[Federal Register: May 22, 2007 (Volume 72, Number 98)]
[Proposed Rules]
[Page 28654-28662]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22my07-31]
[[Page 28654]]
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DEPARTMENT OF DEFENSE
Defense Acquisition Regulations System
48 CFR Chapter 2
Contract Closeout; Systemic Issues
AGENCY: Defense Acquisition Regulations System, Department of Defense.
ACTION: Response to public comments.
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SUMMARY: The Director of Defense Procurement and Acquisition Policy
(DPAP) recently completed an assessment of public input on systemic
issues related to contract closeout that were identified in a public
meeting held on September 21, 2005. This assessment has resulted in
recommendations for revisions to policy, guidance, and training related
to contract closeout responsibilities.
FOR FURTHER INFORMATION CONTACT: Ms. Pat West, DPAP CPF Directorate, by
telephone at (703) 602-8387, or by e-mail at pat.west@osd.mil.
SUPPLEMENTARY INFORMATION: In June 2005, the Department of Defense
(DoD) formed a Contract Closeout Systemic Issues Team to develop
recommendations for improving the contract closeout process. During
June/July 2005, the Team engaged with respondents to DoD's September
24, 2002, Federal Register notice (67 FR 59799) requesting public input
on how to improve the contract closeout process. On September 21, 2005,
DoD held a public meeting to discuss potential opportunities to
streamline the closeout process for DoD contracts (70 FR 46824, August
11, 2005). At the public meeting, interested parties provided input on
23 primary issue areas. The public meeting was attended by Government
and industry representatives, and the issues discussed during the
public meeting are published at http://www.acq.osd.mil/dpap/general/cost-pricing.htm
.
DPAP has reviewed the public comments and plans to pursue
recommended revisions to the Federal Acquisition Regulation (FAR), the
Defense FAR Supplement (DFARS) and its companion Procedures, Guidance,
and Information (PGI), User Guides, and DoD training resources. DPAP
plans to take the following actions to enhance the contract closeout
process:
Open a DFARS case on contract closeout to establish a
comprehensive PGI section to address contract closeout and to assess
whether regulatory clarification/revision is needed to address the
following:
--Cumulative Allowable Cost Worksheets.
--Quick closeout.
--Subcontract closeout.
--Final indirect cost rate proposals.
--Periods of performance.
--Government property.
--Alternate contract closing methods.
--Contractor compliance with data submission requirements related to
contract closeout.
Identify and make available best practices used by the
military departments and defense agencies in completing contract
closeouts.
Identify any additional training that should be provided on
contract closeout.
The following is a discussion of the public comments/
recommendations received and the DPAP response and/or planned
1. Final Vouchers
a. Waiver of Final Voucher Audits
Comment: The following recommendations were received relating to
the waiver of final voucher audits:
(1) Provide the administrative contracting officer (ACO) waiver
authority.
(2) Clearly identify the Government representative that has the
authority to waive the audit (ACO versus procuring contracting officer
(PCO)).
(3) Waive the audit for contracts less than a specified amount
(e.g., $10 million).
(4) Provide specific risk assessment guidance to the ACO for use in
determining whether a waiver of audit is appropriate.
(5) Include factors in addition to the dollar value in determining
when final voucher audits should be waived, such as the size of the
company, the number of contracts, and consideration of the contractor's
corrective actions with respect to system inadequacies.
(6) Permit the Government and the contractor to agree to waive the
final voucher audit when money owed is below a stipulated amount (e.g.,
less than $1,000).
(7) Require final voucher audits for cost-type contracts only on an
exception basis for those contractors having billing systems that meet
specified standards. Audits may be required when adverse circumstances
exist, such as inadequate internal control systems, contracts exceeding
a specified dollar threshold, recent frequency of audits, and previous
audit exceptions.
(8) Allow for application of the audit waiver requirements at the
delivery order level.
DPAP Response: In cases where final indirect cost rates have not
been negotiated, FAR 42.708 provides for a quick closeout procedure
when certain other criteria have been met. These criteria may warrant
expansion based on particular facts and circumstances. Therefore, the
DFARS case on contract closeout will include a review of whether it is
appropriate to amend the FAR and/or DFARS to expand on the existing
quick closeout FAR criteria. Depending on the results of this review,
DPAP may consider revisions to the DFARS and/or may make
recommendations to the FAR Council for revisions to the current FAR
language on quick closeout.
In those cases where final indirect cost rates have been
negotiated, DPAP does not believe a broad-based waiver of audits of
final vouchers would facilitate the contract closeout process. Instead,
DPAP believes that the contract closeout process is significantly
reduced if contractors submit a Cumulative Allowable Cost Worksheet
(CACWS) after the indirect cost rates are finalized. The CACWS allows
the ACO to close out a contract without requesting an audit of the
contractor's final voucher. Therefore, the DFARS case on contract
closeout will include a review to determine if, and to what extent, the
CACWS should be required and/or encouraged in the regulations. This
review will also include an assessment of how the CACWS is or should be
structured to best meet contract closeout needs without imposing
significant administrative burden on the contractor or the Government.
b. Use of Bilateral Modifications
Comment: It was recommended that contracting officers be permitted
to use a bilateral modification to close out a contract, rather than
requiring a final voucher, when no money is owed to the Government and
specific risk criteria are met.
DPAP Response: The DFARS case on contract closeout will include a
review of the quick closeout criteria in the FAR. DPAP will also review
the feasibility of permitting bilateral modifications, in lieu of final
vouchers, when certain criteria are met. Depending on the results of
this review, DPAP may consider revisions to the DFARS and/or may make
recommendations to the FAR Council for revisions to the current FAR
language.
c. Issuance of Demand Letters
Comment: It was recommended that a demand letter be issued if
monies are owed the Government and a final voucher is not submitted
within the required timeframes. Under the recommendation, this demand
letter
[[Page 28655]]
would state that interest will be assessed as of a specified date, and
would identify why payment is delayed and the reasons the contractor
has not submitted a final voucher (e.g., extension of period of
performance). Other respondents opined that issuance of a demand letter
may further delay the process and may also trigger a Treasury
Department offset. They also noted that it would be difficult, absent a
final voucher, for the Government to determine whether or not monies
are owed.
