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.