A Quick Guide To Quick Closeout Presented by
A Quick Guide To Quick Closeout Presented by David Guinasso, supporting OSD A&S DPC www. dodprocurementtoolbox. com 1
Agenda w What is Quick Closeout w When can it be used w Why Quick Closeout w The steps of Quick Closeout 2
What Is Quick Closeout? FAR 42. 708 - Quick-closeout Procedure Requires the contracting officer responsible for contract closeout to negotiate the settlement of direct and indirect costs for a specific contract, task order or delivery order ready to be closed, in advance of the determination of final indirect rates based on risk assessment. 3
Benefits of Using Quick Closeout Highlighted Benefits Identified by Workforce: w Reduces Overage Backlog w Reduces administrative costs w Removes need for audit on low risk contracts w Enables reuse of expiring funds w Prevents cancelling funds and need for replacement funds w Close contracts before data is too old w People who worked the program are still likely to be employed and make it easier to close contract w Maintain employee’s skill to closeout contracts w Will not have to maintain obsolete systems 4
When can you use Quick Closeout FAR 42. 708 The contracting officer responsible for contract closeout shall 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 indirect rates, if – The contract, task order, or delivery order is physically complete; The amount of unsettled direct costs and indirect costs to be allocated to the contract, task order, or delivery order is relatively insignificant. The contracting officer performs a risk assessment and determines that the use of the quick-closeout procedure is appropriate. Agreement can be reached on a reasonable estimate of allocable dollars. 5
The Contract is Physically Complete 4. 804 -4 -- Physically Completed Contracts. A contract is considered to be physically completed when -The contractor has completed the required deliveries and the Government has inspected and accepted the supplies or services and all options have expired or the Government has given the contractor a notice of complete contract termination. Rental, use, and storage agreements are considered to be physically completed when the Government has given the contractor a notice of complete contract termination or the contract period has expired. 6
Relatively Insignificant Class Deviation – Quick-Closeout Procedures Threshold (2019 -O 0009) Approved May 2, 2019 Effective immediately, contracting officers shall deviate from the quick-closeout procedures in Federal Acquisition Regulation (FAR) 42. 708(a) for cost reimbursement, time and material, labor hour, fixed-price incentive, and fixedprice redeterminable contracts, task orders, and delivery orders. Specifically, in lieu of the thresholds at FAR 42. 708(a)(2)(i) and (ii), contracting officers shall consider cost amounts to be relatively insignificant when the total unsettled direct and indirect costs to be allocated to any one contract, task order, or delivery order do not exceed $2 million. Defense Contract Management Agency (DCMA) Administrative Contracting Officers (ACOs) are further authorized to deviate from FAR 42. 708(a)(2) and 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 percent of unsettled direct or indirect costs allocable to the contract. This class deviation supersedes and incorporates the DCMA Quick-Closeout 7
Impact of Deviation Changes to FAR Requirements Unsettled costs must be $1 M $2 M or less AND 10% or less of total contract value Estimated Impact Only 16. 6% 76. 3% of the target population of Do. D contracts are eligible for Quick Closeout 8
Quick Closeout Eligibility Description Amount of Unsettled Costs Eligible for Quick Closeout $10 M FFP with $1 M Cost line item $1, 000 Yes $150, 000 Yes $2, 000 Yes $80 K Cost, All Performance in 1 Year $80, 000 Yes $100, 000 T&M with $15, 000 in Material $15, 000 Yes $1 M T&M with $100, 000 in Material $100, 000 Yes $1 M T&M with $105, 000 in Material $105, 000 Yes $2 M Cost with $250, 000 in final year $250, 000 Yes $2 M Cost, All Performance in 1 year $2, 000 Yes $1 M FFP with $150 K Cost Line Item $10 M Cost with $2 M in Final Year 9
Risk Assessment The contracting officer performs a risk assessment and determines that the use of the quick-closeout procedure is appropriate. The risk assessment shall include— Consideration of the contractor’s accounting, estimating, and purchasing systems Other concerns of the cognizant contract auditors Any other pertinent information 10
The Risk Ultimately the risk is that there may be unanticipated significant audit finding that cannot be recovered on closed contracts 11
Risk Assessment – Sutton’s Law Reporter: Why do you rob banks? Willie Sutton: Because that’s where the money is. Be concerned about risks that impact your settlement 12
Status of Contractor Systems Contract Business Analysis Repository • CBAR 1. 7. 3 is an e. Tool that captures contract-related information about companies. CBAR began development in 2010 by DCMA at the request of the Director of Defense Pricing, to provide Do. D PCOs access to the unique information DCMA maintains for the contracts it administers. Indirect and Direct rates • Status of Business Systems and withholds • CAS Disclosure statements • CAS non compliances • FPRA/FPRR with historical actual costs • IR&D and B&P information. https: //www. dcma. mil/WBT/CBAR/ 13
