FAR Part 42

Question 1

Part 42

Answer 1

Contract Administration and Audit Services

Question 2

Part 42 - Contract Administration and Audit Services

Overview of FAR Part 42 - Contract Administration and Audit Services

• Purpose:Establishespoliciesand procedures for contract administration and audit services (FAR 42.000).
• Key Sections:

Answer 2

• 42.1 Contract Audit Services
• 42.2 Contract Administration Services
• 42.3 Contract Administration Office Functions
• 42.4 Correspondence and Visits
• 42.5 Postaward Orientation
• 42.6 Corporate Administrative Contracting Officer
• 42.7 Indirect Cost Rates
• 42.8 Disallowance of Costs
• 42.9 Bankruptcy
• 42.11 Production Surveillance and Reporting
• 42.12 Novation and Change-of-Name Agreements
• 42.13 Suspension of Work, Stop-Work Orders, and Government Delay of Work
• 42.15 Contractor Performance Information
• 42.16 Small Business Contract Administration
• 42.17 Forward Pricing Rate Agreements

Question 3

Part 42 - Contract Administration and Audit Services

Subpart 42.1 - Contract Audit Services

• Purpose: Provides guidelines for conducting contract audits (FAR
  42.101).
• Key Features:

Answer 3

• Responsibilities of contracting officers in audit management (FAR 42.102).
• Procedures for requesting and conducting audits (FAR 42.103).

Question 4

Part 42 - Contract Administration and Audit Services

Subpart 42.2 - Contract Administration Services

• Purpose: Establishes policies for providing contract administration
  services (FAR 42.201).
• Key Features:

Answer 4

• Roles and responsibilities of contract administration offices (FAR 42.202).
• Guidelines for monitoring contractor performance and ensuring contract compliance (FAR 42.203).

Question 5

Part 42 - Contract Administration and Audit Services

Subpart 42.3 - Contract Administration Office Functions

• Purpose: Defines the functions of contract administration offices
  (FAR 42.301).
• Key Features:

Answer 5

• Procedures for contract modification and monitoring (FAR 42.302).
• Responsibilities for handling contractor disputes and performance issues (FAR 42.303)

Question 6

Part 42 - Contract Administration and Audit Services

Subpart 42.5 - Postaward Orientation

• Purpose: Provides guidelines for postaward orientation conferences
  (FAR 42.501).
• Key Features:

Answer 6

• Procedures for conducting postaward orientations to clarify contract requirements (FAR 42.502).
• Benefits of postaward orientations in fostering communication and understanding between parties (FAR 42.503).

Question 7

Part 42 - Contract Administration and Audit Services

Subpart 42.7 - Indirect Cost Rates

• Purpose: Establishes procedures for determining and negotiating
  indirect cost rates (FAR 42.701).
• Key Features:

Answer 7

• Guidelines for calculating and negotiating indirect cost rates (FAR 42.702).
• Procedures for resolving disputes over indirect cost rates (FAR 42.703).

Question 8

Part 42 - Contract Administration and Audit Services

Subpart 42.8 - Disallowance of Costs

• Purpose: Addresses the procedures for disallowing costs that are not allowable under the terms of the contract (FAR 42.801).
• Key Features:

Answer 8

• Criteria for determining allowable and unallowable costs (FAR 42.802).
• Procedures for notifying contractors of cost disallowances (FAR 42.803).

Question 9

Part 42 - Contract Administration and Audit Services

Subpart 42.12 - Novation and Change-of-Name Agreements

• Purpose: Provides guidelines for novation agreements and contractor name changes (FAR 42.1201).
• Key Features:

Answer 9

• Procedures for processing novation agreements when contractor ownership changes (FAR 42.1202).
• Guidelines for handling contractor name changes to ensure continuity (FAR 42.1203).

