42044 Federal Register / Vol. 74, No. 160 / Thursday, August 20, 2009 / Proposed Rules 

DEPARTMENT OF DEFENSE 

GENERAL SERVICES 

ADMINISTRATION 

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION 

48 CFR Parts 4, 42, and 52 

[FAR Case 2008–020; Docket 2009–0031; 

Sequence 1] 

RIN 9000–AL43 

Federal Acquisition Regulation; FAR 

Case 2008–020, Contract Closeout 

AGENCIES: Department of Defense (DoD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA). 

ACTION: Proposed rule. 

SUMMARY: The Civilian Agency 

Acquisition Council and the Defense 

Acquisition Regulations Council 

(Councils) are proposing to amend the 

Federal Acquisition Regulation (FAR) to 

revise procedures for closing out 

contract files. This case revises 

procedures for clearing final patent 

reports and quick-closeout procedure, 

and sets forth a description of an 

adequate final indirect cost rate 

proposal and supporting data. 

DATES: Interested parties should submit 

written comments to the Regulatory 

Secretariat on or before October 19, 

2009 to be considered in the 

formulation of a final rule. 

ADDRESSES: Submit comments 

identified by FAR case 2008–020 by any 

of the following methods: 

•Regulations.gov: http:// 

www.regulations.gov. 

Submit comments via the Federal 

eRulemaking portal by inputting ‘‘FAR 

Case 2008–020’’ into the field 

‘‘Keyword’’. Select the link that 

corresponds with FAR Case 2008–020. 

Follow the instructions provided to 

submit your comment. Please include 

your name, company name (if any), and 

‘‘FAR Case 2008–020’’ on your attached 

document. 

• Fax: 202–501–4067. 

• Mail: General Services 

Administration, Regulatory Secretariat 

(VPR), 1800 F Street, NW., Room 4041, 

ATTN: Hada Flowers, Washington, DC 

20405. 

Instructions: Please submit comments 

only and cite FAR case 2008–020 in all 

correspondence related to this case. All 

comments received will be posted 

without change to http:// 

www.regulations.gov, including any 

personal and/or business confidential 

information provided. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Jeritta A. Parnell, Procurement Analyst, 

at (202) 501–4082 for clarification of 

content. For information pertaining to 

status or publication schedules, contact 

the Regulatory Secretariat at (202) 501– 

4755. Please cite FAR case 2008–020. 

SUPPLEMENTARY INFORMATION: 

A. Background 

In May 2007, the Director of Defense 

Procurement and Acquisition Policy 

(DPAP) completed an assessment of 

public input on systemic issues related 

to contract closeout (72 FR 28654, dated 

May 22, 2007). As a result, changes were 

proposed to the Defense Federal 

Acquisition Regulation Supplement 

(DFARS) and the FAR to improve 

contract closeout. 

The Councils are proposing the 

following FAR revisions— 

(1) Addition of language in FAR 

4.804–5 setting forth the timeframe for 

clearing a required final patent report 

after receipt and procedures allowing 

the contracting officer to proceed with 

contract closeout when a required final 

patent report is not received; 

(2) Addition of language in FAR 

42.705–1 for the cognizant auditor to 

determine adequacy of the contractor’s 

proposal for audit and language 

referencing the clause at FAR 52.216– 

7(d)(2); 

(3) Addition of language in FAR 

42.708 increasing the dollar threshold 

and revising the percentage limitation in 

the existing quick-closeout criteria; 

(4) Addition of language in FAR 

52.216–7 setting forth a description of 

what data shall be submitted in an 

adequate final indirect cost rate 

proposal, (contractors may refer to the 

Model Incurred Cost Proposal in 

Chapter 6 of the Defense Contract Audit 

Agency Pamphlet No. 7641.90, 

Information for Contractors, available at 

http://www.dcaa.mil), what 

supplemental data, required for audit, 

may also be submitted with the 

proposal, and a requirement for the 

contractor to update cumulative costs 

claimed and billed within 60 days of 

rate settlement; 

(5) Addition of language in FAR 

52.216–8 for the contracting officer to 

withhold fixed fee to protect the 

Government’s interest and to encourage 

the timely submission of an adequate 

final indirect cost rate proposal; 

(6) Addition of language in FAR 

52.216–9 for the contracting officer to 

withhold fixed fee-construction to 

protect the Government’s interest and to 

encourage the timely submission of an 

adequate final indirect cost rate 

proposal; and 

(7) Addition of language in FAR 

52.216–10 for the contracting officer to 

withhold incentive fee to protect the 

Government’s interest and to encourage 

the timely submission of an adequate 

final indirect cost rate proposal. 