DPAP Response: FAR 42.705(b) and (c) permit the contracting officer
to unilaterally close out a contract when the contractor fails to
submit a final voucher. The DFARS case on contract closeout will
consider if and when a demand letter should be issued for contractors
that fail to submit final vouchers in accordance with FAR 42.705(b).
The review also will consider how the Government could/would determine
if monies are owed and will evaluate the impact of any potential delays
in the contract closeout process that the use of a demand letter may
create.
d. Prime Contract Closeout in Advance of Subcontract Closeout
Comment: A recommendation was made to permit closeout of a prime
contract even though a subcontract or subcontracts under that prime
contract have not been closed. It was further recommended that such a
process include adequate notice to the subcontractor. Conversely, a
concern was expressed that such a closeout of a prime contract may
result in the prime contractor's unilateral closeout of subcontracts
and elimination of the Government reimbursement of any additional
subcontract costs, thereby inhibiting the subcontractor's negotiation
with the prime contractor.
DPAP Response: The DFARS case on contract closeout will evaluate
if/when it may be appropriate to permit prime contract closeout when
one or more subcontracts have not been closed.
2. Final Invoices--Fixed-Price Contracts
a. Timing of Submission of a Final Invoice
Comment: Recommendations were made to require submittal of a final
invoice within 60 days of Government acceptance, or to establish a one-
year time limit for contractors to submit the final invoice, after
which time the contracting officer can unilaterally close the contract
without further payment to the contractor.
DPAP Response: DPAP believes that this issue is adequately
addressed in FAR 4.804-1, which authorizes the contracting officer to
close out fixed-price contracts within six months after the date on
which the contracting officer receives evidence of physical completion.
No evidence has been presented that indicates the six-month period is
causing a significant delay in closing out contracts.
b. Clarification of Requirement to Submit Final Vouchers
Comment: A recommendation was made to clarify regulations regarding
the need to submit a final invoice when a DD Form 250, Material
Inspection and Receiving Report, is submitted. A second recommendation
was made to provide an exception to the requirement for submission of a
final voucher for contracts outside the continental United States
(OCONUS).
DPAP Response: While Appendix F of the DFARS currently provides
guidance on the use of DD Form 250, DPAP believes it may also be
helpful to include guidance in the PGI section on contract closeout to
address the relationship between the DD Form 250 and the final voucher.
Therefore, the DFARS case on contract closeout will include an
assessment of whether additional exceptions are needed for OCONUS
contracts.
c. Waiver of the Requirement to Submit Final Vouchers
Comment: A recommendation was made to waive the requirement for
submission of a final invoice if the amount due to the contractor is
less than $1,000 and less than 10 percent of the contract value. In
such cases, the respondent recommended that the contracting officer be
permitted to unilaterally deobligate any remaining funds.
DPAP Response: DPAP does not believe it is advisable to preclude
payment to a contractor when monies are due. DPAP also does not believe
there is a legal basis for the Government to extinguish its debt solely
on the basis of the dollar amount involved. Thus, submission of a final
invoice in such cases is necessary to ensure that proper payments are
made under the terms of each contract.
3. Final Indirect Cost Rates
a. Timely Submission of Final Indirect Cost Rate Proposals
Comment: The following recommendations were made to encourage
timely submission of indirect cost rate proposals:
(1) Increase the withhold amount (a specified percentage and/or
specified amount, e.g., 15 percent or $100,000). One respondent
recommended analyzing major vs. non-major contractors to identify
problems preventing timely submission before enacting such a withhold.
Another respondent stated that increased withholdings will cause
problems in obtaining additional monies due to cancelled funds.
(2) Provide incentives, rather than penalize contractors, for
timely submission of indirect cost rate proposals.
(3) Include a contract provision that permits the contracting
officer to extend the indirect cost rate proposal submission date.
DPAP Response: The DFARS case on contract closeout will include a
review of the current provisions addressing the submission of final
indirect cost rate proposals to ascertain whether any adjustments
(positive and/or negative incentives) to the current regulatory
coverage are warranted.
DPAP does not believe action is necessary regarding the proposal
submission date, because FAR 52.216-7(d) currently authorizes the
contracting officer to extend the submission due date if exceptional
circumstances exist.
b. Contract Closeout Using Rates Other Than Established Final Indirect
Cost Rates
Comment: Recommendations were made to allow contract closeout using
indirect cost rates in the forward pricing rate agreement, provisional
rates, or certified year-end rates rather than final indirect cost
rates, when final indirect cost rates are not established on a timely
basis. One respondent further noted that the use of any such rates
should be by contractor and Government mutual agreement only. Another
respondent noted that the contractor's past history of costs questioned
should be considered in determining whether to use such rates.
DPAP Response: The DFARS case on contract closeout will review if/
when the use of forward pricing, provisional, or certified year-end
rates would be acceptable when final indirect cost rates are not
available. The review will also address the issue of mutual agreement
in using any such rates for contract closeout.
c. Content of Final Indirect Cost Rate Proposals
Comment: A number of recommendations were made regarding the
required content of an adequate indirect cost rate proposal. These
[[Page 28656]]
recommendations included the following:
(1) Review the content requirements for indirect cost rate
proposals to determine if/where they could be streamlined.
(2) Establish different content requirements based on dollar
thresholds.
(3) Provide flexibility so that the proposal is not rejected when
it is not exactly the same as the content requirements, particularly
when there are only format issues/problems.
