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    Is it customary to change the CLIN from T&M to FFP after the contract end date? Please explain the reasoning so that I may better understand why this is done. Again, if it is customary to change the CLIN from T&M to FFP, what are the repercussions if it is not changed?


    Answer

    1. The FAR references quoted below in pertinent part are applicable to this response.

    FAR 16.307 -- Contract Clauses
    (a)(1) The contracting officer shall insert the clause at 52.216-7, Allowable Cost and Payment, in solicitations and contracts when a … a time-and-materials contract … is contemplated. [T]he clause at 52.216-7 applies in conjunction with the clause at 52.232-7, but only to the portion of the contract that provides for reimbursement of materials (as defined in the clause at 52.232-7) at actual cost.

    FAR 42.708 -- Quick-Closeout Procedure
    (a) 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 set forth in 42.705, if –
      (2) The amount of unsettled direct costs and indirect costs to be allocated to the contract, task order, or delivery order is relatively insignificant. Cost amounts will be considered relatively insignificant when the total unsettled direct costs and indirect costs to be allocated to any one contract, task order, or delivery order does not exceed the lesser of— (i) $1,000,000; or (ii) 10 percent of the total contract, task order, or delivery order amount;
      (3) The contracting officer performs a risk assessment and determines that the use of the quick-closeout procedure is appropriate.
      (4) Agreement can be reached on a reasonable estimate of allocable dollars.

    FAR 52.216-7 -- Allowable Cost and Payment
    (d) Final indirect cost rates.
      (1) Final annual indirect cost rates and the appropriate bases shall be established in accordance with Subpart 42.7 of the Federal Acquisition Regulation (FAR) in effect for the period covered by the indirect cost rate proposal.
      (2)(ii) The proposed rates shall be based on the Contractor’s actual cost experience for that period. The appropriate Government representative and the Contractor shall establish the final indirect cost rates as promptly as practical after receipt of the Contractor’s proposal.
      (3) The Contractor and the appropriate Government representative shall execute a written understanding setting forth the final indirect cost rates.

    (f) Quick-closeout procedures. Quick-closeout procedures are applicable when the conditions in FAR 42.708(a) are satisfied.

    FAR 52.232-7 -- Payments Under Time-and-Materials and Labor-Hour Contracts
    The Government will pay the Contractor as follows upon the submission of vouchers approved by the Contracting Officer or the authorized representative:

    (b) Materials.
    (1) For the purposes of this clause— (ii) Materials means—
      (A) Direct materials, including supplies transferred between divisions, subsidiaries, or affiliates of the Contractor under a common control;
      (B) Subcontracts for supplies and incidental services for which there is not a labor category specified in the contract;
      (C) Other direct costs (e.g., incidental services for which there is not a labor category specified in the contract, travel, computer usage charges, etc.); and
      (D) Applicable indirect costs.

    (4) Payment for materials is subject to the Allowable Cost and Payment clause of this contract. The Contracting Officer will determine allowable costs of materials in accordance with Subpart 31.2 of the Federal Acquisition Regulation (FAR) in effect on the date of this contract.

    (f) Audit. At any time before final payment under this contract, the Contracting Officer may request audit of the invoices or vouchers and supporting documentation. Each payment previously made shall be subject to reduction to the extent of amounts, on preceding vouchers, that are found by the Contracting Officer or authorized representative not to have been properly payable and shall also be subject to reduction for overpayments or to increase for underpayments. Upon receipt and approval of the voucher designated by the Contractor as the “completion voucher” and supporting documentation, and upon compliance by the Contractor with all terms of this contract …, the Government shall promptly pay any balance due the Contractor.

    2. Based on the limited amount of information provided in this inquiry, we assume that the T&M CLIN covers a non-commercial item and therefore, pursuant to FAR 16.307(a)(1), clauses FAR 52.216-7 and FAR 52.232-7 are included in the contract as being applicable to this T&M CLIN. The procedures stipulated in these clauses, some excerpts of which are described above, are designed to ensure that the Government does not overpay the contractor on T&M contracts, especially with regard to material costs and any associated indirect costs. As set forth in FAR 52.216-7(d) or (f), either applicable final indirect costs rates or quick-closeout rates must be negotiated and used to compute the final payment of such costs. Also, actual claimed material costs, as well as the actual claimed labor hours expended, must be audited and verified prior to final payment as required by FAR 52.232-7(f), even if interim payments had been made during the course of performance.

    3. Therefore, simply converting the T&M CLIN to an FFP CLIN would by-pass these required and even necessary procedures to ensure that the Government pays a final, fair and reasonable price for T&M efforts. Given that the procedures as stipulated by these clauses would not be followed, we would conclude that changing the CLIN from T&M to FFP is not, and should not be, a customary business practice on the part of the Government. The terms and conditions set forth in the contract that are applicable to the T&M CLIN must remain in force.


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