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IMMEDIATE RELEASE

Release No: 465-95
August 23, 1995

DOD ANNOUNCES ACCELERATED CONTRACT CLOSE-OUT AND

INTERIM PAYMENT PROCEDURES

The Department of Defense has announced that it has achieved a goal of theNational Performance Review to reduce administrative burdens and streamline theprocurement process.

On July 13, 1995, Director of Defense Procurement Eleanor Spector issued newprocedures that require DoD contracting officers to use quick contractclose-out actions on a large number of completed contracts. This processformerly took up to five years of audit and negotiation to end contractpaperwork.

The use of faster close-out procedures is now mandatory on completed contractswhere: 1) the amount of unsettled indirect cost on the contract is $1 millionor less (in lieu of $500,000); 2) the cumulative unsettled indirect costs donot exceed 15 percent of the unsettled indirect costs on cost-type contracts(the 15 percent limit can be waived by the contracting officer based on a riskassessment); and 3) an agreement can be reached on a reasonable estimate ofoverhead costs. A cost-type contract is one that provides for governmentreimbursement of actual costs to the extent they are allowable by law andregulation.

Spector said the new procedures are designed to accelerate payments tocontractors by minimizing amounts withheld pending audit and negotiation offinal overhead rates. "Small and medium sized companies should benefit mostfrom these changes," said Spector. "They are more vulnerable to the financialimpact of withholds and delayed final payments that result from a protractedcontract close-out process." The Director of Procurement emphasized that theDoD also benefits through more effective management of contract funds.

Spector explained that the procedures permit contractors to bill at theoverhead rates included in their certified final rate proposals, which may beadjusted based on past disallowances. They also require release of at least 75percent of all fee withholds on cost-type contracts after the contractor hascertified the final rate proposal and other contract conditions have been met.In addition, the contracting officer may release up to 90 percent of feewithholds based upon the contractor's past performance in submitting andsettling final overhead rate proposals.

Spector pointed out that the Department worked and coordinated with industry inrevising the close-out and interim payment methods. She said that DoD willpropose that the innovative procedures be adopted government-wide through apermanent change to the Federal Acquisition Regulations.

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