DCMA mandatory requirements that are not appropriate for CMO Commander/Center Director deviation approval authority are preceded by the Letters "ND" - See Deviations - FAR, DFARS, DoD Directive, Other Regulatory/Government Documents and DCMA Instructions

1.  Receive Certified Proposal.  The ACO shall ensure the contractor submits the required certified final indirect cost rate proposals (FAR 52.216-7) within six months following the expiration of each of its fiscal years.

    1.1.  The ACO should only grant contractors due date extensions if the contractor submits a written request for an extension based on exceptional circumstances (FAR 42.705-1(b)).
    1.2.  (ND)  If the ACO grants an extension, the ACO shall prepare a written memorandum for record (MFR) to document the exceptional circumstances and rationale for approving the extension.  The ACO shall provide DCAA a copy of the MFR.
    1.3.  (ND)  If DCAA notifies the ACO that the contractor's certified final indirect cost rate proposal is late or inadequate, the ACO shall work with DCAA to obtain an adequate proposal from the contractor.
    1.4.  Whenever there are late or inadequate proposals, the ACO should take aggressive actions to obtain adequate proposals including:

        1.4.1.  Establishing unilateral rates for late or uncertain proposals (FAR 42.703-2(c)(2), Certificate of Indirect Costs).
        1.4.2.  Decrementing provisional billing rates for unsupported costs (FAR 31.201-2(d), Determining Allowability).
        1.4.3.  Establishing contract withholds for significant accounting system or related internal control deficiencies (DFARS 242-7502(a)(4), Contractor Accounting Systems and Related Controls).

     1.5.  (ND)  ACOs shall obtain the CMO Contracts Director's written approval if they do not intend to accept DCAA's unilateral rate recommendations or intend to grant a contractor an extension to the proposal due date.  LATEST CHANGE   Corporate Administrative Contracting Officers (CACO) and Divisional Contracting Administrative Officers (DACO) shall obtain written approval from the Director of Corporate/Divisional Administrative Contracting Officer Group if they do not intend to accept DCAA's unilateral rate recommendations or intend to grant a contractor an extension to the proposal due date.  If DCAA disagrees with the ACOs decision regarding either action, the action will be subject to the resolution of DCAA/DCMA disagreements process in paragraph 5 of the Contract Management Boards of Review Instruction. 

2.  Receive DCAA Audit.  The ACO shall request and receive a DCAA audit of the contractor's certified final indirect cost rate proposal.

3.  Determine if ACO or DCAA determines the rates. The ACO shall follow the procedures at FAR 42.705-1 and 42.705-2 to determine whether the rates are subject to determination by the ACO or DCAA.

4. ACO Negotiates Rates.

    4.1.  Develop Pre-negotiation Objective .    

        4.1.1.  The ACO shall develop the pre-negotiation objectives (PNO) (FAR 15.406-1).   The PNO represents the ACO's initial negotiation position.  The scope and depth of the analysis supporting the PNO should be directly related to the dollar value, importance, and complexity of the contractor's overall rates and individual elements of costs.
        4.1.2.  (ND)  The ACO shall fully consider all DCAA questioned, unsupported, and unresolved costs and obtain any clarifications from DCAA needed to understand the audit recommendation and findings.
        4.1.3.  The ACO shall not resolve any questioned costs until obtaining adequate documentation on the cost and DCAA's opinion on the allowability of the costs (FAR 42.705-1 (b)(4)(i) and (ii)).
        4.1.4.  The ACO should negotiate and finalize all local issues under their cognizance while waiting for corporate or other flow-down costs.
        4.1.5.  (ND)   The ACO shall document  in the PNO:

            4.1.5.1.  An affirmative statement that the ACO agreed or disagreed with each finding and recommendation made by DCAA or DCMA specialists (e.g., price/cost analyst, engineer, counsel) and whether or not the assessment of any penalties and interest is appropriate.  (See paragraph 6 below for more information about penalties and interest.)
            4.1.5.2.  Sound rationale for resolving each finding and recommendation made by DCAA or DCMA technical specialists and whether or not penalties and interest should be assessed.  The rationale must demonstrate that the ACO has considered all appropriate FAR, DFARS, and DCMA Instructions related to the issue raised or questioned by DCAA, e.g., cost principles, cost accounting standards.

