Contract Closeout for Cost Type Contracts

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2 Contract Closeout for Cost Type Contracts Breakout Session #: E16 Johanna P. Akinfenwa, MSA, Contracts Team Chief, DCMA Jennifer Quinones, CPA, MSA, Deputy Assistant Director, Policy and Plans, DCAA Cassandra McDuff, Chief, Program Coordination Division, MOCAS Joint Program Management Office (JPMO), DFAS Date: Tuesday, July 26 Time: 2:30pm 3:45pm

3 Break Out Section Objectives Contract Lifecycle Why it is so important to consider closeout in all phases of the contract lifecycle? Stakeholder Roles and Responsibility through the life cycle of the contract Why timely and efficient closeout is important? Contract Closeout Overview FAR Mandated Time Periods for Closeout Major Steps in Contract Closeout Contract Closeout Challenges Financial Impacts Appropriation Life Cycle DOD Wide Effort to Reduce Its Contract Closeout Backlog Tri-Agency Working Group DCAA, DCMA & DFAS Initiatives Closeout Best Practices and Guidance Solutions for Problem Closures 2

4 Contract Life Cycle Pre Contract Structure/Award Funding Contract Closeout Contract Performance and Administration TIP: Consider closeout in the beginning stages of the contract though the contract performance to successfully close the contract in efficient and timely manner. 3

5 Buying Command DFAS Solicitation Requirement Source Selection Award Pre-Award Funding Analyze/Audit submission and Negotiation Document Relevant Information in CBAR Provides acquisition insight on business intelligence DCMA ACO Set up LOA & Financial Record Pre-Award Accounting System Pre-Award Estimating System DCAA 4

6 During Performance Buying Command Monitor Funding Accept Deliveries DCMA ACO Process Contract Modifications Adjust Funding & Monitoring DFAS Monitor Funding Accounting/Billing System Audit Process Withholds DCAA Maintain Gov. Financial Record Pay Vouchers Process Vouchers/ Perform Payment Reviews Annual Audit of Incurred Cost 5

7 Close Out Buying Command Process Contract Modifications Reconcile Quantity before accepting final voucher Sign & Process Final Voucher Preliminary ULO Review, reconcile payment differences Reconcile and Close Out Contract Resolve remaining funds Accept Final Delivery Confirm all Audits are Complete and documentation is submitted Consider Quick Close Out Process DCMA ACO DCAA DFAS Pay Final Voucher Reconcile and Close Accounting File Audit of Incurred Cost Provide Final CACWS or Evaluation of Final Voucher Support Quick Close Out Procedures 6

8 Stakeholders Roles Services Additional Funding Additional Funding Property Disposition Property Disposition Replacement Funds Replacement Funds Product Acceptance Product Acceptance Funds Management Negotiation of Rates Funds Management Complete all Negotiation of Rates Closeout Complete all Closeout Actions Actions Final OH Rates Final OH Rates Indirect Cost Audits Indirect Cost Audits CACWS CACWS Final Voucher Final Voucher ONE Review Review FOCUS Reconciliations Indirect Cost Rate Prop Part B (FFP<100K) Year End Rate Adjustments Indirect Cost Rate Prop Final Payment Reconciliations Final Invoice//Vouchers Year End Rate Adjustments Part B (FFP<100K) Settle Subcontracts Final Invoice//Vouchers Final Payment Settle Subcontracts 7

9 Industry Expectations in the Contract Lifecycle Pre-Award Submit Proposal Support Audit of Proposal and Business System if applicable During Performance Incurred Cost Rate Proposal Submission of Invoice/Voucher Year End Rate Adjustments Monitor Cancelling Funds Submit CDRLs per Contract Requirements Submit Final Invoice/Voucher Closeout Settled Subcontracts Submit Closeout Forms (Example: Final Patent Report DD 882) For Cost Reimbursable: Adhere to FAR Allowable Cost of Payment Clause 8

10 Why timely and efficient closeout is important? Save Government Industry Receive money due to Indirect cost rates under runs and disallow direct costs De-obligated funds Limit future liability Collect debt (Indirect Cost Rates Over Runs) Receipt of final payment Expensive to maintain records Reduce time awaiting for support documentation Compliance with FAR Requirements Minimized time searching for documents Personnel involved in the pre-award and performance can proceed with the closeout Personnel who worked on the contract can assist with the contract closeout process 9

11 Contract Closeout Time Standards Time Standard FAR Cost-Type (36 months) Overhead rates are negotiated Direct cost are negotiated Subcontract rates and cost are settled Line items balanced Property & Patents are cleared Final voucher processed Contractor paid in full All contract terms & conditions satisfied All Other (20 months) Overhead Rates have been negotiated Direct Cost are negotiated Subcontract rates and cost are settled Line items balance Property & Patents are cleared Final voucher processed Contractor paid in full All contract terms & conditions satisfied Fixed Priced (6 months) Final invoice submission Line items balance Property & Patents are cleared Contractor paid in full All contract terms & conditions satisfied FAR directs payment office to close contract upon issuance of final invoice/voucher payment 10

12 Picture of the Closeout Process How a cost contract moves from bucket to bucket and finally closes in MOCAS. Final Incurred Cost Proposal Submission Step 1 Step 2 Annual Incurred Cost Submission (ICS) Audited/Low Risk Memo Final Indirect Cost Rate Agreement Letter Settlement of Final Indirect Rates Step 3 Final Voucher for Physically Completed Contract within 120 days of Final Indirect Cost Submission of Final Voucher Step 4 Rate Agreement Letter Cumulative Allowable Cost Worksheet Review and Approval of Final Voucher Closed 11