(4) Do not require submission of Cumulative Allowable Cost
Worksheets at the time of submission of the indirect cost rate proposal
(permit these worksheets to be submitted at a later date).
DPAP Response: The DFARS case on contract closeout will include a
review of the current requirements regarding the content of an adequate
indirect cost rate proposal to determine if/how they could be
streamlined, and the extent to which additional flexibility should be
provided. DPAP will evaluate the need for the addition of DFARS/PGI
language regarding such content, as well as PGI references to relevant
Defense Contract Audit Agency (DCAA), Defense Contract Management
Agency (DCMA), and other agency materials on this subject. This review
will also assess whether regulatory language is needed to address if/
when Cumulative Allowable Cost Worksheets must be submitted to permit
timely audit and negotiation of indirect cost rates and contract
closeout.
d. Separate Proposals for Final Direct and Indirect Costs
Comment: One recommendation would permit the separate submission of
final direct and indirect cost proposals when the ACO believes separate
submissions would facilitate the contract closeout process.
DPAP Response: DPAP does not see the value in permitting separate
proposals. DPAP believes that separate proposals would impose an
administrative burden on both the Government and the contractor, since
both proposals and multiple final vouchers would be required for the
same contract (one for direct costs, one for indirect costs). When
final indirect cost rates have not been negotiated, the use of quick
closeout procedures is a more feasible solution than submission of
separate direct and indirect cost proposals. In addition, DPAP believes
it is inadvisable to permit the separate submission of direct and
indirect costs, since both are required to determine indirect cost
rates, and any reclassification of costs between direct and indirect
would be made administratively more cumbersome by separate proposals.
e. Lump Sum Settlements
Comment: One recommendation called for providing lump sum
settlement guidance to the contracting officer.
DPAP Response: DPAP does not see value in providing guidance on a
lump sum settlement; nor does DPAP believe it is prudent to do so,
since any such guidance will ultimately tie back to the actual incurred
costs. A contracting officer must have a basis for determining the
final amount due. The basis for this amount is the annual allowable
incurred costs of the contractor and the final negotiated indirect cost
rates.
4. Lack of Government Resources and/or Timely Action
a. Utilization of Government Resources
Comment: Various recommendations were made regarding the best
utilization of Government resources in performing contract closeout
functions. These recommendations included the following:
(1) Assign an individual or team at each agency to be responsible
for reducing and eliminating the backlog of open contracts, provide
training for individuals to effectively reduce the backlog, and provide
promotion opportunities.
(2) Make the contract closeout function an integral part of
contract administration rather than a separate function.
(3) Establish Government Centers of Excellence for contract
reconciliations, establishment of final indirect cost rates, and
expiring funds to assist in resolving contract closeout issues.
(4) Create a contract closeout contracting officer, similar to the
termination contracting officer, who would be a specialist in closing
out contracts.
(5) Outsource the contract closeout function to contractors.
DPAP Response: DPAP will review the current processes used by the
military departments and defense agencies to identify best practices
for utilizing resources in performing contract closeout. These best
practices will be made available to the military departments and
defense agencies for their consideration.
b. Line Item Within the DoD Budget for Contract Closeout
Comment: One respondent recommended establishing a separate line
item in the DoD budget dedicated to contract closeout activities.
DPAP Response: DPAP does not believe it would be beneficial to
establish a separate budget line item for contract closeout activities
for the military departments and defense agencies. Its establishment
would impose the significant administrative burden of capturing the
individual activities associated with contract closeout in the DoD cost
accounting systems, which are not designed to capture costs associated
with discrete work activities across the Department. The intention of
the separate line item would be to force the military departments and
defense agencies to spend sufficient monies to support the closeout
effort. However, it could be easily reduced or eliminated and, by
itself, would provide no assurance that contract closeouts would be
completed, since it most likely would not change the closeout process
but would have the adverse effect of reducing flexibility. DPAP
believes the key to successful utilization of resources is to provide a
set of best practices to the departments and agencies, and to let the
departments and agencies apply those practices in a manner that best
meets their particular situations.
c. Timeline for DCAA Audits of Final Indirect Cost Rates
Comment: A recommendation was made to establish a timeline by which
DCAA audits of indirect cost rate proposals should be completed. Under
this recommendation, if the audit is not completed by the date
specified, the contracting officer would have the authority to use a
third party to conduct the audit, and the cost of the audit could be
reimbursed to the contractor or paid directly by the Government to the
third party auditor.
DPAP Response: DPAP believes that the key to timely audit of
indirect cost rate proposals is the timely submission of an adequate
final indirect cost rate proposal by the contractor. DoD has internal
mechanisms in place to monitor and take actions when indirect cost rate
proposals have been submitted but no audit action has been taken.
However, in recognition of the need to ensure that the contracting
officer and the auditor maintain adequate communication, the DFARS case
on contract closeout will review whether PGI should include information
regarding the action to be taken when a contracting officer believes an
audit is not being performed on a timely basis.
[[Page 28657]]
d. Training Opportunities in Contract Closeout
Comment: Recommendations were made to--
(1) Increase training to Government and contractor personnel in the
area of contract closeout; and
(2) Establish a section in the Defense Acquisition University (DAU)
Community of Practice Lessons Learned for contract closeout and
reference it in PGI.
DPAP Response: As part of the review of best practices, DPAP will
work with DAU to determine if/what training needs to be expanded in the
area of contract closeout and to establish a community of practice that
can provide the best contract closeout practices for use by DoD
contracting personnel.
e. Delineate the Roles and Responsibilities of Parties in the Contract
Closeout Process
Comment: The following recommendations were made to delineate roles
and responsibilities of all parties to contract closeout:
(1) Describe in the DFARS or PGI the roles and responsibilities for
all parties involved in the contract closeout process.