Question 10

Part 42 - Contract Administration and Audit Services

Subpart 42.15 - Contractor Performance Information

• Purpose: Establishes procedures for evaluating and recording
  contractor performance (FAR 42.1501).
• Key Features:

Answer 10

• Criteria for evaluating contractor performance (FAR 42.1502).
• Guidelines for recording and using performance information in future contract awards (FAR 42.1503).

Question 11

Part 42 - Contract Administration and Audit Services

Subpart 42.16 - Small Business Contract Administration

• Purpose: Provides policies for the administration of small business
  contracts (FAR 42.1601).
• Key Features:

Answer 11

• Guidelines for monitoring and supporting small business contractors (FAR
  42.1602).
• Procedures for ensuring small businesses comply with contract requirements (FAR 42.1603).

Question 12

Interagency Agreements

Answer 12

Agencies requiring field contract administration or audit
services are encouraged to use existing cross-servicing agreements for the audit of costs incurred under contracts of two or more agencies being performed at the same business entity.

When an interagency agreement is established, the agencies are encouraged to consider establishing procedures for the
resolution of issues that may arise under the agreement

Question 13

The Auditor’s Responsibility

The auditor shall

Answer 13

• Submit information and advice on the contractor’s financial and accounting records or other related data as to the acceptability of the
  contractor’s incurred and estimated costs,
• Review financial and accounting aspects of the contractor’s control systems, and
• Perform other analyses and reviews that require access to the
  contractor’s financial and accounting records supporting proposed and incurred costs.

Question 14

The Contract Administration Office

Answer 14

The Contract Administration Office’s functions are listed in FAR 42.302(a).

The CAO may also perform functions delineated in FAR 42.302(b) when authorized by the contracting office.

Contract administration functions not listed in FAR 42.302 remain the responsibility of the contracting office.

Question 15

Postaward Orientation

Answer 15

The purpose of the postaward orientation is to achieve a clear and mutual understanding of all
contract requirements and to identify and resolve potential problems.

The prime contractor is generally responsible for conducting post-award conferences with subcontractors.

The prime contractor may invite government
representatives to these conferences, in which case they must recognize the lack of privity of contract between the government and the subcontractors and shall not take any action that is inconsistent with or alters the subcontracts.

Question 16

In determining whether to hold a postaward conference, the contracting officer shall consider factors including:

Answer 16

• The type, value, and extent of the contract;
• The complexity and acquisition history of the product or service;
• Requirements for additional parts or equipment;
• Urgency of delivery schedule and relationship of the product or service to critical programs;
• The contractor’s past performance and status as a small business eligible for set-asides.

Question 17

The Corporate Administrative Contracting Officer

Answer 17

Contractors with more than one operating location often have corporate-wide policies/procedures requiring government review and approval.

The Corporate Administrative Contracting Officer is appointed to deal with corporate management and to perform selected contract administration functions on a corporate-wide basis.

Question 18

TheCorporateAdministrative ContractingOfficer

The responsibilities of the CACO typically include

Answer 18

• Determination of final indirect cost rates for cost- reimbursement contracts,
• Establishment of advance agreements on corporate or home office expense allocations, and
• Administration of Cost Accounting Standards applicable to the corporate level.

Question 19

Indirect Cost Rates

Billing rate

Answer 19

An indirect cost rate established temporarily for the interim reimbursement of
incurred indirect costs and adjust as necessary pending establishment of the final indirect cost rate

A single agency shall be responsible for establishing final indirect cost rates for each business unit, and these rates shall be binding on all agencies and their contracting offices unless otherwise specifically prohibited. Final indirect cost rates shall be used for contract closeout unless the quick-closeout procedure is used.

Question 20

Notice of Intent to Disallow Costs

Answer 20

The purpose of the notice is to notify the contractor as early as practicable during contract performance that the cost is considered unallowable under the contract terms and to provide for timely resolution of any resulting disagreement.

A notice of intent to disallow costs usually results from monitoring contractor costs.

