completed (Ref. FAR 4.804-1(c)). In the
case of a contract being in litigation or under appeal it should be in MOCAS
section 3. When moving a contract to
section 3, enter the appropriate dormancy reason code. Refer to the MOCAS Manual, DLAM
8000.3, section 2.1.9 “MOVEMENT OF CAR PART A CONTRACTS INTO SECTION 3” for
both the movement of the contract and review of dormancy reason codes. Once contracts have been entered into section
3, they should be reviewed periodically to see if the Reason for Dormancy Code
originally entered accurately reflects the current status of the contract. If not, that code should be updated. For
example, a contract was originally entered into section 3 with the Reason Code
BCA (Armed Services Board of Contract Appeals (ASBCA) Case). Since then, the appeal has been disposed of
but the contractor has filed for protection under the Bankruptcy Act.
Accordingly, the Reason Code should be updated to BKRPT (Bankruptcy). In addition, if the Estimated
Completion/Closing date is anticipated to exceed the allowed Overage date then
an ECD must be entered. This transaction
will cause a PKX notification of delay in closing be transmitted to the PCO as
required by MILSCAP
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 Out Contract Files. At the outset of this process, the contract
management office must review the contract funds status and notify the
contracting office of any excess funds the contract administration office might
deobligate. The next part of the process
is basically a checklist of actions that must be accomplished as they are
applicable to the contract and these are:
Once all applicable actions are verified as completed, the
contracting officer administering the contract signs the NLA and processes the
Final Payment NLA in MOCAS. MOCAS will
send a contract completion statement (PK9) electronically to the contracting
office and one should be placed in the appropriate contract management office
file.
If for some reason the contract is not in MOCAS, the ACO has to initiate
a contract completion statement (DD Form 1594), containing the contract administration
office name and address; contracting office name and address; contract number;
last modification number; last call or order number; contractor name and
address; dollar amount of excess funds, if any; voucher number and date, if
final payment has been made; invoice number and date, if the final approved
invoice has been forwarded to a disbursing office of another agency or activity
and the status of the payment is unknown; a statement that all required
contract administration actions have been fully and satisfactorily
accomplished; name and signature of the contracting officer; and date. Since the contract was not in MOCAS, the
original contract completion statement must be sent to the contracting office
and a copy placed in the appropriate contract administration file.
The contract is closed
The contract management office file is now closed. All of the efforts made during the
performance of the contract to make sure the contract requirements are met,
support the closeout effort. In other words, if the contract was managed during
its active phase and problems taken care of; the easier the contract is to
close. However, if problems were not resolved upfront, they will haunt you in
the closeout phase. If the terms and
conditions of the contract were not met, then areas that are lacking will make
difficulties in the closeout process. The
aim of this guidebook is to help in
dealing with not only these difficulties but also other problems that may be
encountered during the closeout process.
Closed-Contract Database (CCDB)
The Closed-Contract Database (CCDB) system acts as a repository of
MOCAS closed-contract data that may be viewed on-line. The CCDB will allow all MOCAS data related to
a contract to be saved onto an optical storage device and retained for ten
years. The data will be viewable and retrievable. Authorized users may use it as the source of
data required to reopen a closed contract in MOCAS. When contracts are closed in MOCAS (section
5), all contract data is copied to an optical storage device. CCDB was implemented in December 2000 –
contracts closed after this date are stored in the CCDB. DLAM 8000.3 MOCAS Users Manual For Contract
Administration, Chapter 11 contains instructions for using the CCDB.
FIXED PRICED CONTRACT
CLOSEOUT
Difficulties encountered in closing out fixed price contracts are
more than likely associated with documentation of deliverables or with
unliquidated obligation balances.
Contracts will remain in CAR section 1 until both of the following
conditions have been met:
The final shipment document should be the alert to the Industrial
Specialists or Procurement Technician to input production history in MOCAS
which will generate a “Production Complete” remark on the R8 line of the MOCAS
data record. The presence, or lack
thereof, the production complete remark has no bearing on whether a contract
moves automatically to section 2.
