New DFARS amendment could expand quick closeout procedure eligibility

On October 28, 2022, the Department of Defense (DoD) proposed an amendment to the Defense Federal Acquisition Regulation Supplement (DFARS) to broaden the population of contracts eligible for Quick Closeout procedures prescribed in Federal Acquisition Regulation (FAR) 42.708. While not yet effective, this proposed rule is welcomed as the contract closeout backlog remains top of mind for many.

The current procedures prescribed in FAR 42.708 allow the contracting officers latitude 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 final indirect rate agreement upon the successful completion of a four-part test:

1. Physical completion
2. Unsettled costs are relatively insignificant (do not eclipse the lesser of $1,000,000 or 10% of the total value)
3. Contracting officer performed risk assessment
4. Agreement between the contracting officer and contractor on the reasonable estimate of allocable dollars

This amendment would elevate the threshold contained in FAR 42.708(a)(2)(i) and (ii) from $1 to $2 million dollars, regardless of the total contract, task order, or delivery order amount. The elimination of the 10% total value threshold removes a major barrier for using this process to close many cost-type contracts where indirect rates can quickly eclipse the 10% of the total contract value.

Furthermore, this amendment also codifies additional authorities for Defense Contract Management Agency (DCMA) administrative contracting officers to negotiate the settlement of costs for a specific contract, task order, or delivery order regardless of dollar value or percentage of unsettled direct or indirect costs allocable to the contract.

Originating in a Government Accountability Office (GAO) report from September of 2017, this amendment builds on previous deviations by the DoD in May of 2019 (2019-O0009) and August of 2017 (DCMA 17-142), illustrating the commitment by the government to help contractor billing departments.

While contractors wait for final rates, those compiling the final invoice enter a holding pattern. This amendment will:

• Allow contractors to move out on smaller contract invoices
• Help contractors to meet the three-year time standard for prescribed in FAR 4.804.

Recommendations:

• Contractors should review their existing backlog to identify contracts that already meet the criteria.
• To ensure the backlog does not continue to build, contracts teams should also add a review criteria at the end of the fiscal year to capture these contracts for action.

Contractors are sure to be busy clearing these in the coming months!

Should you have any questions about how this can impact your organization, don’t hesitate to reach out. Our valued advisors are always here to assist!