(Editor’s Note. In the last issue of the GCA REPORT we reported that various industry groups have been challenging a recent move to discontinue the use of "roll forward" procedures, saying the new move severely retards timely establishment of final billing rates and contract close-outs. Several readers have asked for more clarity on this action so we have expanded the discussion here, incorporating further critical commentary by industry groups and contract specialists. We have incorporated the comments of Richard Johnson of the firm of SmithPachterMcWhorter, PLC written in an article in the September 2006 issue of CP&A REPORT and when referenced, a position paper prepared by the National Defense Industrial Association.)

As most contractors know, it is quite common for the government and contractors to disagree about the allowability of certain costs submitted in incurred cost proposals. Eventually, these disagreements are often resolved but sometimes only after a considerable amount of time. Other times, the dispute continues, getting bogged down in repeated submittals, discussions with auditors, arguments and negotiations with contracting officers and even disputes with appeals boards or Court of Federal Claims. Either way, the overhead year remains open, preventing settlement of flexibly priced contracts as well as claims and terminations. Such delays in settling cost type contracts hurt not only contractors but also government agencies who have to return unexpended contract funds back to the treasury and then find new funds when additional contract costs are eventually settled.

To alleviate these problems, in 1997 the Defense Contract Management Command (DCMC) approved use of the "roll forward" of disputed overhead costs to the next open overhead year. This role forward permitted the early year to be settled and closed and the relevant contracts to be settled with the reservation that the disputed item(s) would be deferred to the open year closest to the year the costs were incurred and then included in that future accounting period when the cost allowability could be conclusively resolved. The DCMC initiative was broadly applauded as a way to alleviate the issue of indirect cost disputes and permitted a more orderly closure of indirect cost years, despite the existence of disputed costs. There was no disagreement raised by the normal accounting watchdogs of the government, including DCAA, the Government Accounting Office, the Cost Accounting Standards Board or any CAS experts.

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