Question 21

Production Surveillance and Reporting

Production surveillance is used

Answer 21

to determine contractor progress and identify and factors that may cause delay.

The contractor is responsible for timely contract performance.

The government will maintain surveillance of contractor
performance as necessary to protect its interests.

Question 22

Novation agreement

Answer 22

A form of contract modification recognizing a successor in interest to government contracts when the contractor’s assets are transferred

Question 23

Change-of-name agreement

Answer 23

A form of contract modification recognizing the legal change of a contractor’s name

Question 24

Suspension and Delay of Work

Suspension of Work may be ordered by the Contracting Officer

Answer 24

for a reasonable period of time.

Stop Work Orders are used fi it is advisable to suspend work pending a decision by the government, and a supplemental agreement providing for the suspension si not feasible.

Government Delay of Work does not
authorize the contracting officer to order a suspension, delay, or interruption of work, nor is ti to be used as the basis of such an order.

Question 25

Contractor Performance Information

Answer 25

The government and the contractor agree to use certain rates
or indices for a specified future period of time in pricing contracts or contract modifications.

Establishment of a Forward Pricing Rate Agreement will be determined by the cognizant contract administration agency.

The government and the contractor agree to use certain rates
or indices for a specified future period of time in pricing contracts or contract modifications.

Question 26

Small Business Contract Administration

The contracting officer shall:

Answer 26

Respond in writing within 30 days to any written request to the contracting officer from a small business concern, or

Within 30 days, transmit to the contractor a written notification of the specific date the contracting officer expects to respond

Question 27

Forward Pricing Rate Agreements

Answer 27

The government and the contractor agree to use certain rates
or indices for a specified future period of time in pricing contracts or contract modifications.

Establishment of a Forward Pricing Rate Agreement will be determined by the cognizant contract administration agency.

The government and the contractor agree to use certain rates
or indices for a specified future period of time in pricing contracts or contract modifications.

Question 28

Agencies shall avoid duplicate audits, reviews, inspections, and examinations of contractors or subcontractors by more

Answer 28

than one agency through the use of interagency agreements.

Subject to the fiscal regulations of the agencies and applicable interagency agreements, the requesting agency shall reimburse the servicing agency for rendered services in accordance with the Economy Act (31 U.S.C. 1535).

When an interagency agreement is established, the agencies are encouraged to consider establishing procedures for the resolution of issues that may arise under the agreement.

Question 29

With the exception of nonprofits and educational institutions, the cognizant federal agency

Answer 29

is generally the agency with the largest dollar amount of negotiated contracts, including options.

Normally once an agency assumes cognizance for a contractor it should remain cognizant for at least five years.

Question 30

A. CONTRACT AUDIT SERVICES (FAR 42.1)

The auditor is responsible for

Answer 30

submitting information and advice to the requesting activity based on the auditor’s analysis of the contractor’s financial and accounting records or other related data as to the acceptability of the contractor’s incurred and estimated costs; reviewing the financial and accounting aspects of the contractor’s cost control systems; and performing other analyses and reviews that require access to the contractor’s financial and accounting records supporting proposed and incurred costs.

Question 31

B. CONTRACT ADMINISTRATION
SERVICES (FAR 42.2)

Contracting officers may delegate contract administration or specialized support services through an interagency agreement or by a direct request to the cognizant contract administration office (CAO).

Answer 31

The contracting officer shall also advise the contractor of any functions withheld or additional functions delegated to the CAO. With the exception of functions relating to cost accounting standards or the negotiation of forward pricing or indirect cost rates, the contraction officer may rescind a delegation.

The prime contractor is responsible for managing its subcontracts. The CAO’s review of subcontracts is normally limited to evaluating the prime contractor’s management of the subcontracts.

