49.303-4
Adjustment of indirect costs
When final indirect cost rates are not yet negotiated, the TCO can settle indirect costs to avoid delays, but contractors must adjust their cost pools and bases accordingly for all affected contracts.
Overview
FAR 49.303-4 addresses how to handle the adjustment of indirect costs during contract closeout, particularly when the Allowable Cost and Payment clause (FAR 52.216-7) is present and final settlement would be delayed by waiting for negotiated indirect cost rates. The Termination Contracting Officer (TCO) may, after consulting with the audit agency, either negotiate a final amount for indirect costs or use reasonable billing rates as final rates, or reserve the adjustment until rates are established under FAR subpart 42.7. If indirect costs are negotiated, the contractor must remove those costs and related direct costs from the pools and bases used to calculate indirect costs for other contracts in the same accounting period.
Key Rules
- Negotiation or Reservation of Indirect Costs
- The TCO can negotiate indirect costs or use billing rates as final rates, or reserve the adjustment for later, to avoid settlement delays.
- Adjustment of Cost Pools and Bases
- Contractors must eliminate negotiated indirect costs and related direct costs from the pools and bases for other contracts for the same period.
Responsibilities
- Contracting Officers: Decide, with audit input, whether to negotiate or reserve indirect cost adjustments; ensure compliance with cost pool adjustments.
- Contractors: Remove negotiated indirect and related direct costs from cost pools and bases for other contracts in the same period.
- Agencies: Provide audit support and oversight as needed.
Practical Implications
- This section exists to prevent delays in contract closeout due to unresolved indirect cost rates.
- It impacts how contractors account for indirect costs across multiple contracts, ensuring no double-counting or misallocation.
- Common pitfalls include failing to adjust cost pools and bases, leading to compliance issues or audit findings.