(2) Designate the ACO as the central control point for closeout of
a contract and for use of the quick closeout process. One respondent
noted that this could be problematic, since the ACO is not as
knowledgeable as the PCO, and the PCO is a critical player in resolving
issues related to older contracts and contract funding (e.g., cancelled
funds).
(3) Specifically identify the roles and responsibilities for cost
reconciliations and the final determination of contract value when
there are discrepancies between the Government's and the contractor's
accounting records.
DPAP Response: DPAP agrees that such delineation would help
facilitate the contract closeout process. Therefore, as part of the
DFARS case, the PGI will be amended to describe the contract closeout
process and to delineate the roles and responsibilities of all parties
involved in that process.
Regarding contracts for which there are discrepancies in cost
reconciliations, DoD has legislative authority to close out contracts
entered into prior to October 1, 1996, that have an unreconciled
balance of $100,000 or less. Absent additional legislative authority,
DPAP does not believe it can provide contracting officers with the
authority to close out such contracts.
f. Contract Closeout in the Absence of Defense Finance and Accounting
Service (DFAS) Approval
Comment: A recommendation was made to allow the ACO to close out
the contract if, after notifying DFAS that a contract is
administratively complete, no response is received within 60 days of
the notification.
DPAP Response: Since DFAS has the accounting responsibility within
DoD, it would not be appropriate to close out the contract without DFAS
approval. However, the DFARS case on contract closeout will include a
review of whether PGI/DFARS language is needed to address the actions
to be taken when the contracting officer believes a timely response has
not been received from DFAS.
5. Submission of Contract Closeout Data
a. Contract Closeout as a Condition for Future Awards or as an Element
of Past Performance
Comment: One respondent recommended including contractor
performance in submitting closeout data, in the contractor's past
performance ratings. Another respondent noted that any data submitted
for past performance must distinguish between contractor performance in
submitting the closeout documents and Government-controlled actions. A
third respondent recommended precluding the award of future contracts
for contractors that continually fail to submit the required contract
closeout items.
DPAP Response: The Office of Federal Procurement Policy Guide on
Best Practices for Collecting and Using Current and Past Performance
Information (May 2000) includes consideration of timely completion of
all administrative requirements under ``Business Relations'' as a
criterion for evaluating past performance. The DFARS case on contract
closeout will review whether contract closeout should be a more
specific past performance element. Depending on the results of this
review, DPAP may consider revisions to the DFARS and/or may make
recommendations to the FAR Council for revisions to the current FAR
language on contract closeout.
DPAP does not believe it would be appropriate to broadly prohibit
the award of future contracts to contractors with any history of
failing to submit contract closeout items. To do so would be tantamount
to debarment, and DPAP does not believe that failure to submit contract
closeout items meets the debarment criteria at FAR 9.406-2.
b. Incentives for Fulfillment of Contractor Closeout Requirements
Comment: The following recommendations were made to encourage
contractors to complete contract closeout activities:
(1) Include specific contractual terms that provide positive and/or
negative consequences for the fulfillment of contractor closeout
commitments.
(2) Provide award fees or profit factors based on the submission of
contract closeout documents.
(3) Include submittal of contract closeout documents a milestone
for receiving a performance-based payment.
(4) Include contract closeout activities as a separately priced
contract line item. A specific recommendation was made to address the
allowability of contractor costs associated with required contract cost
and payment reconciliations.
DPAP Response: The DFARS case on contract closeout will review
whether regulatory clarification/revisions are needed to provide
additional incentives (positive and/or negative) for encouraging
submission of contractor closeout data. This will include a review of
the criteria for determining whether to impose a withhold, the approval
or denial of direct billing authority, the potential impact on
contractor past performance evaluations, and the inclusion of a
contract closeout milestone in determining performance-based payments.
DPAP does not believe that award fees or other profit factors are
appropriate means by which to compel the contractor to complete
contract closeout responsibilities, since award fee and profit criteria
are intended to focus on cost, quality, and technical performance. They
are not intended to be a means to further reward contractors for
satisfying basic contract administration responsibilities.
DPAP also does not believe it is advisable to include contract
closeout activities as a separately priced contract line item. This
would most likely be perceived as increasing the cost or price of the
contract, rather than simply encouraging submittal of the closeout
data. Similarly, DPAP does not believe that it is necessary to
promulgate specific cost allowability rules related to contractor
reconciliation efforts. The contractor should consider the cost of
normal contract closeout (including reconciliations) when submitting
proposals for contracts and/or indirect cost rates. Furthermore, in
those instances where unusual circumstances require the contractor to
expend effort that is charged as a direct cost beyond
[[Page 28658]]
the current contract period of performance, the contractor should
request a contract modification to address these costs, including any
necessary extension to the period of performance.
6. Missing Documentation
a. Determination That a Contract Is Administratively Complete
Comment: A recommendation was made to authorize the ACO to issue a
final determination that a contract is administratively complete if the
Government and the contractor agree that no additional services or
products will be received by the Government and there are no
outstanding actions.
DPAP Response: DPAP believes that the current listing of actions at
FAR 4.804 for determining that a contract is administratively closed
provides sufficient criteria for the contracting officer. Ensuring that
the items in this listing are all complete is akin to ensuring that
there are no outstanding actions. Thus, DPAP does not plan further
action with regard to this recommendation.
b. Adequacy of the Government's Contract Files
Comment: A recommendation was made to specify in the regulations
and/or PGI what constitutes an adequate contract file (e.g.,
modifications, DD 250's, invoices, payment vouchers) for purposes of
contract closeout, and to require that contracting officers maintain
such a file.