Question 32

C. CONTRACT ADMINISTRATION OFFICE
FUNCTIONS (FAR 42.3)

Unless otherwise agreed to, the CAO will perform

Answer 32

the functions listed in FAR 42.302(a) in accordance with the FAR, the contract terms, and the applicable regulations of the servicing agency.

CAOs may also perform the functions delineated in FAR 42.302(b) only when andto the extent specifically authorized by the contracting office. Contract administration functions not listed in FAR 42.302, or not otherwise delegated, remain the responsibility of the contracting office.

Question 33

D. CORRESPONDENCE AND VISITS (FAR 42.4)

Under normal circumstances, the contracting officer shall forward correspondence relating to assigned contract administration functions through the CAO to the contractor.

If urgency requires

Answer 33

direct contractor correspondence, a copy shall be sent concurrently to the CAO. The CAO will send copies of pertinent correspondence between the CAO and the contractor to the contracting officer.

Government personnel planning to visit a contractor’s facility in connection with one or more contracts shall provide the CAO with the information detailed in FAR
42.402(a) sufficiently in advance for the CAO to make necessary arrangements. This is done for the purpose of eliminating duplicative reviews, investigations, and audits relating to contract administration functions.

If the information being sought is available elsewhere within the government, the CAO will discourage the visit and refer the prospective visitor to the office where the information is available. If a visit is conducted, the visitor shall inform the CAO of any agreements reached with the contractor or other results that may affect the CAO.

Question 34

E. POST-AWARD ORIENTATION (FAR 42.5)

Post-award orientation is designed

Answer 34

to achieve a clear and mutual understanding of all contract requirements and to identify/resolve potential problems.

It is not meant to substitute for a contractor fully understanding work requirements at the time offers were submitted or to alter the final agreement.

The contracting officer shall take into consideration the nature and extent of the pre-award survey and other discussions; type, value, and complexityof the contract; complexity and acquisition history of the product/service; requirements for spare parts and related equipment; urgency of delivery schedule and relationship of the product or service to critical programs; length of planned production cycle; extent of subcontracting; contractor’s performance history and experience; contractor’s status (small business, SDB, WOSB, VOSB, HUBZone, SDVOSB); contractor’s performance history with small business, SDB, WOSB, VOSB, HUBZone, and SDVOSB subcontracting programs; safety; and complexity of financial arrangements in the determination to hold a post-award conference. Post-award letters may be used in lieu of a conference where deemed appropriate by the contracting officer.

Maximum benefits will be realized when the orientation is conducted promptly after award.

Question 35

The prime contractor is generally responsible for conducting post-award conferences

Answer 35

with subcontractors.

The prime contractor may invite government representatives to these conferences, in which case they must recognize the lack of privity of contract between the government and the subcontractors and shall not take any action that is inconsistent with or alters the subcontracts.

Question 36

F. CORPORATE ADMINISTRATIVE
CONTRACTING OFFICER (FAR 42.6)

Contractors with more than one operating location often have corporate wide policies and procedures requiring government review and approval.

In these instances,

Answer 36

a corporate administrative contracting officer (CACO) may be appointed to deal with corporate management and to perform selected contract administration functions on a corporatewide basis.

A decision to initiate or discontinue a CACO should be based on the benefits of coordination and liaison at the corporate level; volume of government sales; degree of control the corpo-rate office exercises over government sales divisions; and the impact of corporate policies and procedures on those divisions.

Responsibilities typically assigned to a CACO are determination of final indirect cost rates for cost-reimbursement contracts; establishing advance agreements on corporate/home office expense allocations; and administration of CAS applicable to the corporate level.

Question 37

G. INDIRECT COST RATES (FAR 42.7)

BILLING RATE means

Answer 37

an indirect cost rate established temporarily for interim reimbursement of incurred indirect costs and adjusted as necessary pending establishment of final indirect cost rates.

Billing rates and final indirect cost rates are used in reimbursing indirect costs under cost-reimbursement contracts and in determining progress payments under fixed-price contracts.

