42.705-2 Auditor determination procedure
Source: FAR 42.705-2 on acquisition.gov
Auditor determination streamlines final indirect cost rate agreements for eligible business units, reducing administrative burden when both the auditor and contracting officer agree.
Overview
FAR 42.705-2 outlines the procedures for establishing final indirect cost rates through auditor determination, rather than by the contracting officer, for certain business units. This process applies primarily to business units not covered under 42.705-1(a), but may also be used for others when both the contracting officer and auditor agree that indirect costs can be settled easily and specific conditions are met (e.g., mostly fixed-price contracts, low administrative benefit, few disputes, or special circumstances). The section details the responsibilities of contractors to submit a final indirect cost rate proposal and the auditor’s role in auditing, negotiating, and formalizing the agreement. If agreement cannot be reached, the matter is escalated to the contracting officer for resolution. The process ensures efficient and appropriate settlement of indirect cost rates, especially where the administrative burden of contracting officer determination is not justified.
Key Rules
- Applicability and Responsibility
- Auditor determination is used for business units not covered by 42.705-1(a), or for certain units covered by 42.705-1(a) under specific, agreed-upon circumstances.
- Procedures
- Contractors must submit a final indirect cost rate proposal. The auditor audits the proposal, seeks agreement, prepares and signs the rate agreement, or escalates unresolved issues to the contracting officer.
Responsibilities
- Contracting Officers: Agree to auditor determination when appropriate, resolve disagreements if necessary.
- Contractors: Submit compliant indirect cost rate proposals and participate in negotiations.
- Auditors: Audit proposals, negotiate rates, prepare agreements, and escalate unresolved issues.
Practical Implications
- This section streamlines the indirect cost rate settlement process for eligible business units, reducing administrative burden and expediting agreement where possible. Contractors must ensure timely and accurate proposal submissions and be prepared for audit and negotiation. Failure to reach agreement results in escalation to the contracting officer, potentially delaying final rate determination.
(a) Applicability and responsibility.
(1) The cognizant Government auditor shall establish final indirect cost rates for business units not covered in 42.705-1(a).
(2) In addition, auditor determination may be used for business units that are covered in 42.705-1(a) when the contracting officer (or cognizant Federal agency official) and auditor agree that the indirect costs can be settled with little difficulty and any of the following circumstances apply:
(i) The business unit has primarily fixed-price contracts, with only minor involvement in cost-reimbursement contracts.
(ii) The administrative cost of contracting officer determination would exceed the expected benefits.
(iii) The business unit does not have a history of disputes and there are few cost problems.
(iv) The contracting officer (or cognizant Federal agency official) and auditor agree that special circumstances require auditor determination.
(b) Procedures.
(1) The contractor shall submit to the cognizant contracting officer (or cognizant Federal agency official) and auditor a final indirect cost rate proposal in accordance with 42.705-1(b)(1).
(2) Once a proposal has been determined to be adequate for audit in support of negotiating final indirect cost rates, the auditor shall-
(i) Audit the proposal and prepare an advisory audit report, including a listing of any relevant advance agreements or restrictive terms of specific contracts;
(ii) Seek agreement on indirect costs with the contractor;
(iii) Prepare an indirect cost rate agreement conforming to the requirements of the contracts.The agreement shall be signed by the contractor and the auditor;
(iv) If agreement with the contractor is not reached, forward the audit report to the contracting officer (or cognizant Federal agency official) identified in the Directory of Contract Administration Services Components (see 42.203), who will then resolve the disagreement; and
(v) Distribute resulting documents in accordance with 42.706.