This is not a significant regulatory 

action and, therefore, was not subject to 

review under Section 6(b) of Executive 

Order 12866, Regulatory Planning and 

Review, dated September 30, 1993. This 

rule is not a major rule under 5 U.S.C. 

804. 

B. Regulatory Flexibility Act 

The Councils do not expect this 

proposed rule to have a significant 

economic impact on a substantial 

number of small entities within the 

meaning of the Regulatory Flexibility 

Act, 5 U.S.C. 601, et seq., because the 

rule does not impose any additional 

requirements on small businesses. The 

changes to FAR Parts 4 and 42 clarify 

and streamline closeout procedures. The 

changes to the clauses at 52.216–8, 

52.216–9, and 52.216–10 allow for a 

reserve to be set-aside to protect the 

Government’s interest. Contracting 

officers already may set aside a reserve 

under current FAR procedures. An 

Initial Regulatory Flexibility Analysis 

has, therefore, not been performed. We 

invite comments from small businesses 

and other interested parties. The 

Councils will consider comments from 

small entities concerning the affected 

FAR Parts 4, 42, and 52 in accordance 

with 5 U.S.C. 610. Interested parties 

must submit such comments separately 

and should cite 5 U.S.C. 601, et seq. 

(FAR case 2008–020), in 

correspondence. 

C. Paperwork Reduction Act 

The Paperwork Reduction Act does 

apply; however, these changes to the 

FAR do not impose additional 

information collection requirements to 

the paperwork burden previously 

approved under OMB Control Numbers 

9000–0067 and 9000–0069. 

List of Subjects in 48 CFR Parts 4, 42, 

and 52 

Government procurement. 

Dated: August 14, 2009. 

Al Matera, 

Director, Office of Acquisition Policy. 

Therefore, DoD, GSA, and NASA 

propose amending 48 CFR parts 4, 42, 

and 52 as set forth below: 

1. The authority citation for 48 CFR 

parts 4, 42, and 52 continues to read as 

follows: 

Authority: 40 U.S.C. 121(c); 10 U.S.C. 

chapter 137; and 42 U.S.C. 2473(c). 


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Federal Register / Vol. 74, No. 160 / Thursday, August 20, 2009 / Proposed Rules 42045 

PART 4—ADMINISTRATIVE MATTERS 

2. Amend section 4.804–5 by revising 

paragraph (a)(2) to read as follows: 

4.804–5 Procedures for closing out 

contract files. 

(a) * * * 

(2) Final patent report is cleared. If a 

final patent report is required, the 

contracting officer may proceed with 

contract closeout in accordance with the 

following procedures, or as otherwise 

prescribed by agency procedures: 

(i) Final patent reports should be 

cleared within 60 days of receipt. 

(ii) If the final patent report is not 

received, the contracting officer shall 

notify the contractor of the contractor’s 

obligations and the Government’s rights 

under the applicable patent rights 

clause. If the contractor fails to respond 

to this notification, the contracting 

officer may proceed with contract 

closeout upon consultation with the 

agency legal counsel responsible for 

patent matters regarding the contractor’s 

failure to respond. 

* * * * * 

PART 42—CONTRACT 

ADMINISTRATION AND AUDIT 

SERVICES 

3. Amend section 42.705–1 by 

revising paragraph (b)(1) to read as 

follows: 

42.705–1 Contracting officer determination 

procedure. 

* * * * * 

(b) Procedures. (1) In accordance with 

the Allowable Cost and Payment clause 

at 52.216–7, the contractor shall submit 

to the contracting officer (or cognizant 

Federal agency official) and to the 

cognizant auditor an adequate final 

indirect cost rate proposal. 

(i) The required content of the 

proposal and supporting data will vary 

depending on such factors as business 

type, size, and accounting system 

capabilities. The contractor, contracting 

officer, and auditor must work together 

to make the proposal, audit, and 

negotiation process as efficient as 

possible. Accordingly, each contractor 

shall submit an adequate proposal to the 

contracting officer (or cognizant Federal 

agency official) and auditor within the 

6-month period following the expiration 

of each of its fiscal years. The 

contracting officer may grant reasonable 

extensions, for exceptional 

circumstances only, if requested in 

writing by the contractor. 

(ii) The cognizant auditor will make a 

written determination on the adequacy 

of the contractor’s proposal for audit. 

(iii) The proposal must be supported 

with adequate supporting data, which 

may be required subsequent to proposal 

submission. 

(iv) See the clause at FAR 52.216– 

7(d)(2) for the description of an 

adequate final indirect cost rate 

proposal and supporting data). 