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 Contracts Moving to CAR Section 2
If problems are encountered with contracts not automatically
moving to section 2, the following checks are suggested:
Awaiting Final Acceptance
Contracts with destination acceptance requirements may hold up
movement to section 2. Obtaining this
acceptance is a
Data
items on a DD Form 1423, Contract Data Requirements List (CDRL) that do not
require a DD Form 250 and are not separately priced, 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.
A thorough review of the contract file ensures
all modifications are accounted for and determines proof of missing acceptance
documents. For missing documents check
with the contractor,
The presence of the ACO Notebook
In-the-Clear remarks is critical.
They are the sole indicator to
After Movement to CAR Section 2
Movement of a contract into section 2 will prompt the ACO to
perform several actions.
Closeout Checklist
The completion of the DD 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 close out actions. The DD 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. All closeout actions are
listed on one sheet and the ACO will not have to dig through a folder to find
out when or what happened with a closeout action.
All
Deliveries Accepted
The ACO must
ensure that all separately deliverable contract items such as hardware, data,
software, spares, and support equipment have been delivered and accepted by the
government before the contract can be closed out.
Identify and Remove Excess Funds
FAR 4.804-5 explains 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.
When excess or negative unliquidated funds exist, a funds review
should be performed at the ACRN level to determine the cause.
Final shipment and acceptance of the
product/service on firm fixed price contracts entitles the contractor to
receive final payment. The same is not
true for cost and fixed price incentive (FPI) contracts. These contract types require settlement of
final overhead rates and of the incentive aspects of the contracts. In some cases, funds that will no longer be
required have been obligated on the contract; e.g., underruns, quantity
variance, or situations such as maintenance and repair contracts where the quantities
repaired were less than the originally funded estimate. 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 completion of the settlement process; however, the
contracting officer should accomplish an initial funds review within 30 days of
contract completion. Issuing a contract
modification deobligating excess funds as early as possible is in the
Procurement Office's best interest, but it is equally important to avoid
deobligating funds that may be needed for final payment.
On occasion, problems arise in closing out contracts with a .01
ULO remaining on the ACRNS. The .01 ULO
was used to identify cancelled funds process prior to the alpha cancelled funds
indicator process. Send a 1797 to
Occasionally, urgent or unusual
circumstances under a DoD contract necessitate authorizing a contractor to
start work on a contract action/change without the price being definitively
negotiated. The contract modification
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 definitized.
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
Has all Government Furnished
Property (GFP) been dispositioned? 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,
government review of the report, and specific instructions to the contractor as
to whether the property is to be shipped, left in place, or scrapped.
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 DPADs 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
Does the contract contain
classified material (DD 254)? All classified documents involved in the
contract must be dispositioned in accordance with government security
regulations and accounted for by the contractor before the contract may be
closed. 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.
Have
all final reports been obtained and forwarded to the buying activity? If
the contract contains a patent rights clause, FAR 52.227-11, 12, 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 -- Retention by the Contractor (Short
Form), 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
three (3) months after completion of the contracted work, listing all subject
inventions or stating that there were no such inventions. Finally, if the contract contains FAR
52.227-12, Patent Rights -- Retention by the Contractor (Long Form), whether
DFARS 252.227-7039, Patents--Reporting of Subject Inventions, is in the
contract or not, there would be a final report required.
Negative DD 882s
If the
final patent report is negative and there is nothing to indicate otherwise, the
ACO may include language in their letter to the PCO requesting patent clearance
that if DCMA does not receive a response to its request for patent clearance
within 60 days, patent clearance will be deemed to have been issued.
Use of
the 60-day response deadline should be limited to instances where the final
patent report reflects an absence of patentable invention. If the ACO forwards the DD 882 to the PCO
together with a cover letter stating that “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 final payment, 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
a subject invention, the ACO will not use the 60-day response in their
forwarding letter to the PCO. In
instances where there is reason to suspect that subject inventions should be
reported, it is appropriate to wait for the performance of a thorough and
complete review by the PCO/patent counsel.
It would not be appropriate to use the 60-day response in
instances where patentable subject inventions are reported on the contract or
if cognizant personnel have reason to believe that subject inventions should be
considered for a patent.
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 VECPs requiring payment or
disposition exist before closing contract.