DPAP Response: The DFARS case will review whether guidance should
be added to PGI to address what constitutes an adequate contract file
(see response to Comment 6.a. above). Currently, FAR Subpart 4.8
delineates the applicable contract file documentation requirements
depending on the product or service acquired and contract type and
complexity. FAR 4.802 allows agencies to retain contract files in any
medium (paper, electronic, microfilm, etc.) or any combination of
media. The Electronic Data Access (EDA) system is DoD's electronic file
cabinet containing electronic versions of contractual documents,
including modifications, and is accessible via the Internet 24 hours a
day at http://eda.ogden.disa.mil. Also, DFAS has an ongoing Voucher
attachment system initiative that uploads supporting documentation for
disbursing vouchers in EDA. However, it may be advisable to include
these requirements, as well as any other applicable contract file
documentation information, in PGI.
7. Quick Closeout Procedures
a. Broaden the Use of Quick Closeout Procedures
Comment: Three respondents recommended broadening the use of quick
closeout procedures by raising the dollar threshold and/or percentage
limitations currently in the regulations and by extending the existing
DCMA deviation. Two respondents recommended considering mandating the
use of quick closeout procedures for low-dollar value contracts and
making a thorough analysis to determine the numbers of contracts that
would be affected by such a mandate.
DPAP Response: The DFARS case on contract closeout will review
whether it is appropriate to amend the DFARS to expand on the existing
quick closeout criteria at FAR 42.708. In addition, depending on the
results of this review, DPAP also may make recommendations to the FAR
Council for revisions to the current FAR language on quick closeout.
b. Require Mutual Agreement To Use Quick Closeout Procedures
Comment: A recommendation was made to provide for the quick
closeout process to be one of mutual agreement between the Government
and the contractor.
DPAP Response: DPAP believes that the FAR already clearly requires
mutual agreement between the Government and the contractor in order to
use quick closeout procedures. FAR 42.708 requires the contracting
officer to ``negotiate'' the settlement of indirect costs for a
specific contract, in advance of the determination of the final
indirect cost rates. In addition, FAR 42.708 allows the use of quick
closeout procedures only if ``agreement'' can be reached on a
reasonable estimate of allocable dollars. Thus, DPAP does not believe
any further action is needed regarding this recommendation.
c. Justification for Not Using Quick Closeout Procedures
Comment: A recommendation was made to require that an ACO perform a
risk assessment to justify not using quick closeout procedures, when
final indirect cost rates have not been established. In conjunction
with this recommendation, one respondent recommended that the risk
assessment include a cost/benefit analysis of applying quick closeout
procedures.
DPAP Response: DPAP believes it is unnecessarily burdensome to
require a risk assessment whenever quick closeout procedures are not
used and final indirect cost rates have not been established. However,
the DFARS case will review whether regulatory revisions are needed to
address the criteria a contracting officer should consider for applying
quick closeout procedures. Depending on the results of this review,
DPAP may consider revisions to the DFARS and/or may make
recommendations to the FAR Council for revisions to the current FAR
language on quick closeout.
d. Evaluation of the Use of Quick Closeout Procedures
Comment: A recommendation was made to evaluate instances in which
the criteria for using quick closeout applied, but the quick closeout
procedure was not used by the ACO.
DPAP Response: As part of the DFARS case on contract closeout,
input will be obtained from contracting personnel as to if/why
contracting officers do not apply quick closeout procedures when the
facts/circumstances satisfy the FAR criteria for use of such
procedures. This input will be considered in determining whether any
regulatory revisions are needed regarding the quick closeout
procedures.
8. Subcontracts
a. Closeout Plan for Subcontracts
Comment: A recommendation was made to require a contract closeout
plan as part of the subcontracting plan.
DPAP Response: DPAP does not believe there would be significant
benefit to requiring a specific contract closeout plan as part of the
subcontracting plan. However, the DFARS case on contract closeout will
include a review to determine whether existing regulations should be
amended to emphasize contract closeout in discussing contractor
responsibilities for managing subcontracts.
b. Require the Use of Quick Closeout Procedures for Subcontracts
Comment: A recommendation was made to require the use of quick
closeout procedures for subcontracts, including interdivisional
transfers, to the maximum extent possible.
DPAP Response: FAR 42.202 states that it is the prime contractor's
responsibility to manage its subcontracts under existing regulations.
However, the DFARS case on contract closeout will review whether
regulatory revisions are needed to address subcontracts.
c. Waiver of Final Subcontract Assist Audits
Comment: A recommendation was made to establish a threshold for
assist audits and to permit prime contractors
[[Page 28659]]
to waive audits for subcontracts that are below this established
threshold when the lack of negotiated subcontractor indirect rates is
preventing closeout of the prime contract.
DPAP Response: The DFARS case on contract closeout will review if/
how subcontracts should be closed when subcontract final indirect cost
rates have not been negotiated. Since DPAP believes that the contract
closeout process is significantly reduced if contractors (including
subcontractors when required) submit an adequate final indirect cost
rate proposal and prepare a Cumulative Allowable Cost Worksheet (CACWS)
when the indirect cost rates are finalized, the DFARS case will also
review the extent to which a final indirect cost rate proposal and a
CACWS should be required and/or encouraged for subcontractors/
subcontracts.
d. Requirement for Audit Coordination Between the Prime Contractor and
DCAA
Comment: A recommendation was made to require DCAA to provide
feedback to prime contractors on the status of assist audits.
DPAP Response: The DFARS case on contract closeout will review the
current process to assess whether DFARS revisions are needed to address
the steps a prime contractor can take to determine the status of DCAA
assist audits of subcontract costs.
e. Use of Third-Party Auditors to Complete Subcontract Assist Audits
Comment: A recommendation was made to use third-party auditors for
subcontract audits where the Government does not already have a
presence, similar to the policy on Other Transactions.
DPAP Response: DPAP does not believe that any action is needed with
regard to this comment. In accordance with DoD Directive 5105.36,
Defense Contract Audit Agency (DCAA), DCAA is responsible for
performing all contract audits required in the negotiation,
administration, and settlement of DoD contracts and subcontracts.
Should the prime contractor have any issues related to audits of
subcontractors, those issues should be raised with the cognizant DCAA
auditor.