        4.1.6.  The ACO shall invite contracting offices having significant dollar interest to participate in the in preliminary discussions of critical issues (FAR 42.705-1(b)(3)).  Individuals or offices that have provided a significant input to the Government position should also be invited to participate.
 4.1.7.  (ND)  LATEST CHANGE  The ACO shall obtain approval of the PNO from the CMO Contracts Director, and any required  Contract Management Boards of Review approvals, before entering into negotiations.  The CACO or DACO shall obtain approval of the PNO from the  Director of Corporate/Divisional Administrative Contracting Officer Group, and any required  Contract Management Boards of Review approvals, before entering into negotiations.  The CMO Contracts Director may delegate authority to approve the PNO to a level no lower than the contract team supervisor/leader.
 4.1.8.  (ND)  LATEST CHANGE The CMO Contracts Director shall verify that the ACO followed the procedures for resolving reportable audit before approving the PNO.  The Director of Corporate/Divisional Administrative Contracting Officer Group shall verify that the CACO or DACO followed the procedures for resolving reportable audit before approving the PNO.

    4.2. Negotiate Rates.

        4.2.1.  Final overhead negotiations will be completed within a 27 or 36 month cycle for major and non-major contractors, respectively.  DCAA's definition of a major contractor (over $100 million of auditable dollar volume) will be used in determining whether a location is major or non-major.
        4.2.2.  The ACO shall invite contracting offices having significant dollar interest to participate in the negotiation (FAR 42.705-1(b)(3)). The ACO, whenever possible, should invite the auditor to serve as an advisor at negotiations (FAR 42.705-1(b)(4)(ii)).
        4.2.3.   If the ACO and contractor are unable to reach agreement on the final annual indirect costs rates (FAR 52.216-7(d)(4)):

            4.2.3.1.  The failure to reach agreement is a dispute within the meaning of the Disputes clause (See Contract Claims and Disputes Instruction).
            4.2.3.2.  The ACO shall unilaterally establish the rates.

    4.3.  Execute Written Indirect Rate Agreement and PNM.

        4.3.1.  The ACO shall prepare a written rate agreement that specifies (FAR 52.216-7(d)(3)):

            4.3.1.1.  T he bases to which the rates apply,
            4.3.1.2.  The periods for which the rates apply,
            4.3.1.3.  Any specific indirect costs items treated as direct costs in the settlement,
            4.3.1.4.  The agreed upon final indirect costs rates, and
            4.3.1.5.  The affected contracts and/or subcontracts, identifying any with advance agreements or special term and the applicable rates.

        4.3.2.  The ACO shall prepare a PNM containing (FAR 42.705-1(b)(5)

            4.3.2.1.  (ND)  An affirmative statement that the ACO agreed or disagreed with each finding and recommendation made by DCAA or DCMA Specialists (e.g., price/cost analyst, engineer, counsel), and whether or not the assessment of any penalties and interest is appropriate.  (See paragraph 6 below for more information about penalties and interest. )
            4.3.2.2.  ( ND)    Sound rationale for resolving each finding and recommendation made by DCAA or DCMA Specialists, and whether or not the assessment of any penalties and interest is appropriate.  The rationale must demonstrate that the ACO has considered all appropriate FAR, DFARS, and DCMA Instructions related to the issue raised or questioned by DCAA, e.g., cost principles, cost accounting standards.
            4.3.2.3.  Reconciliation of all costs questioned with identification of items and amounts allowed or disallowed in the final settlements as well as the disposition of period costs or allocability issues including the assessment of any penalties and interest.
            4.3.2.4.  Reconciliation of all costs that were considered unallowable and the respective amounts of the disallowance including the assessment of any penalties and interest.
            4.3.2.5.  Identification of cost or pricing data submitted during the negotiations and relied upon in reaching settlement including the assessment of any penalties and interest.

