FAR 42.708—Quick-closeout procedure.
Plain-English Summary
FAR 42.708 establishes the quick-closeout procedure, which lets the Government settle direct and indirect costs for a specific contract, task order, or delivery order before final indirect cost rates are fully determined under FAR 42.705. The section is designed to speed contract closeout when only a relatively small amount of costs remains unsettled and when the contracting officer can reasonably manage the risk of doing so. It applies only when the contract is physically complete, the remaining unsettled direct and indirect costs are small enough under the regulatory threshold, the contracting officer completes a risk assessment, and the parties can agree on a reasonable estimate of allocable dollars. The rule also explains the legal effect of a quick-closeout settlement: the indirect cost determination is final for that contract and does not trigger later adjustments to other contracts for over- or under-recoveries tied to the settled contract. Finally, it makes clear that indirect rates used in a quick-closeout settlement do not set a binding precedent for future final indirect rate negotiations on other contracts. In practice, this provision helps agencies reduce closeout backlogs and administrative burden, but it requires careful judgment because the Government is trading full rate finality for speed and efficiency.
Key Rules
Only for physically complete contracts
Quick-closeout may be used only after the contract, task order, or delivery order is physically complete. The Government should not use this procedure while performance is still ongoing or while significant completion issues remain unresolved.
Unsettled costs must be small
The remaining unsettled direct and indirect costs must be relatively insignificant. That means the total unsettled costs for any one contract, task order, or delivery order cannot exceed the lesser of $1,000,000 or 10 percent of the total contract, task order, or delivery order amount.
Risk assessment is required
The contracting officer must perform a risk assessment and decide that quick-closeout is appropriate. The assessment must consider the contractor’s accounting, estimating, and purchasing systems, concerns raised by cognizant auditors, and other relevant facts such as prior approved indirect rate agreements, rate volatility, organizational changes, mergers or acquisitions, and special contract provisions affecting indirect cost recovery.
Reasonable estimate must be reached
The parties must be able to agree on a reasonable estimate of allocable dollars before quick-closeout can be used. If the estimate cannot be negotiated to mutual agreement, the procedure should not be applied.
Settlement is final for that contract
Under the Allowable Cost and Payment clause, the indirect cost determination made through quick-closeout is final for the covered contract, task order, or delivery order. No later adjustment is made to other contracts to true up over- or under-recoveries allocated or allocable to the settled contract.
No precedent for other contracts
Indirect cost rates used in a quick-closeout settlement do not bind future negotiations for other contracts. Each later final indirect rate determination remains separate and may be based on the facts and circumstances applicable to those other contracts.
Responsibilities
Contracting Officer
Determine whether the contract is physically complete, verify that the unsettled costs are within the regulatory threshold, conduct and document the required risk assessment, negotiate a reasonable estimate of allocable dollars, and execute the quick-closeout settlement when appropriate.
Contractor
Provide cost data, accounting support, and other information needed to estimate allocable direct and indirect costs; participate in negotiations; and support the Government’s risk review by explaining systems, rate history, organizational changes, and any special contract provisions affecting cost recovery.
Cognizant Contract Auditor
Advise the contracting officer on audit concerns relevant to the contractor’s systems, rate development, and cost allowability issues, and identify risks that may make quick-closeout inappropriate or require additional caution.
Agency / Government
Use the procedure to reduce closeout backlog and administrative burden while ensuring the settlement is reasonable, properly documented, and consistent with the Allowable Cost and Payment clause and applicable closeout policies.
Practical Implications
Quick-closeout can significantly speed up contract closeout, but it should be used only when the remaining cost exposure is truly limited and the risk is manageable.
The $1,000,000 or 10 percent threshold is a gatekeeper; if unsettled costs exceed the lower of those two figures, quick-closeout is not appropriate under this section.
Documentation matters. The contracting officer should retain the basis for the physical-completion finding, the cost threshold calculation, the risk assessment, and the negotiated estimate in case the settlement is later questioned.
Contractors should be prepared for a focused negotiation rather than a full final-rate process, but they should also understand that agreeing to quick-closeout means accepting finality for that contract’s indirect cost settlement.
A common pitfall is treating quick-closeout rates as if they establish future rates. FAR 42.708 expressly says they do not, so each later indirect rate negotiation must stand on its own facts.
Official Regulatory Text
(a) The contracting officer responsible for contract closeout shall negotiate the settlement of direct and indirect costs for a specific contract, task order, or delivery order to be closed, in advance of the determination of final direct costs and indirect rates set forth in 42.705 , if- (1) The contract, task order, or delivery order is physically complete; (2) The amount of unsettled direct costs and indirect costs to be allocated to the contract, task order, or delivery order is relatively insignificant. Cost amounts will be considered relatively insignificant when the total unsettled direct costs and indirect costs to be allocated to any one contract, task order, or delivery order does not exceed the lesser of- (i) $1,000,000; or (ii) 10 percent of the total contract, task order, or delivery order amount; (3) The contracting officer performs a risk assessment and determines that the use of the quick-closeout procedure is appropriate. The risk assessment shall include- (i) Consideration of the contractor’s accounting, estimating, and purchasing systems; (ii) Other concerns of the cognizant contract auditors; and (iii) Any other pertinent information, such as, documented history of Federal Government approved indirect cost rate agreements, changes to contractor’s rate structure, volatility of rate fluctuations during affected periods, mergers or acquisitions, special contract provisions limiting contractor’s recovery of otherwise allowable indirect costs under cost reimbursement or time-and-materials contracts; and (4) Agreement can be reached on a reasonable estimate of allocable dollars. (b) Determinations of final indirect costs under the quick-closeout procedure provided for by the Allowable Cost and Payment clause at 52.216-7 shall be final for the contract it covers and no adjustment shall be made to other contracts for over- or under-recoveries of costs allocated or allocable to the contract covered by the agreement. (c) Indirect cost rates used in the quick closeout of a contract shall not be considered a binding precedent when establishing the final indirect cost rates for other contracts.