Question 38

A single agency shall be responsible for establishing

Answer 38

final indirect cost rates for each business unit, and these rates shall be binding on all agencies and their contracting offices unless otherwise specifically prohibited.

Final indirect cost rates shall be used for contract closeout unless the quick-closeout procedure is used.

In general, no proposal shall be accepted or agreement made to establish final indirect cost rates unless the contractor has certified the costs.

Question 39

The contracting officer or auditor responsible for establishing the final indirect cost rates shall

Answer 39

also be responsible for determining the billing rates.

Billing rates are established based upon recent reviews, previous rate audits or experience, or similar reliable data.

Every effort should be made to ensure that the billing rates are as close as possible to the final indirect cost rates anticipated.

Once established, the rates may be prospectively or retroactively revised by mutual agreement to prevent substantial overpayment or underpayment.

If agreement cannot be reached, the contracting officer may unilaterally determine the rate.

Question 40

H. DISALLOWANCE OF COSTS (FAR 42.8)

At any time during performance of a cost-reimbursement, fixed-price incentive, or fixed-price with price redetermination contract, the administrative contracting officer (ACO) may issue a notice of

Answer 40

intent to disallow specified costs incurred or planned for incurrence. In the event of disagreement, the contractor may submit a written response. The ACO must then answer or withdraw the notice within 60 days.

A notice of intent to disallow costs usually results from monitoring contractor costs.

The pur-pose of the notice is to notify the contractor as early as practicable during contract performance that the cost is considered unallowable under the contract terms and to provide for timely resolution of any resulting disagreement.

Question 41

I. BANKRUPTCY (FAR 42.9)

The contractor must notify the government immediately

Answer 41

upon filing for bankruptcy. The CAO shall take prompt action to determine the potential impact of a contractor bankruptcy on the government to protect its interests.

Agencies shall, as a minimum, furnish the notice of bankruptcy to legal counsel and other appropriate agency offices (e.g., contracting, financial, property) and affected buying activities; determine the amount of the government’s potential claim against the contractor (in assessing this impact, identify and review any contracts that have not been closed out, including those physically completed or terminated); take actions necessary to protect the government’s financial interests and safeguard government property; and furnish pertinent contract information to the legal counsel representing the government.

The contracting officer shall consult with legal counsel, whenever possible, prior to taking any action regarding the contractor’s bankruptcy proceedings.

Question 42

J. PRODUCTION SURVEILLANCE AND
REPORTING (FAR 42.11)

Production surveillance is used

Answer 42

to determine contractor progress and identify any factors that may cause delay. It involves government review and analysis of contractor performance plans, schedules, controls, and industrial processes relative to the contractor’s actual performance.

Extent of surveillance is determined by assessing the criticality of supplies/services, contract reporting requirements, contract performance schedule, contractor’s production plan, history of contract performance, experience with the supplies/services, and/or financial capacity. Surveillance should be tailored to the risk involved.

Question 43

K. NOVATION AND CHANGE-OF-NAME AGREEMENTS (FAR 42.12)

Answer 43

A novation agreement recognizes a successor in interest to government contracts when the contractor’s assets are transferred.

A change-of-name agreement recognizes a legal change in the contractor’s name.
Both of these are affected through execution of a modification to the applicable contract(s).

Question 44

L. SUSPENSION OF WORK, STOP-WORK ORDERS, AND GOVERNMENT DELAY OF WORK (FAR 42.13)

The contracting officer may order

Answer 44

suspension of work for a reasonable period of time under a construction or architectural and engineering contract.

Stop-work orders are generally issued only if it is advisable to suspend work pending a decision by the government and a supplemental agreement is not feasible.

Stop-work orders are applicable to any negotiated fixed-price or cost-reimbursement supply, research, development, or service contract. Issuance ofa stop-work order is approved at a level higher than the contracting officer.