       4.3.3.  (ND)  The ACO shall obtain approval of the written agreement and PNM from the CMO Contracts Director, and any required Contract Management Boards of Review approvals, before signing the rate agreement and PNM.  LATEST CHANGE   The CACO or DACO shall obtain approval of the written agreement and PNM from the  Director of Corporate/Divisional Administrative Contracting Officer Group, and any required Contract Management Boards of Review approvals, before signing the rate agreement and PNM.  The CMO Contracts Director may delegate authority to approve the action to a level no lower than the contract team supervisor/leader.
  4.3.4.  (ND)  The CMO Contracts Director shall verify that the ACO followed the procedures for dispositioning reportable audit  before approving the PNM.  LATEST CHANGE  The  Director of Corporate/Divisional Administrative Contracting Officer Group shall verify that the CACO or DACO followed the procedures for dispositioning reportable audit  before approving the PNM.

    4.4.  Distribute Rate Agreement and PNM (FAR 42.706)

        4.4.1.  The ACO shall promptly distribute executed copies of the rate agreement to the contractor.
        4.4.2.  The ACO shall promptly distribute executed copies of the rate agreement and PNM to each affected contracting office and DCAA.

            4.4.2.1.  (ND)  The ACO shall document in the contract file, the date and method of transmittal of the PNM to DCAA.

5.  DCAA Negotiates Rates.  If DCAA is unable to reach agreement with the contractor, DCAA will issue a DCAA  Form 1, Notice of Contract Costs Suspended and/or Disapproved.  When the ACO receives a DCAA Form 1, the ACO shall follow the procedures in 4 above to negotiate the rates.

6.  Determine Penalties and Interest

    6.1.  If DCAA recommends penalties for unallowable costs, the ACO shall (FAR 42.709-2):

        6.1.1.  Determine whether the penalties in paragraph 6.2. should be assessed;
        6.1.2.  Determine whether such penalties should be waived pursuant to 42.709-5; and
        6.1.3.  Refer the matter to the appropriate criminal investigative organization for review if there is evidence that the contractor knowingly submitted unallowable costs (see Fraud, Waste & Abuse Instruction).

    6.2.  Determine Types of Penalties

        6.2.1.  If the indirect cost is expressly unallowable under a cost principle in the FAR or DFARS that defines the allowability of specific selected costs, the penalty is equal to (FAR 42.709-1(a)(1)):

            6.2.1.1.  The amount of the disallowed costs allocated to contracts that are subject to penalties for which an indirect costs proposal has been submitted; plus
            6.2.1.2.  Interest on the paid portion, if any, of the disallowance.

        6.2.2.  If the indirect cost was determined to be unallowable for that contractor before proposal submission, the penalty is two times the amount in paragraph 6.2.1.1. ( FAR 42.709-1 (a)(2)).  Prior determinations of unallowability may be evidenced by (FAR 42.709-3(b)):

            6.2.2.1.  A DCAA Form 1, Notice of Contract Costs Suspended or Disapproved, or any similar notice which the contractor elected not to appeal and was not withdrawn by the cognizant Government agency;
            6.2.2.2.  A contracting officer final decision which was not appealed;
            6.2.2.3.  A prior executive agency Board of Contract Appeals or court decision involving the contractor, which upheld the cost disallowance, or
            6.2.2.4.  A determination or agreement of unallowability under FAR 31.201-6.