* * * * * 

4. Amend section 42.708 by revising 

the introductory text of paragraph (a), 

(a)(1), and (a)(2) to read as follows: 

42.708 Quick-closeout procedure. 

(a) The contracting officer responsible 

for contract closeout shall negotiate the 

settlement of indirect and direct costs 

for a specific contract, task order, or 

delivery order to be closed, in advance 

of the determination of final direct costs 

and indirect rates, if— 

(1) The contract, task order, or 

delivery order is physically complete; 

(2) The amount of unsettled costs to 

be allocated to the contract, task order, 

or delivery order is relatively 

insignificant. Cost amounts will be 

considered relatively insignificant 

when— 

(i) The total unsettled indirect and 

direct costs to be allocated to any one 

contract do not exceed $4,000,000 and 

do not exceed 20 percent of the total 

contract, task order, or delivery order 

amount; and 

(ii) The contracting officer performs a 

risk assessment and determines that the 

use of the quick-closeout procedure is 

appropriate. The risk assessment shall 

include consideration of the contractor’s 

accounting, estimating, and purchasing 

systems; direct and indirect costs; other 

concerns of the cognizant contract 

auditors; and any other pertinent 

information. 

* * * * * 

PART 52—SOLICITATION PROVISIONS 

AND CONTRACT CLAUSES 

5. Amend section 52.216–7 by 

revising the date of the clause; adding 

a sentence to the end of paragraph 

(d)(2)(i); adding paragraphs (d)(2)(iii) 

through (d)(2)(v); and adding two 

sentences to the end of paragraph (d)(5) 

to read as follows: 

52.216–7 Allowable Cost and Payment. 

* * * * * 

ALLOWABLE COST AND PAYMENT 

(DATE) 

* * * * * 

(d) * * * 

(2)(i) * * * See 42.705–1(b)(1). 

* * * * * 

(iii) An adequate indirect cost rate proposal 

shall include the following data unless 

otherwise specified by the cognizant Federal 

agency official (CFAO): 

(A) Summary of claimed indirect expense 

rates. 

(B) General and Administrative (G&A) 

expenses (final indirect cost pool). 

(C) Overhead expenses (final indirect cost 

pool). 

(D) Occupancy expenses (intermediate 

indirect cost pool). 

(E) Claimed allocation bases. 

(F) Facilities capital cost of money factors 

computation. 

(G) Reconciliation of books of account and 

claimed direct costs. 

(H) Schedule of direct costs by contract/ 

subcontract and indirect expense applied at 

claimed rates, as well as Schedule H–1, 

Government participation percentages. 

(I) Schedule of cumulative direct and 

indirect costs claimed and billed. 

(J) Subcontract information. 

(K) Summary of hours and amounts on 

T&M/labor hour contracts. 

(L) Reconciliation of total payroll to total 

labor distribution. 

(M) Listing of decisions/agreements/ 

approvals and description of accounting/ 

organizational changes. 

(N) Certificate of final indirect costs. 

(O) Contract closing information for 

contracts completed in this fiscal year. 

(iv) The following supplemental 

information, which will be required during 

the audit process, may also be submitted 

with the contractor’s final indirect cost rate 

proposal: 

(A) Comparative analysis of indirect 

expense pools detailed by account with prior 

fiscal year and budgetary data. 

(B) General Organization and Executive 

compensation information for top five 

executives. 

(C) List of ACOs and PCOs for each flexibly 

priced contract. 

(D) Identification of and information on 

prime contracts under which the contractor 

performs flexibly priced effort as a 

subcontractor. 

(E) List of work sites and the number of 

employees assigned to each site (identify the 

number of direct and indirect employees). 

(F) Description of accounting system. 

(G) Procedures for identifying and 

handling unallowable costs. 

(H) Certified financial statements or other 

financial data (e.g., trial balance, 

compilation, review, etc.). 

(I) Management letter from outside CPAs 

concerning any internal control weaknesses. 

(J) Actions that have been and/or will be 

implemented to correct the weaknesses 

described in paragraph (d)(2)(iv)(I) of this 

section. 

(K) List of internal audit reports issued in 

this fiscal year. 

(L) Annual internal audit plan of 

scheduled audits to be performed in this 

fiscal year. 

(M) Federal and state income tax returns. 

(N) Securities and Exchange Commission 

10–K annual report. 

(O) Minutes from board of directors 

meetings. 

(P) Listing of delay and disruptions and 

termination claims submitted which contain 

costs relating to the subject fiscal year. 

(Q) Contract briefings. Contract briefings 

generally include a synopsis of all pertinent 


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42046 Federal Register / Vol. 74, No. 160 / Thursday, August 20, 2009 / Proposed Rules 

contract provisions, such as: contract type, 

contract amount, product or service(s) to be 

provided, applicable Cost Principles, contract 

performance period, rate ceilings, advance 

approval requirements, pre-contract cost 

allowability limitations, and billing 

limitations. A typical format for the briefings 

is shown at the end of this model. A 

contractor need not use the example form if 

the information is already generated and 

available within its automated accounting or 

billing systems. 

