RGCI - DFARS Final Rule Expanding Contracts Eligible for Quick Close Out

DoD issued a Final Rule (DFARS Case 2021-D001) amending the DFARS to expand Contracts Eligible for Quick Closeout. The final rule is effective March 1, 2023. We believe there will be an increase in the number of DCMA requests to apply the quick closeout procedures to contracts with less than $2 million of unsettled direct and indirect cost, or if it is in the best interest of the government regardless of the dollar amount of the contract or unsettled costs. Seeing as DCAA questions less than 1% of the incurred cost it does get around to auditing. It would be in DoD’s best interest to close all completed contracts. One can only hope.

Why Was the Quick Closeout Process Changed?

The final rule implements a recommendation from the Government Accountability Office (GAO) report that there needed to be DoD oversight and management attention to close out contracts and reduce backlog. It incorporates the Class Deviation – Quick-Closeout Procedures Threshold issued by the Office of the Under Secretary of Defense dated May 3, 2019 by adding a new section in DFARS 242.708 Quick-Closeout Procedures which states:

  • Defense Contract Management Agency administrative contracting officers are authorized to negotiate the settlement of direct and indirect costs for a specific contract, task order, or delivery order to be closed in advance of the determination of final direct costs and indirect rates set forth in FAR 42.705, regardless of the dollar value or percentage of unsettled direct or indirect costs allocable to the contract, task order, or delivery order.
  • In lieu of the thresholds at FAR 42.708(a)(2)(i) and (ii), the amount of unsettled direct costs and indirect costs to be allocated to the contract, task order, or delivery order will be considered relatively insignificant when the total unsettled direct costs and indirect costs to be allocated to any one contract, task order, or delivery order do not exceed $2 million, regardless of the total contract, task order, or delivery order amount.

The thresholds in FAR 42.708(a)(2)(i) and (ii) are unsettled direct and indirect costs that do not exceed the lesser of $1,000,000 or 10 percent of the total contract, task order, or delivery order amount. Under the final rule, for DoD contracts the threshold is increased. Contracts with unsettled direct and indirect costs that do not exceed $2,000,000 can be considered insignificant and the government can pursue quick closeout based on the DFARS 242.708 Quick Closeout regulation.

In addition, the Section 809 Panel, mandated by Congress to streamline and improve the acquisition process, recommended authorizing the settlement of final overhead rates when it is in the best interest of the Government and closing contracts regardless of dollar value or unsettled direct and indirect costs. This was also incorporated into the DFARS regulation. Although the Class Deviation allowed the same procedures, we did not see an increase in the number of contract closeouts.

DoD has a large list of backlogged contracts that need to be closed. Redstone GCI believes DCMA is going to increase the number of requests to contractors to submit final vouchers to close contracts, task orders or delivery orders that are complete but have unsettled direct and indirect costs of less than $2,000,000. We have already received calls from contractors where the government is converting cost reimbursable contracts to fixed price to close them out quickly.

What Should Contractors Do?

Redstone GCI recommends contractors review their physically complete, cost reimbursable contracts/task orders/delivery orders and

  • Ensure adjustment vouchers are submitted within 60 days of final established rates
  • Have a process in place to resolve and close out subcontracts once they are complete
    • Risk should be low when DCAA issues low risk memorandums on subcontractors
    • If high risk, request a third party verification of subcontract costs.

DCMA may be knocking on your door soon to close contracts and we want you to be ready for them.

Redstone GCI is available to assist contractors in closing out contracts, whether it is putting together the final voucher, reconciling costs to DFAS records or assistance with settling subcontract costs. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in submitting indirect cost submissions, settling indirect rates and closing contracts.

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Written by Lynne Nalley, CPA

Lynne Nalley, CPA Lynne is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to Commercial Item Determinations and support, Cost Accounting Standards, DFARS Business System Audits, Proposals, and Incurred Cost. Prior to joining Redstone Government Consulting, Lynne served in several capacities with DCAA and DCMA for over 35 years. Professional Experience Lynne began her career working with DCAA in the Honeywell Resident Office, Clearwater, FL in 1984. Lynne’s experience included various positions which involved conducting or reviewing forward proposals or rate audits, financial capability audits, progress payments, accounting and estimating systems, cost accounting standards, claims and disclosure statement reviews. She is an expert in FAR, DFARS, CAS and testified as an expert witness. Lynne assisted in drafting the commercial item guidance for DCAA Headquarters. Lynne was assigned as a Regional Technical Specialist where she provided guidance to 20 field offices on highly complex or technical issues relative to forward pricing, financial capability or progress payment issues. As an Assistant for Quality, she was involved in reviewing and ensuring audit reports were in compliance with policy and GAGAS as well as made NASBA certified presentations to the staff including but not limited to billing reviews, CAS, unallowable cost and progress payments. To enhance her experience in government contracting, Lynne accepted a position with DCMA in 2015 as part of the newly organized DCMA Cadre of Experts in the Commercial Item Group. This included performing reviews of prime contractor’s assertions and/or commercial item determinations as well as performing price analyses. Lynne was a project lead and later became a lead analyst where she engaged with the buying commands on requests and reviewed price analysis reviews performed by a team of 5 analysts. She also assisted the DCMA CPSR team relative to commercial items and co-instructed the Commercial Item Training presented to DCMA. Education Lynne earned a Bachelor of Science Degree in Accounting from the University of Central Florida. Certifications State of Florida Certified Public Accountant State of Alabama Certified Public Accountant Defense Acquisition Workforce Improvement Act (DAWIA) Level III- Auditing DAWIA Level III – Contracting

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Compliant Accounting Infrastructure, Contracts & Subcontracts Administration, Government Regulations