9. Reconciliations
a. Require Annual Reconciliation of Contract Payments
Comment: A recommendation was made to encourage or require that the
Government and the contractor reconcile payments on an annual basis.
DPAP Response: The DFARS case on contract closeout will review if/
when it would be feasible to establish an annual contract
reconciliation process.
b. Establish Thresholds for Performing Contract Reconciliations
Comment: A recommendation was made to consider establishing dollar
thresholds for performing contract reconciliations.
DPAP Response: DPAP does not believe it would be statutorily
permitted to establish dollar thresholds below which contract
reconciliations would not be required. Absent statutory authority, DPAP
does not believe it can provide the contracting officer with the
authority to close out unreconciled contracts.
c. Require Replacement Funds Be Acquired on a Timely Basis
Comment: A recommendation was made to require that replacement
funds be obtained on a timely basis.
DPAP Response: The DFARS case on contract closeout will consider
whether to add specific language to PGI emphasizing the need for
agencies to obtain replacement funds on a timely basis.
d. Require That DFAS Notify Contractors of Payment Offsets
Comment: A recommendation was made to require that DFAS notify the
contractor when there is an offset to a contractor payment.
DPAP Response: DFAS currently notifies contractors by letter and/or
telephone when there is an offset. The DFARS case on contract closeout
will include a review of whether the DFARS/PGI should be amended to
describe this process.
e. Require the Update of Cumulative Accounting Classification Reference
Number (ACRN)/Contract Line Item Numbering (CLIN) Schedules After Each
Contract Modification
Comment: A recommendation was made to require the updating of the
cumulative ACRN/CLIN schedule each time a modification is issued.
DPAP Response: The DFARS case on contract closeout will review
whether PGI language is needed to emphasize the importance of
maintaining an updated ACRN/CLIN schedule.
f. Provide Contractors Access to Contract ACRN and Mechanization of
Contract Administration Services (MOCAS) Data, and Consider Simplifying
ACRN/CLIN Accounting
Comment: A recommendation was made that DoD should provide
contractors with read-only access to their contract ACRN data, allow
visibility to all modifications, add CLIN data to MOCAS, and consider
alternatives to and simplify the ACRN/CLIN accounting.
DPAP Response: DPAP does not believe any action is needed with
regard to this recommendation, because the access described is already
available. A contractor can request access to the contract ACRN data by
contacting the cognizant paying office identified on the DFAS Web site
at http://www.defenselink.mil/dfas/about/Contacts.html. In addition,
contract information, including modifications, can be accessed on the
Internet via the Electronic Document Access system at http://eda.ogden.disa.mil.
Furthermore, the ACRN/CLIN data is already included
in MOCAS.
With regard to simplifying the ACRN/CLIN accounting, DoD is working
to develop a comprehensive data structure that will support the
requirements for budgeting, financial accounting, cost/performance
management, and external reporting throughout the Department. This
effort is intended to standardize categorization of financial
information along several dimensions to support financial management
and reporting functions and, when implemented, will provide a common
foundation to track, process, and report DoD business transactions.
g. Automated Structuring of Contract CLINS/SubCLINS
Comment: A recommendation was made to not allow agency accounting
systems to drive how contracts are structured, i.e., systems
automatically add SubCLINs to a CLIN.
DPAP Response: DPAP believes the DFARS adequately addresses this
issue. The criteria for establishing CLINs are specified in DFARS
204.7103 and 204.7104.
10. Contract vs. Delivery Order Basis
a. Clearance of Government Property, Final Patent Reports, Security
Release, etc.
Comment: A recommendation was made to clear the Government
property, final patent report, security release, and other pertinent
documents one time against the contract instead of on an order-by-order
basis.
DPAP Response: The DFARS case on contract closeout will review if/
when it may be appropriate to provide for a one-time clearance of the
Government property, final patent report, security release, and other
pertinent documents instead of on an order-by-order basis.
[[Page 28660]]
b. Close Contracts by Task Order
Comment: Two recommendations were made to close out all task orders
as they are completed instead of waiting until the end of the contract,
or to explore best practice options.
DPAP Response: The DFARS case on contract closeout will review
whether DFARS/PGI language is needed to specifically address the
closeout of task orders. Note that DCMA currently has a process to
close out task orders as they are completed to facilitate closeout of
indefinite-delivery, indefinite-quantity contracts.
c. Contract Period of Performance
Comment: A recommendation was made to clarify language on the
period of performance for a task order versus that specified in the
basic contract, i.e., if and when the task order period of performance
may fall outside the period of performance specified in the basic
contract.
DPAP Response: The DFARS case will review whether the regulations
should be revised to specifically address issues regarding contract and
task order periods of performance.
11. Time-and-Materials (T&M) Contracts
a. Streamline Closeout Procedures
Comment: A recommendation was made to streamline closeout
procedures for T&M contracts that are valued at less than a specified
amount (e.g., $1 million).
DPAP Response: The DFARS case on contract closeout will review if
and when streamlined closeout procedures would be appropriate for T&M
contracts. Note that the May 17, 2005, DCAA memorandum, Audit Guidance
on Low Risk Time and Material/Labor Hour Contract Closeout Initiative,
provides audit procedures for expediting the closeout of T&M contracts
valued at $1 million or less when contractors meet certain low risk
criteria. The memorandum (05-PPD-037(R)) is available at http://www.dcaa.mil/
.
b. Verification of Employee Qualifications
Comment: A recommendation was made for DoD guidance to provide
extra focus on employee qualifications when closing out T&M contracts.
DPAP Response: The review of employee qualifications should be a
part of the contracting officer representative and/or audit
responsibilities during contract performance so as to ensure that
employees are properly qualified before they perform contract work.
