42.705-1
Contracting officer determination procedure
Contractors must submit timely, adequate final indirect cost rate proposals and work closely with auditors and contracting officers to ensure compliance and avoid disallowed costs.
Overview
FAR 42.705-1 outlines the procedures and responsibilities for contracting officers in determining final indirect cost rates for various types of contractors, including business units of corporations, educational institutions, state and local governments, and nonprofit organizations. The section details the process for submitting, auditing, and negotiating final indirect cost rate proposals, emphasizing the roles of the contracting officer, auditor, and contractor. It establishes timelines, documentation requirements, and the need for collaboration among all parties to ensure accurate and efficient rate determinations.
Key Rules
- Applicability and Responsibility
- Specifies which contracting officer or federal official is responsible for establishing final indirect cost rates based on the contractor's organizational structure.
- Proposal Submission and Adequacy
- Contractors must submit an adequate final indirect cost rate proposal within six months after their fiscal year ends, with possible written extensions for exceptional circumstances.
- Audit and Review Process
- The auditor reviews the proposal for adequacy, communicates deficiencies, and escalates unresolved issues to the contracting office.
- Negotiation and Documentation
- The contracting officer leads negotiations, ensures all questioned costs are properly documented and reviewed, and prepares a detailed negotiation memorandum and agreement.
- Notification and Distribution
- Contractors must be notified of unallowable costs, and all relevant documents must be distributed per FAR 42.706.
Responsibilities
- Contracting Officers: Lead the determination, negotiation, and documentation of final indirect cost rates; ensure compliance with audit findings and reporting requirements.
- Contractors: Submit timely, adequate proposals with supporting data; address audit deficiencies; maintain transparency in cost submissions.
- Agencies: Oversee the process, ensure proper coordination among auditors and contracting officers, and maintain records.
Practical Implications
- This section ensures a standardized, transparent process for determining indirect cost rates, reducing disputes and audit issues.
- Contractors must be diligent in preparing proposals and responding to audit findings to avoid delays or disallowances.
- Common pitfalls include late submissions, inadequate supporting data, and failure to address audit concerns, which can result in disallowed costs or delayed settlements.