Overview
This section outlines the administrative requirements and timelines for transitioning a cost-reimbursement contract termination from the voucher-based recovery process to a final settlement proposal. It establishes the procedures for submitting costs, disposing of inventory, auditing proposals, and executing the final settlement agreement.
Key Rules
- Submission Deadlines: Contractors must submit a final settlement proposal for unvouchered costs and fees within one year of the termination date, and submit inventory disposal schedules (Standard Form 1428) within 120 days.
- Cost Exclusions: Settlement proposals must exclude any costs previously disallowed by the Contracting Officer or costs that have been formally questioned but not yet resolved.
- Audit Requirements: The Termination Contracting Officer (TCO) must refer settlement proposals to the appropriate audit agency unless the proposal is limited strictly to a fee adjustment.
- Indirect Cost Handling: To avoid settlement delays, the TCO may negotiate fixed indirect cost amounts or use provisional billing rates as final rates, provided those costs are then removed from the contractor’s general indirect cost pools to prevent double-recovery.
- Settlement Flexibility: While a final settlement cannot include clearly unallowable costs, the TCO and contractor may agree on an "overall settlement" amount without reaching a specific agreement on every individual element of cost.
Practical Implications
- Strict Timelines: Contractors face a significant administrative burden immediately following termination; failure to meet the 120-day inventory or one-year proposal deadlines without an extension can jeopardize cost recovery.
- Expedited Closeouts: The provision allowing the TCO to negotiate indirect costs or use billing rates serves as a vital tool for "fast-tracking" contract closeouts, bypassing the often multi-year wait for final indirect rate audits.
- Bottom-Line Negotiations: Because the TCO can settle on an aggregate basis, contractors have the latitude to compromise on "doubtful" or complex cost items to reach a holistic financial resolution.