DPAP is currently working to provide PGI guidance to delineate the
duties of all parties in the contract administration process. The
review of employee qualifications will be an integral part of this
delineation of duties. Thus, while the Government is not precluded from
reviewing employee qualifications at the end of the contract, DPAP
believes this issue is better addressed in the guidance on
administering T&M contracts, rather than any specific guidance on
contract closeout.
12. Classified Contracts
Comment: Two recommendations were made for the use of quick
closeout procedures, or certified year-end rates, for all classified
contracts.
DPAP Response: DPAP does not believe it would be advisable to
provide blanket quick closeout authority for all classified contracts.
However, the DFARS case on contract closeout will review whether there
are any particular characteristics of classified contracts that would
warrant more extensive use of quick closeout procedures than is
provided for non-classified contracts.
13. Classified Documents
Comment: Two recommendations were made to develop a contract clause
that provides clear instructions for the disposition of classified
documents, and to allow the contracting officer the authority to
transfer classified documents to other contracts.
DPAP Response: The DFARS case on contract closeout will review
whether language on classified contracts should be added to PGI. In
DoD, the security classification management program implements the
requirements of the National Industrial Security Program Operating
Manual (NISPOM). The security office receives, evaluates, interprets,
and obtains clarification and changes to classification guidance for
contracts and proposals, and issues classification guidance.
Classification and distribution guidance is available at https://intranet.acq.osd.mil/intranet/admin/security/secguide/Implemnt/Altrnats/Classif.htm.
In DoD contracts, the DD Form 254, Department of
Defense Contract Security Classification Specification, establishes
security classification levels of classified information and hardware,
downgrading, and declassification instructions, public dissemination
instructions for information related to the contract, and other special
security requirements. If a DD Form 254 is not provided with a
solicitation or contract, the security office and the contracting
office are required to jointly take the actions necessary to obtain
one.
14. Government Property
Comment: The following recommendations were made relating to
Government property:
(1) Distinguish between the role of the ACO and that of the
Government property administrator.
(2) Provide contracting personnel with disposition authority for
special tooling, special test equipment, and other property with an
acquisition value of $5,000 or less, and be specific in identifying who
has disposition authority (i.e., Government property administrator).
(3) Provide contracting officers with the authority to make the
determination as to whether property should be reutilized or scrapped,
and to scrap military unique items that have been rejected for
reutilization by the buying agency. There is little value in retaining
these items if they have been rejected by the buying agency.
(4) Delegate authority to the Government property administrator to
transfer property to other contracts (e.g., to follow-on contracts to
reduce costs).
(5) Permit the Government property administrator to grant
accountability relief on the spot for recorded property that was not
found at contract completion if (a) the contractor has an approved
property system, (b) the lost item has an acquisition date of five
years or later, and (c) the lost item has an acquisition cost of
$100,000 or less. The Government property administrator would retain
the right to a full Lost/Damaged/Destroyed Report.
(6) Establish a site property and/or plant-wide disposition
contract for each business element location. As each contract is
completed, all property would be automatically transferred to the
disposition contract. Each respective buying office could fund a line
item on the disposition contract for disposal of its property, or the
predominant agency could fund the entire contract.
(7) Transfer accountability for property to the Government for
purposes of contract closeout once property is submitted on an
inventory schedule. This is an efficient method, because it removes
property from the contract.
(8) Consider a system to allow the capture of data related to DoD
property in the possession of contractors, since DD Form 1662 was
discontinued after fiscal year 2005.
(9) Develop a contract clause that provides clear instructions for
the disposition of Government property.
(10) Provide contracting officers with the authority to remove the
property clauses from contracts where there is no
[[Page 28661]]
probability of issues in these areas (e.g., service contracts with
little or no property).
(11) Set a timeframe (e.g., 90 days) at the end of the contract for
disposition of lost property.
(12) Clarify an apparent inconsistency between final contract
closeout and the timeframe for overall closeout of Government property.
DPAP Response: DPAP anticipates that a final rule revising FAR
coverage on Government property will be issued in early 2007. The FAR
rule is anticipated to include a number of changes to existing
Government property rules. As such, DPAP believes it would be premature
to attempt to address the specific recommendations provided with regard
to Government property in advance of issuance of that final rule. Upon
issuance of the rule, DPAP will review whether the above comments
warrant any additional regulatory or PGI coverage.
15. Patents
a. Contract Closeout Based on Negative Interim and Final Patent Reports
Comment: A recommendation was made to allow the contracting officer
to proceed with contract closeout within a specified timeframe (e.g.,
30 days), if a contractor has submitted a negative report on all
interim and final patent right reports, unless the contracting officer
receives notification that there are patent issues precluding such
closeout.
DPAP Response: The DFARS case on contract closeout will review
whether DFARS/PGI language should be added to address if/when a
contract could or should be closed out if all interim reports and the
final patent reports are negative. Note that current DCMA contract
closeout procedures provide a structured timeframe of 60 days for
proceeding with closeout when patent reports containing a negative
reply are received.
b. Omission of Patent Clauses From Contracts
Comment: Three recommendations were made to provide contracting
officers with the authority to remove the patent clauses from contracts
where there is no probability of issues in these areas (e.g. service
contracts with no patent issues), to clarify PGI as to when the clause
is needed, and to reconsider how often to issue negative reports on
patents. Currently, a negative report is required every 12 months.
DPAP Response: DPAP does not believe any guidance is needed in the
area of contract closeout to address this issue. However, DPAP notes
that DoD has a current DFARS case regarding patents, data, and
copyrights. Thus, DPAP will forward this recommendation to the
cognizant DFARS committee for consideration.
c. Review FAR 52.301 Matrix for Mandatory and Discretionary Clauses
Comment: A recommendation was made to review the FAR 52.301 matrix,
which identifies contract clauses that are mandatory versus those that
are discretionary, to ensure that clauses are not being included in
contracts unnecessarily.
