Quick contract closeouts – Beneficial to both contractors and the federal government

4/6/2018 Jeffrey Shapiro

Every government contract that begins must have an end. However, contract closeouts often take much longer than contractors would prefer, resulting in constrained cash flow, disgruntled investors, documentation retention issues, and employee turnover. Fortunately, Federal Acquisition Regulation (FAR) 42.708 outlines instructions on how federal executive agencies may expeditiously close out certain flexibly priced contracts that have not been fully audited. These instructions are collectively known as “quick closeout procedures.” Government contractors should be more proactive with contracting officers about the quick closeout process when warranted.

The Government Accountability Office (GAO) released a report in September 2017 that evaluated contract closeout processes in five major executive agencies (Defense, State, Justice, Homeland Security, and Health and Human Services). GAO found many different issues that have impeded the contract closeout process. While it cited the Defense Contract Audit Agency’s (DCAA’s) significant audit backlog as a major reason for contract closeout issues, it also called out these agencies’ procedural and structural challenges with regards to contract closeouts.

Most contracting groups were not easily able to summarize what stage of closeout each of their completed contracts were in. There were frequent examples of groups that did not know how many were eligible for closeout. GAO also noted that there were rarely any goals and performance measures in place to reduce contract closeout backlogs. Ultimately, in GAO’s words, “We found that closing out contracts is not the highest priority for contracting officers that are charged with awarding and administering contracts for products and services to meet mission needs.”

One tool federal executive agencies can lean on to help reduce the contract closeout backlog is quick closeouts. While many agencies’ procurement manuals instruct their contracting officers to utilize quick closeout procedures to the maximum extent practicable, it is not a guaranteed “right” for contractors (or the government) to use them when circumstances warrant the consideration of using these procedures. That being said, federal contractors should cooperatively work with their contracting officers to help identify contracts that are eligible for quick closeout.

Procedures for quick government contract closeouts

CohnReznick has developed a tool to help contractors identify contracts, task orders, and delivery orders that may be eligible for quick closeout. If you believe your contracts have a strong case for quick closeout eligibility, reach out to your contracting officers to let them know what may be eligible for quick closeout and why they make good candidates for quick closeouts outside of the percentage and dollar thresholds as stipulated within FAR 42.708. Please note that the CohnReznick tool references a possible agency class deviation for completed contracts with less than 10% of costs audited/settled but over $1 million. Start a dialogue with your contracting officer if you’re in this situation to see if they have an active class deviation.

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Finding contracts that are quick closeout eligible will help you:

Collect debt on a more timely basis (retainages and rate overruns)
Reduce costs related to maintaining records
Reduce uncertainty and risks (will the government suddenly terminate and/or cut off further funding?)
Minimize time searching for documents when an audit is initiated
Help the Government reduce its contract closeout backlog and reduce GAO audit finding risks

Please note that quick closeout procedures are not suitable for prime contractors use on subcontracts.

With regards to contract closeout we recommend the following:

Appoint someone to be responsible for ensuring that contracts are closed out timely.
After the negotiation of final indirect rates, take inventory of completed contracts to date and determine how much cost is unaudited. (Hint: Use Schedule I of your last audited incurred cost submission.) Then, use our tool to see if those completed contracts may be eligible for quick closeout.
Utilize standardized procurement and accounting documentation procedures from the beginning of contract awards to help facilitate contract closeouts.

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_{This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}

Jeffrey L. Shapiro

CPA, Partner

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