Overview
This section prescribes the requirements for the Termination Contracting Officer (TCO) to obtain audit services and accounting reviews for settlement proposals following a contract termination. It establishes the mandatory audit thresholds and defines the division of responsibility between the government audit agency and the prime contractor.
Key Rules
- Mandatory Referral: The TCO must refer all prime contractor settlement proposals valued at or above the threshold for certified cost or pricing data (FAR 15.403-4(a)(1)) to the appropriate audit agency.
- Discretionary Reviews: For proposals below the threshold, the TCO may still request an audit if deemed necessary; otherwise, the TCO must perform and document a "desk review."
- Subcontractor Audits: Subcontract settlements must be referred for government audit if they exceed the certified cost or pricing data threshold or if the TCO determines a review is advisable.
- Government Intervention in Subcontracts: The TCO should request a government audit of a subcontractor (rather than relying on the prime's review) if the subcontractor objects to a competitor seeing their records, if the government is already on-site, or if there is a conflict of interest between the prime and sub.
- Prime Contractor Responsibility: Government audits do not relieve the prime contractor of its duty to perform accounting reviews of its subcontractors; the government will periodically audit the prime’s review procedures to ensure adequacy.
- Advisory Nature: Audit reports are advisory only and are intended to assist the TCO in negotiations; they are not binding determinations.
Practical Implications
- Contractors should anticipate significant DCAA (or equivalent) scrutiny for any termination claim exceeding the TINA threshold, requiring meticulous supporting documentation for every cost element.
- Prime contractors must maintain robust internal audit protocols for their subcontractors, as the TCO will evaluate the prime's oversight performance as part of the settlement process.