DPAP Response: The current matrix at FAR 52.301 indicates when a
FAR clause is required, required as applicable, or optional. Thus, DPAP
does not believe any further action is necessary with regard to this
recommendation.
16. Planning
Comment: A recommendation was made to require a contract closeout
plan as part of the acquisition plan. The contract closeout plan should
consider the up-front effort, perceived benefit, and dollar threshold.
The plan should also include a memorandum of agreement between the
contractor and the Government that weighs the costs and benefits of a
closeout plan.
DPAP Response: DPAP does not believe that there would be
significant benefit to requiring a specific contract closeout plan as
part of the acquisition plan. However, the DFARS case on contract
closeout will review whether the DFARS/PGI should be revised to address
how contract closeout should be considered in developing the
acquisition plan.
17. Mechanization of Contract Administration Services (MOCAS)
Comment: A recommendation was made to revise MOCAS so that it is
automatically updated to reflect the current performance period when
the contract period is extended.
DPAP Response: DPAP will work with DCMA to ensure that MOCAS
capabilities include providing current contract period of performance
information.
18. Electronic Submission
Comment: Two recommendations were made to study Wide Area WorkFlow
(WAWF) for duplication, because DD Form 1594, Contract Completion
Statement, and DD Form 1597, Contract Closeout Checklist, duplicate the
current electronic closeout processes being done in Procurement Defense
Desktop (PD2).
DPAP Response: DPAP does not believe any action is needed with
regard to this recommendation, because the use of WAWF does not
duplicate PD2. DD Form 1597 is needed, because not all contracting
offices use PD2. When the forms are generated electronically in PD2,
the forms do not have to be completed manually. However, PD2 does
permit manual closeout using DD Form 1597 and DD Form 1594 for orders
under blanket purchase agreements.
19. Allowability of Contract Closeout Costs
a. Definition of ``Period of Performance'' and Guidance on the
Allowability of Costs Incurred After the Period of Performance
Comment: Four recommendations were made to clarify the regulations
to specify what is meant by the period of performance, or to provide
regulations or guidance as to the allowability of costs incurred for
contract closeout after the end of the performance period, such as
subcontractor costs billed and paid outside the period of performance,
or material transfers that occur after the period of performance.
DPAP Response: DPAP does not believe it is necessary or advisable
to provide blanket guidance regarding this issue. The circumstances
noted in the recommendation must be addressed on a case-by-case basis.
DPAP believes the current regulations adequately address this issue.
FAR 31.201-2, Determining Allowability, states that a cost is allowable
only when the cost is reasonable, is allocable, complies with
applicable Cost Accounting Standards or generally accepted accounting
principles, complies with the terms of the contract, and complies with
the specific provisions in FAR Subpart 31.2. In reading these
allowability criteria, the key criteria for this particular issue are
the terms of the contract. The contractor should consider the cost of
normal contract closeout when submitting proposals for contracts and/or
indirect cost rates. Furthermore, when unusual circumstances will
require the contractor to expend effort that is charged as a direct
cost beyond the current contract period of performance, the contractor
should request a contract modification to extend the period of
performance. With regard to subcontract costs and material transfers,
when the contractor becomes aware that such costs may be incurred
outside the period of performance, the contractor should notify the
contracting officer and should request an appropriate contract
modification to the existing period of performance.
[[Page 28662]]
b. Guidance on Determining ``Physical Completeness''
Comment: One recommendation was made to provide guidance on
``physical completion.''
DPAP Response: DPAP does not believe additional guidance on this
issue is necessary. FAR 4.804-4 provides specific criteria that must
exist for a contract to be physically complete.
20. Statute of Limitations
Comment: Two recommendations were made to shorten the statute of
limitations for submission of a claim (currently six years) to mitigate
issues concerning expired funds, lost documentation, software changes,
and Government/contractor storage costs; and to consider that reducing
the period would set precedence to reduce the time requirements in
other areas.
DPAP Response: The length of time allowed for the submission of a
claim is directly related to the period specified in the Contract
Disputes Act (41 U.S.C. 605), which was amended upon enactment of the
Clinger-Cohen Act in 1996. Any revision to this period would require a
change to existing statutes. DPAP believes this issue is better
addressed by focusing on the systemic issues that hinder contract
closeout rather than pursuing a legislative change.
21. Transportation Clause
Comment: A recommendation was made to revise the clause at DFARS
252.247-7023, Transportation of Supplies by Sea, to reduce the needless
inclusion of this clause in contracts or to consider issuing guidance
specifying when the clause needs to be used. Currently it is often
included when obviously unnecessary.
DPAP Response: DPAP will refer this issue to the DFARS
Transportation Committee to review whether the current clause
prescription should be revised.
22. Settlement of Contract Debts
Comment: A recommendation was made to permit the contracting
officer to negotiate the settlement of contract debts across a number
of contracts. This would avoid the need to find replacement funds,
which often takes years and substantially delays the closeout process.
DPAP Response: DPAP does not believe any guidance is needed in the
area of contract closeout to address this issue. However, DPAP notes
that there is a current FAR case that is focusing on the contract debt
process. Therefore, this recommendation will be forwarded to the
cognizant FAR team for consideration.
23. Consolidation of Guidance on Contract Closeout
Comment: A number of recommendations were made that the DCAA
Contract Audit Closeout Guide be incorporated into PGI to establish a
single reference source for contracting personnel, and that the PGI be
supported with training.
DPAP Response: DPAP agrees that providing a consolidated resource
for contract closeout guidance will facilitate the process. Thus, the
DFARS case on contract closeout will include PGI language on contract
closeout. In addition to providing basic guidance addressing the
contract closeout process, this PGI section will also include links to
agency guidebooks, training, and any other relevant information.
Michele P. Peterson,
Editor, Defense Acquisition Regulations System.
[FR Doc. E7-9734 Filed 5-21-07; 8:45 am]
BILLING CODE 5001-08-P