49.107
Audit of prime contract settlement proposals and subcontract settlements
Settlement proposals at or above the certified cost or pricing data threshold must be audited, and both contractors and the government have defined roles in ensuring accurate and confidential reviews.
Overview
FAR 49.107 establishes the requirements for auditing prime contract settlement proposals and subcontract settlements following contract terminations. The section outlines when the Termination Contracting Officer (TCO) must refer settlement proposals to the appropriate audit agency, the procedures for handling proposals above and below the certified cost or pricing data threshold, and the responsibilities of both government and contractors in the audit process. It also addresses the handling of privileged information and the advisory nature of audit reports.
Key Rules
- Audit Referral Thresholds
- Prime contractor settlement proposals at or above the certified cost or pricing data threshold (see FAR 15.403-4(a)(1)) must be referred to the audit agency. Proposals below this threshold may be referred at the TCO’s discretion.
- Subcontract Settlement Audits
- Subcontract settlements must be referred for audit if they exceed the threshold or if the TCO deems a review advisable.
- Contractor and Subcontractor Responsibilities
- Prime contractors and subcontractors are responsible for their own accounting reviews, but the TCO may request a government audit under specific circumstances (e.g., competitive objections, efficiency, consistency, or financial interest).
- Audit Report Use and Confidentiality
- Audit reports are advisory and must be handled to protect privileged or sensitive information. The TCO may share audit reports with contractors when in the Government’s interest.
Responsibilities
- Contracting Officers (TCOs): Refer proposals for audit as required, specify relevant information, ensure desk reviews for lower-value proposals, and safeguard audit report confidentiality.
- Contractors: Perform required accounting reviews and field audits of their own and subcontractor proposals.
- Agencies: Conduct audits, provide written recommendations, and periodically review contractor audit procedures.
Practical Implications
- Ensures financial integrity and compliance in settlement proposals after contract terminations.
- Clarifies when audits are mandatory versus discretionary.
- Highlights the need for careful handling of sensitive audit information.
- Common pitfalls include failing to refer proposals for audit when required or mishandling privileged information.