Overview
FAR Part 42 prescribes the policies and procedures for managing a contract after it has been awarded, specifically focusing on contract administration and audit services. It establishes the framework for how government agencies coordinate to monitor contractor performance, verify costs, and manage administrative changes to ensure the government receives what it contracted for at the agreed-upon price.
Key Rules
- Cognizance and Continuity: To ensure consistency, the "cognizant" agency (usually the one with the largest dollar amount of negotiated contracts) typically handles administration for at least five years before a change in cognizance is considered.
- Avoidance of Duplication: Agencies are required to use interagency agreements to avoid duplicate audits, inspections, or reviews of the same contractor, utilizing the Economy Act for reimbursements.
- Delegation of Functions: While a Procuring Contracting Officer (PCO) may retain certain functions, 71 specific administrative tasks (such as property administration and quality assurance) are normally delegated to a Contract Administration Office (CAO).
- Indirect Cost Rates: Contractors must submit a certificate of indirect costs; the government imposes strict penalties, including interest, for including "expressly unallowable" costs in indirect cost rate proposals.
- Novation and Name Changes: Contractors cannot simply "sell" a government contract. A formal novation agreement is required if a contractor's assets are transferred, and a change-of-name agreement is required for legal name shifts without asset transfer.
- Quick-Closeout Procedure: To expedite contract completion, COs can negotiate the settlement of indirect costs before final rates are established if the amounts are relatively small and meet specific risk criteria.
Responsibilities
- Contracting Officer (PCO): Responsible for the overall contract, delegating specific administration tasks to the ACO, and initiating stop-work orders or suspensions.
- Administrative Contracting Officer (ACO): Performs delegated functions including negotiating forward pricing rate agreements (FPRAs), determining cost allowability, approving accounting systems, and managing contract closeout.
- Contract Auditor (e.g., DCAA): Responsible for analyzing the contractor’s financial records, verifying the adequacy of cost control systems, and providing advice to the CO on the acceptability of incurred and estimated costs.
- Contract Administration Office (CAO/DCMA): Provides on-site surveillance, performs pre-award surveys, monitors industrial labor relations, and ensures compliance with quality and safety requirements.
- Contractor: Must maintain an adequate accounting system, submit timely performance data, notify the government of potential cost overruns, and provide certifications for indirect cost proposals.
Practical Implications
- Post-Award Success: Subpart 42.5 emphasizes post-award orientations. For contractors, these meetings are the most critical time to clear up ambiguities regarding technical requirements and reporting schedules before performance begins.
- Audit Readiness: Because the government has the right to audit financial records and "disallow" costs even after they have been incurred, contractors must maintain rigorous, FAR-compliant accounting systems to avoid significant financial clawbacks.
- Business Transitions: If a company is undergoing a merger or acquisition, Part 42.12 dictates a complex legal process (Novation). Failure to follow these steps correctly can lead to a "technical default" where the government refuses to recognize the new owner and stops payments.
- Performance Ratings: Through Subpart 42.15 (CPARS), the administrative record of a contractor’s performance becomes a permanent "report card" used in future "Best Value" selections, making daily compliance with Part 42 functions a matter of future revenue.