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  • Question

    How are other contracting offices handling the situation where the final indirect cost rates (FAR 42.705) are not audited and approved by the DCAA until after the appropriated funds have lapsed for disbursement purposes?


    Answer

    During contract performance the contractor bills the Government in accordance with the allowable cost and payments clause (FAR 52.232-1, et al) using “billing” rates approved by the Administrative Contracting Officer (ACO).  These billing rates are “provisional” in nature.  Adjustments to these payments will later be made pending the establishment of “final” rates.  [FAR 52.242-4] It will not be absolutely known whether these billing rates were too high, or too low, until the final rates are determined. 

    An absolutely necessary part of determining the final rates is the government receiving a timely proposal of sufficient quality from the contractor.  Although penalties may apply for late proposals (
    FAR 42.709-3 and 52.242-3), if the tentative final rates look like they are going to be lower than the billing rates, then there may nevertheless be delays in obtaining a final rate proposal with sufficient support.

    After funds have been obligated they may be disbursed for up to five (5) years following the date of obligation.  During this period, it may very well be true that disbursements made using the billing rates may need to be adjusted upwards if/when the final rates come in higher.  But as discussed above, this process starts with the receipt of a timely, quality proposal. If it is clear to the contractor that they are owed legitimate, allowable costs then one would expect a timely, quality proposal to finalize their rates. If the five (5) year window is closing, the contractor will need to be reminded to expedite the submission of their timely, quality proposal.  


    Upon receipt of a timely, quality proposal the government is now in a better position to assess the risk of overpayment. If the five (5) year window is closing, the government might make another provisional billing adjustment while the rates are being audited and finalized.  This might be done in order to avoid losing the obligated funds altogether only to have to replace them with other (current year) funding later. Of course the ACO will want to work closely with the auditors in performing this risk assessment and any intermediate billing adjustment.


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