Concerns of the Auditor* w Timeliness of rate submissions w Business System issues w Cost Accounting Standards w History of unsupported costs w Litigation w Fraud *Or the Divisional Administrative Contracting Officer 14
Other Pertinent Factors w Documented history of Federal Government approved indirect cost rate agreements w Changes to contractor’s rate structure w Volatility of rate fluctuations during affected periods w Mergers or acquisitions w Special contract provisions limiting contractor’s recovery of otherwise allowable indirect costs under cost reimbursement or time-and-materials contracts 15
Steps for Quick Closeout w Select candidate contract(s) w Co-ordinate » Contractor » DCAA » DACO w Obtain information w Analyze information w Negotiate w Execute Agreement » Identify contracts and schedule for submitting w Process final vouchers/invoices 16
Selecting Candidates w Fixed-Price Contracts or Orders with a Cost Line Item w T&M Contracts or Orders w Low Dollar Cost Contracts or Orders w Higher Dollar Contracts or Orders Where There is a Small Amount of Unsettled Costs w Fixed-Price Incentive Contracts or Orders within dollar range 17
Where to Find Rates for Quick Closeout 1. Audit recommended rates 2. DACO negotiated Quick Closeout rates 3. The final indirect cost rates agreed upon for the immediately preceding fiscal year; 4. The provisional billing rates for the current fiscal year 5. Estimated rates based on the contractor's actual data adjusted for any historical disallowances found in prior years’ certified final incurred cost proposals. 1. Decrement Factor Method 2. Decrement Percentage Method CBAR can be the source of the above information https: //www. dcma. mil/WBT/CBAR/ 18
Analyzing Information Sample Training Table: » Comparing the proposed rates to the settled rates for the three years historical audit/settlement information provided by the contractor/DACO/DCAA Notice the difference between the proposed and settled rates. Reviewing this history will let you know if proposed rates for the unsettled fiscal year should be adjusted. 19
Decrement Factor Method w (Proposed Rate –Settled Rate)/Proposed Rate = Decrement Factor w Add decrement factors for 3 prior years and divide by 3 to get the Average Factor w (Proposed Rate)(Average Factor) = Decrement Rate w Proposed Rate –Decrement Rate = Rate Objective 20
Sample Decrement Factor G&A Proposed Rate Settled Rate Proposed- (Proposed. Settled)/Pro Settled posed Rate 2008 15. 23% 15. 57% -0. 34 -0. 022 2009 22. 00% 21. 85% 0. 15 0. 007 2010 22. 30% 19. 86% 2. 44 0. 109 Sum of three years 0. 094 3 year average 0. 031 Unsettled Year Proposed G&A 18. 41% Decrement Rate: 18. 41% X 0. 031=0. 57% Rate Objective: 18. 41% - 0. 57% = 17. 84% 21
Decrement Percentage Method w Divide the Settled Rate by the Proposed Rate to get the Decrement Percentage w Add decrement percentage for 3 prior years and divide by 3 to get the average decrement percentage w Multiply the Proposed Rate times the Average Decrement Percentage to get the Rate Objective 22
Sample Decrement Percentage G&A Proposed Rate Settled Rate Decrement Percentage 2008 15. 23% 15. 57% 1. 022 2009 22. 00% 21. 85% . 993 2010 22. 30% 19. 86% . 891 Sum of 3 Years 2. 906 Average . 969 Unsettled Year Proposed G&A 18. 41% Rate Objective: 18. 41% X. 969 = 17. 84% 23
Gaining Agreement Quick Closeout Escalation Matrix Initial Contact Personnel Action Remarks 1. Contracting Officer Divisional Administrative Contracting Officer Request Segment Level Rates If No, continue to thru ACO 2. Contracting Officer Contractor (Contract Specialist) Agree to list of contracts eligible for QCO If No, continue to escalate 3. Contracting Officer Contractor (Senior Contract Specialist) Explain benefits of QCO vs traditional Closeout If No, continue to escalate 4. Contracts Supervisor Contractor (Comptroller) Demonstrate benefits: • Cash Flow • Cost of contracts If No, continue to escalate 5. Contracts Directors/Branch Chief Contractor VP Finance/Contracts Present beneficial cases that reflect 3. & 4. 24
To Succeed Create a Culture of Negotiation Intelligence: » Thinking Critically » Assessing and Understanding Risk - Business Systems - Company Structure/History - Mergers & Acquisitions » Calculating & Negotiating Rates » Overcoming Roadblocks (Escalation) 25
Best Practices Created by DCMA QCO SMEs: w Create Training Guides/Job Aides » Risk Assessment Checklist* » Quick Reference Guides (Blue Card)* » QCO Formula Spread Sheet* » Training Videos - https: //www. dvidshub. net/video/491850/quick-contractcloseouts w Early and Ongoing Communication with Contractor, DACOs, and DCAA *Available at Procurement Toolbox 26
Any Questions? 27
For more information • • • FAQs Policy Training Contact DPC PDI Capability Summaries www. dodprocurementtoolbox. com 28
Thanks to DCMA for their assistance in creating this presentation 29
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