Incurred Cost Audits

Closing out Government contracts involves a number of tasks, such as verifying that goods or services were provided, making final payment to the contractor, and deobligating excess funds. A contract is generally eligible to be closed once all option provisions have expired, the contractor has completed performance, and the government has accepted the final delivery of goods or services, or when the government has provided the contractor a notice of complete contract termination. From this point, contracts are considered physically complete, and should be closed within time frames set by the FAR—6 months for firm-fixed-price contracts and 36 months for flexibly priced contracts. The FAR prohibits the closing of contract files if the contract is in litigation, under appeal, or where the contract is being terminated and all termination actions have not been completed. Contract documents can be stored and retained after the contracting officer signs and files the contract completion statement.

Additional time is allowed for the closeout of flexibly priced contracts because there are additional steps necessary to close out these types of contracts. Specifically, closing these contracts generally requires an audit and settlement of the contractor’s final indirect cost rates. Contracting officers need to ensure all costs incurred by the contractor and charged to the government are allowable, allocable, and reasonable. Contracting officers also need to establish final indirect cost rates based on the contractor’s incurred costs, which determine, in part, the contractor’s final payment on flexibly priced contracts.