Roll Forward Rule Changes - Impracticality of the Alternative Techniques
While the first has limited applicability, the next four techniques work only if the parties agree to them, which is unlikely if there are serious overhead disagreements. Specifically:
1. Quick closeouts. Quick closeouts, which allow for closing out contracts before indirect cost years are closed, have limited applicability. They are limited to allocations of indirect costs to any one contract worth up to $1 million and the accumulated allocation, absent special considerations, cannot exceed 15 percent of total unsettled indirect costs for a single year.
2. Raise allowability questions sooner and resolve them quicker. This, of course, requires the parties’ agreement which seems difficult since the lack of agreement underlies the roll-forward controversy.
3. ACOs issue intent to disallow costs. This is also unhelpful since an ACO can issue notices which instead of prompting settlement simply pushes the disagreement to the next stage of Contract Dispute Act arbitration or litigation.
4. Issue advanced agreements. Such agreement require a meeting of minds between the parties where significant disputes, by definition, lack agreement.
5. Use alternative disputes resolution (ADR) before formal dispute develops. ADR usually requires agreement of both parties because otherwise neither party in significant overhead cost disputes are willing to opt for binding ADR since they want the option of going further if they dislike the ADR result.
6. Pay cost forward. Though more promising, the guidance for implementing this solution also limits its applicability. This alternative permits the government, after execution of an advance agreement, to expend funds on paying the contractor which the government favors since it avoids reversion of the funds back to the government. However, the model advance agreement DCMC has included in its guidance has generated some critical comments:
First, paragraph 3 of the model makes the cost principles in effect on the date of the agreement applicable to all future contracts, making future FAR changes that may be favorable to the contractor irrelevant.
Second, paragraph 5 is confusing where the first sentence states the contractor will identify the allocation of the disputed costs and keep records for all contracts while the second sentence says the costs will be identifiable only to "cost-based pricing proposals." The second sentence properly limits the impact to only those contracts where price was based on a cost buildup while the first improperly applies the impact to all contracts.
Third, paragraph 6 states that if the issue is resolved against the contractor it will pay the government in full for "the total amount of costs determined to be unallowable." This is improper because the overhead cost determined to be unallowable may be allocated not only to government contracts which are cost based but also all contract work which may be commercial, non-cost based or subcontracts (where the roll forward rules do not apply). The government should have no right to any of these latter allocations which the agreement would create as well as add interest for the amount owed.
Fourth, paragraph 6 does add that no reimbursement will be required for contracts priced on a commercial item basis but the addition is not complete since it excludes those contracts based on full and open competition, prices set by law or regulation and others where price was not cost-based.
Fifth, paragraph 7 states the agreement does not waive penalties for expressly unallowable costs. It is difficult to envision a cost that the ACO "may ultimately find..allowable" would fit the definition of "expressly" unallowable but the model agreement allows the government to assert the costs were expressly unallowable and hence impose penalty costs.
Finally, paragraph 8 states either party may cancel the agreement on 30 day notice. This is obscure because prior to cancellation the contractor presumably would have been paid the costs involved subject to repayment but the cancellation would seem to eliminate the contractor’s obligation for repayments.
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