Quick Closeout Guide for Contracting Officers | Reduce Administrative Costs, Risk Assessment, Eligibility Criteria

1. Presented by David Guinasso, supporting OSD A&S DPC www.dodprocurementtoolbox.com A Quick Guide To Quick Closeout

2. Agenda What is Quick Closeout When can it be used Why Quick Closeout The steps of Quick Closeout 2

3. 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

4. Benefits of Using Quick Closeout Highlighted Benefits Identified by Workforce: Reduces Overage Backlog Reduces administrative costs Removes need for audit on low risk contracts Enables reuse of expiring funds Prevents cancelling funds and need for replacement funds Close contracts before data is too old People who worked the program are still likely to be employed and make it easier to close contract Maintain employee’s skill to closeout contracts Will not have to maintain obsolete systems 4

5. 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

6. 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

7. Relatively Insignificant Class Deviation – Quick-Closeout Procedures Threshold (2019-O0009)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 fixed-price 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 Procedure Class Deviation (DCMA 17-142), dated August 15, 2017. 7

8. Impact of Deviation Changes to FAR Requirements Estimated Impact Only 16.6% 76.3% of the target population of DoD contracts are eligible for Quick Closeout Unsettled costs must be $1M $2M or less AND 10% or less of total contract value 8

9. Quick Closeout Eligibility 9

10. 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

11. The Risk Ultimately the risk is that there may be unanticipated significant audit finding that cannot be recovered on closed contracts 11

12. 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

13. Status of Contractor Systems Contract Business Analysis Repository • CBAR 1.7.3 is an eTool 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 DoD 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

14. Concerns of the Auditor* Timeliness of rate submissions Business System issues Cost Accounting Standards History of unsupported costs Litigation Fraud *Or the Divisional Administrative Contracting Officer 14

15. Other Pertinent Factors Documented history of Federal Government approved indirect cost rate agreements Changes to contractor’s rate structure Volatility of rate fluctuations during affected periods Mergers or acquisitions Special contract provisions limiting contractor’s recovery of otherwise allowable indirect costs under cost reimbursement or time-and-materials contracts 15

16. Steps for Quick Closeout Select candidate contract(s) Co-ordinate Contractor DCAA DACO Obtain information Analyze information Negotiate Execute Agreement Identify contracts and schedule for submitting Process final vouchers/invoices 16

17. Selecting Candidates Fixed-Price Contracts or Orders with a Cost Line Item T&M Contracts or Orders Low Dollar Cost Contracts or Orders Higher Dollar Contracts or Orders Where There is a Small Amount of Unsettled Costs Fixed-Price Incentive Contracts or Orders within dollar range 17

18. Where to Find Rates for Quick Closeout Audit recommended rates DACO negotiated Quick Closeout rates The final indirect cost rates agreed upon for the immediately preceding fiscal year; The provisional billing rates for the current fiscal year Estimated rates based on the contractor's actual data adjusted for any historical disallowances found in prior years’ certified final incurred cost proposals. Decrement Factor Method Decrement Percentage Method CBAR can be the source of the above information https://www.dcma.mil/WBT/CBAR/ 18

19. 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

20. Decrement Factor Method (Proposed Rate –Settled Rate)/Proposed Rate= Decrement Factor Add decrement factors for 3 prior years and divide by 3 to get the Average Factor (Proposed Rate)(Average Factor) = Decrement Rate Proposed Rate –Decrement Rate = Rate Objective 20

21. Sample Decrement Factor 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

22. Decrement Percentage Method Divide the Settled Rate by the Proposed Rate to get the Decrement Percentage Add decrement percentage for 3 prior years and divide by 3 to get the average decrement percentage Multiply the Proposed Rate times the Average Decrement Percentage to get the Rate Objective 22

23. Sample Decrement Percentage Unsettled Year Proposed G&A 18.41% Rate Objective: 18.41% X .969 = 17.84% 23

24. Gaining Agreement Quick Closeout Escalation Matrix 24

25. 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

26. Best Practices Best Practices Created by DCMA QCO SMEs: 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-contract-closeouts Early and Ongoing Communication with Contractor, DACOs, and DCAA *Available at Procurement Toolbox 26

27. Any Questions? 27

28. For more information • FAQs • Policy • Training • Contact DPC PDI • Capability Summaries www.dodprocurementtoolbox.com 28

29. Thanks to DCMA for their assistance in creating this presentation 29