Government delay of work does not authorize the contracting officer to order a suspension, delay, or interruption of work; and it is not to be used as the basis or justification of such an order.

Question 45

M. CONTRACTOR PERFORMANCE
INFORMATION (FAR 42.15)

Past performance information is relevant information, for future source selection purposes, regarding a contractor’s actions under previously awarded contracts.

It includes, for example,

Answer 45

the contractor’s record of conforming to contract requirements and to standards of good workmanship; the contractor’s record of forecasting and controlling costs; the contractor’s adherence to contract schedules, including the administrative aspects of performance; the contractor’s history of reasonable and cooperative behavior and commitment to customer satisfaction; the contractor’s record of integrity and business ethics; and generally, the contractor’s businesslike concern for the interest of the customer.

Question 46

Past performance evaluations shall be prepared at the

Answer 46

time the work under the contract or order is completed.

The content of the evaluations should be tailored to the size, content, and complexity of the contractual requirements.

Past performance evaluations shall be prepared for each construction contract in accordance with FAR 42.1502 and FAR 42.1502.(f) for each architect-engineer services contract or more as well as any contract terminated for default.

Past performance evaluations shall not be done on contracts awarded under subpart 8.7. Past performance evaluations are required for all other contracts and orders greater than the SAT.

In addition, agencies are required to prepare an evaluation if a modification to the order causes the dollar amount to exceed the SAT.

Question 47

The ultimate conclusion on the performance evaluation

Answer 47

is a decision of the contracting agency.

Question 48

Agencies shall prepare and submit all past performance evaluations electronically in the

Answer 48

CARS.

The contractor will receive a CPARS-system generated notification when an evaluation is ready for comment.

Contractors shall be afforded up to 14 calendar days from the date of notification of availability of the past performance evaluation to submit comments, rebutting statements, or additional information; refer to FAR 42.1503(d).

Agencies shall use the past performance information in
CPARS that is within three years (six for construction and architect-engineer contracts) of the completion of performance of the evaluated contract or order, and information contained in the Federal Awardee Performance and Integrity Information System (FAPIIS), e.g., terminations for default or cause.

Question 49

Agencies shall also submit past performance information in FAPIIS within three working days after a contracting officer:

Answer 49

• Issues a final determination that a contractor has submitted defective cost or pricing data;

Makes a subsequent change to the final determination concerning defective cost or pricing data;

*Issues a final termination for cause or default notice;

• Makes a subsequent withdrawal or a conversion of a termination for default to a termination for convenience; or
• Receives a final determination after an administrative proceeding, in accordance with FAR 22.1704(d)(1), that substantiates an allegation of a violation of the trafficking in persons prohibitions.

Question 50

When a subcontracting plan is required, prime contractors will

Answer 50

self-report late or reduced payments to their small business subcontractors.

Contracting officers shall record the identity of contractors with a history of late or reduced payments to small business subcontractors in FAPIIS.

Question 51

N. SMALL BUSINESS CONTRACT
ADMINISTRATION (FAR 42.16)

Contracting officers shall

Answer 51

make every reasonable effort to respond to written requests from a small business concern within 30 days on matters of a contract administration nature.

Question 52

O. FORWARD PRICING RATE
AGREEMENTS (FAR 42.17)

Negotiation of forward pricing rate agreements (FPRAs) may be requested

Answer 52

by the contracting officer or the contractor or initiated by the administrative contracting officer (ACO). In determining whether to establish an FPRA, the ACO should consider whether the benefits to be derived from the agreement are commensurate with the effort of establishing and monitoring it.

Normally, FPRAs should be negotiated only with contractors having a significant volume of government contract proposals.

The FPRA shall provide specific terms and conditions covering expiration, application, and data requirements for systematic monitoring to ensure the validity of the rates. The agreement shall provide for cancellation at the option of either party and shall require the contractor to submit to the ACO and to the cognizant contract auditor any significant change in cost or pricing data used to support the FPRA.