FAR 42.705—Final indirect cost rates.
Plain-English Summary
FAR 42.705 explains how final indirect cost rates are established and how those settled rates are used to close out a physically complete contract. It covers two alternative methods for establishing final indirect cost rates: the contracting officer determination procedure and the auditor determination procedure. It also requires the contractor, after final annual indirect cost rates are settled for all years of a physically complete contract, to submit a completion invoice or voucher within 120 days unless the contracting officer approves a longer period in writing. The section identifies the kinds of extenuating circumstances that may justify extra time, including pending subcontract closeout awaiting Government audit, pending claims, delays in Government property disposition, delays in contract reconciliation, and other pertinent factors. Finally, it gives the contracting officer authority to determine amounts due if the contractor does not timely submit the completion invoice or voucher, record that determination in a unilateral modification, and issue the determination as a final decision under FAR 33.211. In practice, this section is a key closeout control: it links indirect rate settlement to final payment processing and gives the Government a mechanism to finish contract closeout when the contractor does not act.
Key Rules
Two rate-setting paths
Final indirect cost rates must be established using either the contracting officer determination procedure or the auditor determination procedure. The section does not itself set the rates; it points to the applicable procedures in FAR 42.705-1 and 42.705-2.
Completion invoice required
After final annual indirect cost rates are settled for all years of a physically complete contract, the contractor must submit a completion invoice or voucher reflecting the settled amounts and rates. This is the contractor’s trigger to reconcile final contract costs and support closeout.
120-day submission deadline
The completion invoice or voucher must be submitted within 120 days after settlement of the final annual indirect cost rates, unless the contracting officer approves a longer period in writing. The deadline is tied to settlement of all years of the physically complete contract, not just one fiscal year.
Extensions only for good cause
A longer period may be approved when extenuating circumstances exist. The regulation specifically identifies pending subcontract closeout awaiting Government audit, pending claims, delays in Government property disposition, delays in contract reconciliation, and other pertinent factors.
Government may determine amounts due
If the contractor fails to submit the completion invoice or voucher on time, the contracting officer may determine the amounts due under the contract. This authority allows the Government to move the closeout process forward without waiting indefinitely for contractor action.
Unilateral modification and final decision
The contracting officer’s determination must be recorded in a unilateral modification to the contract and issued as a final decision under FAR 33.211. That means the determination has formal dispute significance and must follow the required final decision procedures.
Responsibilities
Contracting Officer
Select and apply the proper final indirect cost rate establishment procedure, decide whether to approve a longer completion-invoice period in writing, evaluate whether extenuating circumstances justify extra time, determine amounts due if the contractor misses the deadline, record the determination in a unilateral modification, and issue the determination as a final decision under FAR 33.211.
Contractor
After final annual indirect cost rates are settled for all years of a physically complete contract, submit a completion invoice or voucher within 120 days unless a longer period is approved in writing. The contractor must ensure the submission reflects the settled amounts and rates and supports final contract closeout.
Auditor
Where the auditor determination procedure is used, support establishment of final indirect cost rates through audit activities and findings that inform the final rate settlement process.
Agency/Contract Administration Function
Support contract closeout by coordinating rate settlement, property disposition, subcontract closeout, reconciliation, and related administrative actions that may affect whether the completion invoice can be submitted on time.
Practical Implications
This section is a closeout milestone, not just a pricing rule: once final indirect rates are settled, the contractor must quickly convert those rates into a completion invoice or voucher so the contract can be finalized.
Missed deadlines can shift control to the Government. If the contractor does not submit the completion invoice on time, the contracting officer can unilaterally determine the amount due, which may reduce the contractor’s ability to shape the final payment calculation.
The listed extension factors are practical documentation points. Contractors seeking more than 120 days should be ready to show why subcontract closeout, claims, property disposition, or reconciliation issues are still unresolved.
The contracting officer should document any approved extension in writing. Verbal understandings are not enough under this section and can create disputes later about whether the submission was timely.
Because the contracting officer’s determination is issued as a final decision, contractors should treat a unilateral closeout determination as a formal claims/disputes event and review it promptly for accuracy and appeal rights.
Official Regulatory Text
(a) Final indirect cost rates shall be established on the basis of- (1) Contracting officer determination procedure (see 42.705-1 ), or (2) Auditor determination procedure (see 42.705-2 ). (b) Within 120 days (or longer period, if approved in writing by the contracting officer,) after settlement of the final annual indirect cost rates for all years of a physically complete contract, the contractor must submit a completion invoice or voucher reflecting the settled amounts and rates. To determine whether a period longer than 120 days is appropriate, the contracting officer should consider whether there are extenuating circumstances, such as the following: (1) Pending closeout of subcontracts awaiting Government audit. (2) Pending contractor, subcontractor, or Government claims. (3) Delays in the disposition of Government property. (4) Delays in contract reconciliation. (5) Any other pertinent factors. (c) (1) If the contractor fails to submit a completion invoice or voucher within the time specified in paragraph (b) of this section, the contracting officer may- (i) Determine the amounts due to the contractor under the contract; and (ii) Record this determination in a unilateral modification to the contract. (2) This contracting officer determination must be issued as a final decision in accordance with 33.211 .