(v) The Contractor shall update the 

schedule of cumulative direct and indirect 

costs claimed and billed, as required in 

paragraph (d) above, within 60 days after 

settlement of final indirect cost rates. 

* * * * * 

(5) * * * The completion invoice or 

voucher shall include settled subcontract 

amounts and rates. The prime contractor is 

responsible for settling subcontractor 

amounts and rates included in the 

completion invoice or voucher and providing 

status of subcontractor audits to the 

contracting officer upon request. 

* * * * * 

6. Amend section 52.216–8 by 

revising the introductory paragraph, the 

date of the clause, and paragraph (b) to 

read as follows: 

52.216–8 Fixed Fee. 

As prescribed in 16.307(b), insert the 

following clause: 

FIXED FEE (DATE) 

* * * * * 

(b) Payment of the fixed fee shall be made 

as specified in the Schedule; provided that 

the Contracting Officer withholds a reserve 

not to exceed 15 percent of the total fixed fee 

or $100,000, whichever is less, to protect the 

Government’s interest. The Contracting 

Officer shall release 75 percent of all fee 

withholds under this contract after receipt of 

an adequate certified final indirect cost rate 

proposal covering the year of physical 

completion of this contract, provided the 

Contractor has satisfied all other contract 

terms and conditions, including the 

submission of the final patent and royalty 

reports, and is not delinquent in submitting 

final vouchers on prior years’ settlements. 

The Contracting Officer may release up to 90 

percent of the fee withholds under this 

contract based on the Contractor’s past 

performance related to the submission and 

settlement of final indirect cost rate 

proposals. 

(End of clause) 

7. Amend section 52.216–9 by 

revising the introductory paragraph, the 

date of the clause, and paragraph (c) to 

read as follows: 

52.216–9 Fixed Fee—Construction. 

As prescribed in 16.307(c), insert the 

following clause: 

FIXED FEE—CONSTRUCTION 

(DATE) 

* * * * * 

(c) The Contracting Officer shall withhold 

a reserve not to exceed 15 percent of the total 

fixed fee or $100,000, whichever is less, to 

protect the Government’s interest. The 

Contracting Officer shall release 75 percent of 

all fee withholds under this contract after 

receipt of an adequate certified final indirect 

cost rate proposal covering the year of 

physical completion of this contract, 

provided the Contractor has satisfied all 

other contract terms and conditions, 

including the submission of the final patent 

and royalty reports, and is not delinquent in 

submitting final vouchers on prior years’ 

settlements. The Contracting Officer may 

release up to 90 percent of the fee withholds 

under this contract based on the Contractor’s 

past performance related to the submission 

and settlement of final indirect cost rate 

proposals. 

(End of clause) 

8. Amend section 52.216–10 by 

revising the introductory paragraph, the 

date of the clause, and paragraph (c) to 

read as follows: 

52.216–10 Incentive Fee. 

As prescribed in 16.307(d), insert the 

following clause: 

INCENTIVE FEE (DATE) 

* * * * * 

(c) Withholding of payment. (1) Normally, 

the Government shall pay the fee to the 

Contractor as specified in the Schedule. 

However, when the Contracting Officer 

considers that performance or cost indicates 

that the Contractor will not achieve target, 

the Government shall pay on the basis of an 

appropriate lesser fee. When the Contractor 

demonstrates that performance or cost clearly 

indicates that the Contractor will earn a fee 

significantly above the target fee, the 

Government may, at the sole discretion of the 

Contracting Officer, pay on the basis of an 

appropriate higher fee. 

(2) Payment of the incentive fee shall be 

made as specified in the Schedule; provided 

that the Contracting Officer withholds a 

reserve not to exceed 15 percent of the total 

incentive fee or $100,000, whichever is less, 

to protect the Government’s interest. The 

Contracting Officer shall release 75 percent of 

all fee withholds under this contract after 

receipt of an adequate certified final indirect 

cost rate proposal covering the year of 

physical completion of this contract, 

provided the Contractor has satisfied all 

other contract terms and conditions, 

including the submission of the final patent 

and royalty reports, and is not delinquent in 

submitting final vouchers on prior years’ 

settlements. The Contracting Officer may 

release up to 90 percent of the fee withholds 

under this contract based on the Contractor’s 

past performance related to the submission 

and settlement of final indirect cost rate 

proposals. 

* * * * * 

[FR Doc. E9–19937 Filed 8–19–09; 8:45 am] 

BILLING CODE 6820–EP–S 


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