    6.3. Assess Penalties and Interest

        6.3.1.  Unless a waiver is granted pursuant to paragraph 6.4. below, the ACO shall assess the appropriate type of penalty in paragraph 6.2. above.
        6.3.2.  If the indirect cost is expressly unallowable, the ACO shall compute the applicable interest using the procedures at FAR 42.709-4.
        6.3.3.  To assess the penalties, the ACO shall issue a final decision (see FAR 33.211) which includes a demand for payment of any penalty assessed.  The letter shall state that the determination is a final decision under the Disputes clause of the contract.  Demanding payment of the penalty is separate from demanding repayment of any paid portion of the disallowed cost. 

    6.4.  Waive Penalties.

        6.4.1.  If the indirect cost is expressly unallowable, the ACO shall only waive the penalties when (FAR 42.709-5): 

            6.4.1.1.  The contractor withdraws the proposal before the Government formally initiates an audit of the proposal and the contractor submits a revised proposal.  An audit will be deemed to be formally initiated when the Government provides the contractor with written notice, or holds an entrance conference, indicating that audit work on a specific final indirect cost proposal has begun;
            6.4.1.2.  The amount of the unallowable costs under the proposal which are subject to the penalty is $10,000 or less (i.e., if the amount of expressly or previously determined unallowable costs which would be allocated to the contracts specified in FAR 42.709(b) is $10,000 or less); or
            6.4.1.3.  The contractor demonstrates, to the cognizant contracting officer's satisfaction, that:

                6.4.1.3.1.  It has established policies and personnel training and an internal control and review system that provide assurance that unallowable costs subject to penalties are precluded from being included in the contractor's final indirect cost rate proposals (e.g., the types of controls required for satisfactory participation in the Department of Defense sponsored self-governance programs, specific accounting controls over indirect costs, compliance tests which demonstrate that the controls are effective, and Government audits which have not disclosed recurring instances of expressly unallowable costs); and
                6.4.1.3.2.  The unallowable costs subject to the penalty were inadvertently incorporated into the proposal; i.e., their inclusion resulted from an unintentional error, notwithstanding the exercise of due care. 

7.  Maintain Etools Database.  (ND)  ACOs are responsible for the accuracy of data entries in the eTOOLS Overhead Negotiations database.  The status of each step in the settlement process is updated as needed to keep the information current.  The use of the database is mandatory for ACO negotiated and audit determined contractors.

• The ACO shall be a Warranted Contracting Officer.
• Contract Administrators, Price Analysts and other specialists should be DAWIA-certified in accordance with the position held.

• FAR 33.211, Contracting Officer's Decision
• FAR 42.302 (a)(9), Contract Administration Functions
• FAR 42.703-2, Final Overhead Proposal with Certification requirements
• FAR 42.705 and DFARS 242.705, Final Indirect Cost Rates
• FAR 42.705-1 (b)(5), Negotiation Memorandum requirements
• FAR 42.706, Distribution of Overhead Rate Agreement matrix DCMA
• Class Deviation (extension) to FAR 42.703(b), FAR 42.703(c)(2),  and FAR 42.708(a)(2)(i)

• Process Indicator/s:
  • Final Overhead Rates Negotiation within Timelines    
  • Final Overhead Rates Overage    
  • Final Overhead Rates Overage Aging
• Workload Indicator/s:
  • TBD
• Resource Indicator/s:
  • TBD
• Supplier Indicator/s:
  • TBD

• PLAS Process code:  044

• Final Indirect Rate Agreement Template
• COFD on Expressly Unallowable Costs - Template Letter
• Process Flow Chart
• eTools
• Conferences both at entrance and exit
• Joint analysis of contractor incurred costs/proposal
• Review of DCAA advisory report and rate settlement agreement
• Resolution of overhead rates disputes, Final Determination appeals
• Brown Bag Session 4 - Quick Closeout FAQs - 2 March 2011
• Quick Closeout Desktop Procedure - 2 March 2011
• Quick Closeout Spreadsheets - 2 March 2011
• Brown Bag Training Session on New DCAA Low-Risk Sampling Plan