All open actions and liabilities must be
resolved prior to close-out. 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, i.e., failed
to deliver contract items on schedule. Under termination for default, the
contractor is liable for any subsequent acquisition costs of the terminated
items. The government may also terminate
a contract for convenience. Termination
for convenience can occur as the result of Congress withholding funding of the
project, or the program office or user determining 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 contract allows, under certain
circumstances, the contractor 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 may be closed out.
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”.
The ACO and PCO must work together to ensure
that any and all of the above situations have been settled before either can
complete the contract close-out process.
Excess vs. Remaining Funds
After contracts are physically
complete and ready to be closed, except for funds, there may be instances where
money is still on the contract. In these
instances a review must be accomplished to ascertain whether 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” to contract requirements,
or Q finaled because they are “remaining” funds.
“Excess funds” are defined as “funds relating to a specific line
item or deliverable that was not performed on a contract.” If the funds are “Excess Funds”, a contract modification will be issued to
deobligate these excess funds. Some
examples of contracts that have “excess funds” follow:
“Remaining funds” are those funds left on contract due to price
variance, rounding or cost underrun funding and where all contract performance
as required by the contract has been completed.
If the funds are “Remaining Funds”, 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:
If there is not a defined
deliverable, the ACO must determine whether contract performance as required by
the contract is acceptable/complete. If
it is, the funds are considered “remaining” and the “Q Final” process should be
utilized.
Movement to CAR Section 5
Once all required closeout
actions have been completed, the ACO should take the following actions to
effect the movement of the contract out of MOCAS and to provide closeout
notification to the buying activity.
Verify that a Final Pay NLA has
been issued. For Part A contracts, MOCAS
will generate the NLA when final payment has been processed. (Reminder:
If MOCAS does not contain final payment information on the CCN screen
(final voucher number and final payment date), the ACO should create a G NLA,
which will populate those fields and allow an F NLA to process.
FIXED PRICE CLOSEOUT CHECKLIST
|
Action |
Completed
(Y/N) |
Date |
|
Final
Acceptance Received? |
|
|
|
Final
Acceptance Entered in MOCAS? |
|
|
|
LISSR Data
Balanced (Line Items)? |
|
|
|
PSCN Data
Entered ("Prod Complete" Remark on R8)? |
|
|
|
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 in the rare
instance the ACO wants to prevent automatic closeout of DLA ODOs, a R9 remark
56 should be entered. This remark (56) in combination with the R9 70 will cause
this contract to be bypassed by the automatic closeout process. The ACO will
have to enter 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:
Prepare a DD 1593 or other
closeout documentation to show that all actions are complete, create a G NLA
and process the F NLA. Complete DD1594, Contract Completion Statement, and send to the
PCO with a copy retained in the contract file.
Cost type contracts are usually
the most complex contracts to administer and to close. They rely upon actual costs that may not be
agreed to for years after physical completion.
There are several initiatives in place that would preclude delays in
setting indirect cost rates, including Real Time Rates. 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), the Industrial Specialist or Procurement
Technician will input the production history and balance the Line Item Schedule
and Shipment Record (LISSR). Upon
evidence of physical completion, the ACO should request the Trusted Agent (TA)
to move the contract to section 2.
After final acceptance, if the
contract does not automatically move to section 2, then the ACO shall request
the TA to move it 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 a DD Form 1423, Contract Data Requirements List
(CDRL) that do not require a DD Form 250 and are not separately priced, 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.
Closeout Checklist
The completion of the DD 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 DD 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. All closeout actions are listed on one sheet
and the ACO will not have to dig through a folder to find out when or what
happened with a closeout action.
These actions are explained in After Movement to CAR Section 2 in the 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. The ACO should work jointly with DCAA to
prioritize the list of overhead rate audits that are or will be needed to
support closing all physically complete contracts.
DCAA is responsible for reviewing the yearly
submissions of the contractor's final overhead cost proposals. 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 DCAA is also
responsible for providing a formal report of its findings to the ACO.
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 (or longer, if 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. This contracting officer
determination must be issued as a final decision in accordance with FAR 33.211.
DCAA Audit of Final Voucher
The ACO in coordination with
DCAA may determine that an audit is not required on a final voucher. The ACO can utilize the Cumulative Allowable
Cost Worksheet included in the indirect cost audit report. This worksheet contains cumulative allowable
costs by contract and also indicates if the contract is ready to close. If the ACO cannot determine the cumulative
allowable costs or if a labor hour review is required, the ACO should ensure
that a Contract Audit Closing Statement (CACS) is received.
