Contract Closeouts Delayed, Incurred Cost Audit Backlog to Blame

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Submitting incurred cost submissions and closing out flexibly priced contracts in a timely manner is important for contractors, especially for those who are owed money due to indirect rate overruns, lagging invoices, or fee retention. The Federal Acquisition Regulation (FAR) states that flexibly priced contracts should be closed out within 36 months of completion. Historically, this goal has rarely been met. The General Accountability Office (GAO), in a report dated September 28, 2017, cited three reasons for the delays in closing out contracts:
 

• Agencies don’t prioritize contract close outs,
• Agencies don’t utilize a centralized, structured, metric driven approach to manage the close out process, and
• The incurred cost audit backlog.

Though the first two reasons are undoubtedly important, the biggest problem is the incurred cost audit backlog because flexibly priced contracts cannot be closed out until the incurred cost audit is complete. The good news is that the incurred cost audit backlog is now down to 14,208, less than one-half of the 2011 backlog. The bad news is that not only did the DCAA fail to meet its initial goal of eliminating the backlog by 2016, they now acknowledge that the revised goal of 2018 will not be met either. Risk-based, multi-year audits, and shifting responsibility for civilian agency contractor incurred costs audits to the civilian agencies are the primary factors in reducing the backlog. According to the GAO, insufficient staffing is why the backlog is still so large.

While contractors cannot solve the DCAA’s staffing problems, there are some actions that can be taken.

1. Submit adequate incurred costs submissions as early as possible. Incurred cost submissions are entered into the audit que as soon as they are determined to be adequate. Inadequate incurred cost submissions are returned to the contractor and are not included in the backlog calculation. Consequently, the DCAA has an incentive to deem incurred cost submission to be inadequate. Do not give them any excuse to do that.
2. Close out subcontracts as soon as possible.
3. Review contracts to see if they qualify for the FAR Part 42.708 quick closeout process
4. Shorten the length of the incurred cost audit by maintaining pertinent documentation and establish a point of contact to “manage” the audit and be responsive to auditor requests for information.
5. Contact the contracting officer as soon as the incurred cost audit is complete to identify and schedule the remaining close out activities.

About the Author: Thomas Marcinko is a Principal Consultant in Aronson’s Government Contract Services Group. He has over 25 years of government contracts experience, including proposal development, contract and subcontract administration, FAR compliance, small business programs, and government audits.