13 Major Steps in Contract Closeout 12

14 Contract Closeout Challenges Submission of Final Indirect Cost Rate Proposal Final Invoice & Release of Claims Rate Agreement not Signed Pending Settlement of Subcontractor Contractor DCAA Submission of Adequate IC Proposals CACW Incurred Cost Audit Backlog Canceling Funds Reconciliation Balancing of CLINS Cancelled Funds - Requires Current Year Funds DFAS DCMA Awaiting Audit Invoice against Cancelled Funds Contracts in Litigation KTR Has Failed to Submit Final Voucher and Closing Documents KTR Filed Bankruptcy KTR No Longer in Business 13

15 Financial Impacts FY16 Q2 DOD Non-Federal Accounts Payable $19.2B MOCAS Cancelled Unliquidated Obligations Army $1.3B Air Force $1.2B Navy $887M Marine Corps $109M Defense Agencies $32M 14

16 Appropriation Life Cycle Current/Available Expired Cancelled Available for Obligation and Payment Available for Payment Must Obtain New Funding Appropriation Types Available Expired Cancellation Date O & M = 1 Year + 5 Years = September 30th of the 6th year R & D = 2 Year + 5 Years = September 30th of the 7th year PROC = 3 Year + 5 Years = September 30th of the 8th year MILCON = 5 Year + 5 Years = September 30th of the 10th year 15

17 Tri-Agency Working Group Strategic Alignment of Priorities DFAS (Service s) Financial Records DCAA s Audit Plan DCMA s Closeout Strategy Targeting funding cancelling in FY16 & FY17 16

18 DCAA Initiative Incurred Cost Strategy Eliminating the Incurred Cost Backlog is an initiative under DoD s Better Buying Power 2.0 Developed a multi-pronged approach to working down backlog in an effective manner Dedicated audit teams Multi-year audit techniques Increased staffing dedicated to Incurred Cost Implemented a low-risk sampling approach to performing incurred cost audits 17

19 Results of DCAA Initiatives 12,000 $250 Years Closed 10,000 8,000 6,000 $200 $150 $100 Dollars Examined (Billions) 4,000 2,000 $50 0 FY 11 FY 12 FY 13 FY 14 FY 15 Years Closed Dollars Examined $- 18

20 DCMA Initiatives Acquisition Enterprise Initiative (Strategic Plan) Reduce Overaged Contract Closeout Backlog Extended the Quick-Closeout Class Deviation to September 30, 2017 Established Process Working Group Contract Closeout Business Process Reengineering Dedicated Contract Closeout Teams OCONUS (FFP and Cost Reimbursable) CONUS (Cost Reimbursable) Developed Contract Closeout Training DAU and DCMA Established Goal to reduce 20% of overage contracts in DCMA Control 19

21 Result of DCMA Initiatives 20

22 Result of DCMA Initiatives 2500 Overage Fixed Price Contracts Straight Line Reduction Total FP Overage 50% Reduction Target % Current Completion June 2015 Baseline:

23 DFAS Initiatives Increased Simplified Contract Threshold Increased from $100K to $500K Partner on Legislative Relief Proposal Contracts Prior to FY2000 No Further Deliverables Un-reconcilable Published FY16 Yearend Guidance Focused visibility of canceling funds balances Highlight FYE invoicing instructions and submission deadlines 22

24 Contract Closeout Best Practices Payment Timely Submission of Final Voucher Adhere to contractual billing terms Use MOCAS Data Sharing Initiative (MDSI) Promptly report payment discrepancies Canceling Funds Know appropriation life-cycle Remember Fiscal Yearend September 30 th Timely submission of invoice Partner with your contracting officers Reconciliation Impacts Complex Contract Structures Billing and payment errors Delayed payment discrepancy reporting/resolution 23

25 Contract Closeout Guidance and Best Practices Contractor Guidance and Best Practices Adequate and Timely Submission of Incurred Cost Proposal Identify any contracts that may qualify for quick closeout Adjust interim voucher within 30 days of settled final indirect cost rates Submission of Final Voucher within 120 days of Settled Rates Close subcontracts in a timely manner Cumulative Allowable Cost Worksheet (CACWS) Meetings with Stakeholders (Monthly or Quarterly) Government Guidance DCAA Information Pamphlet for Contractor DCMA Instructions 135, Contract Closeout DD Form 1597 Contract Closeout Check-List FAR (d) Allowable Cost and Payment Clause FAR Procedures for Closing Out Contract Files FAR 42,708 Quick Closeout Procedures FAR Home Site and 24

26 Solutions for Problem Closures Unusual Circumstances Possible Solutions 1. Contractor is No Longer in Business Administrative Unilateral Closeout 2. Contractor is Bankrupt Coordinate with Office of General Counsel 3. Contractor Has Failed to Submit Indirect Cost Data 4. Contractor is Unable to Submit Supporting Indirect Cost Data 5. Contractor Has Failed to Submit Final Invoice/Voucher o Unilateral Determination of Indirect Cost Rates o Unilateral Determination of Final Rates/Prices Administrative Unilateral Closeout Fixed Price Contracts o Administrative Unilateral Closeout Cost Reimbursable Contracts o Unilateral Determination of Final Price o Accelerated Final Voucher Preparation/Review 25

27 Contact Information Johanna P. Akinfenwa, Contracts Team Chief One Team, One Voice delivering global acquisition insight that matters. Supporting The Warfighter, Protecting The Taxpayer (832) Jennifer Quinones, Deputy Assistance Director, Policy & Plans (703) One Team, One Mission Cassandra McDuff, Chief, Program Coordination, MOCAS JPMO (614)