Credit
Final Vouchers
Sometimes ACOs receive contractor checks along with final vouchers
on cost-type contracts reflecting a credit amount. By the time all Government parties review and
process these vouchers, these checks can be quite old by the time they reach
Excess vs. Remaining Funds
After contracts are physically
complete and ready to be closed, except for funds, there may be instances where
money is still on the contract. In these
instances a review must be accomplished to ascertain whether 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” to contract
requirements, or Q finaled because they are “remaining” funds.
“Excess funds” are defined as “funds relating to a specific line
item or deliverable that was not performed on a contract.” If the funds are “Excess Funds”, a contract modification will be issued to
deobligate these excess funds. Some
examples of contracts that have “excess funds” follow:
1. Deliverable CLIN: Contract required 10 widgets. 8 widgets have been delivered and 2 widgets
will not be delivered. Because the
contract required 10 widgets and the contractor is not going to deliver
(perform as required by contract), the funds associated with the 2 widgets are
“excess funds” and must be deobligated via modification.
2. Non-Deliverable CLIN: Contract called for 5 trips. 3 trips were accomplished and 2 were
not. Because 2 trips were not performed
as required by the contract, the monies associated with these 2 trips are considered
“excess funds” and must be deobligated via a modification.
“Remaining funds” are those funds left on contract due to price
variance, rounding or cost underrun funding and where all contract performance
as required by the contract has been completed.
If the funds are “Remaining Funds”, the ACO Notebook will be annotated with
a remark that the funds are remaining funds and the amount of funds. Some examples of contracts that have
“remaining funds” follow:
1. Deliverable CLIN: Contract required 10 widgets. 10 widgets were delivered. However, they contractor billed less than the
price contained in the contract and does not plan to bill at the contract
price. The money leftover is “remaining
funds” and is systematically removed via the “Q Final” process in MOCAS. The ACO must annotate the ACO Notebook in
MOCAS with the amount of the remaining funds and process the F NLA in
MOCAS. This allows the mechanical
removal of funds in MOCAS, alerts the PCO not to reopen the contract, and
generates the PK9 transaction (notifies PCO that contract is administratively
closed) and identifies “remaining funds.”
PCO is responsible for notifying the funding station so it may close
contract.
2. Non-Deliverable CLIN: Contract is for travel. The number of trips is not specified and
performance is complete and accepted.
The money leftover is “remaining funds” and ACO should follow the “Q
final” process to close the contract.
If there is not a defined
deliverable, the ACO must determine whether contract performance as required by
the contract is acceptable/complete. If
it is, the funds are considered “remaining” and the “Q Final” process should be
utilized.
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 and be certain to sign
in the appropriate approval block on the SF 1034, Public Voucher (see
attachment 1).
DFAS policy
only requires the ACO signature and date on the final/completion voucher as
approval to consider it sufficient to pay and initiate the final payment
closeout process. No other final payment supporting documentation or
cover letter is required by DFAS.
(DCMA Information Memorandum
No. 03-017, Subject: ACO Approval of Final / Completion Vouchers and Required
Documentation)
Closeout of Cost Contracts
Upon processing and payment of
the final voucher by
Contract Completion Statement
The ACO is required to report a
final payment and completion of all administrative actions to the buying
activity on a DD 1594. When contracts
close in MOCAS, the system will generate a MILSCAP Format PK9 Notice, which is
used in lieu of the DD 1594 per DFARS.
If a contract is closed with a
ULO balance, MOCAS will automatically generate a Q Final transaction to reduce
the ULO to zero only in MOCAS. 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 a payment being coded as final (type payment code 1 based on
disbursement history) and property (if PA code is present) being completed (R9
55 present).
DCMA
Virginia and DCAA Mid-Atlantic Region developed a practice for closing Time & Material (T&M)
type contracts. Best practices were identified for the following areas:
See TM Initiative for details.
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 or allocable to the contracts covered by this
agreement. These indirect cost rates are hereby established for application 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 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 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 the Fact
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 would be a good idea for the
ACO to 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 the
Fact.