Here's a hypothetical.
Contractor A is a small firm (but NOT a small business) with all FFP contracts except for one FPIF (Firm Target) contract. Work is complete on that FPIF contract, and the parties want to negotiate the final price and close the contract. However, the CO says the contract cannot be closed because the contractor does not have final billing rates. The CO cites to 42.703-1©(2), which states, "Established final indirect cost rates shall be used in negotiating the final price of fixed-price incentive and fixed-price redeterminable contracts and in other situations requiring that indirect costs be settled before contract prices are established, unless the quick-closeout procedure in 42.708 is used."
The contractor tells the CO that's not going to happen. No proposal to establish final billing rates, no DCAA audit of same, no way. It would be prohibitively expensive. The CO tells the contractor that the Allowable Cost and Payment Clause (52.216-7) requires submission. The contractor tells the CO that the clause can't be found in the contract. Indeed, upon checking the CO determines that 52.216-7 is not required to be included in FPIF contracts.
The contractor states that if the CO requires submission of a 52.216-7 compliant final billing rate proposal and expects the contractor to support a DCAA audit of that proposal and to negotiate final billing rates, then all associated costs will be direct costs of the requiring contract (since no other contract requires submission and, but for this contract, the contractor would not have submitted a final billing rate proposal). Further, the contractor states that it will submit an REA seeking to adjust target costs and incentive fees for the estimated costs of the effort, which will be significant in relation to the original contract price. The contractor believes it had no reason to negotiate costs for such an effort in the FPIF contract, since the contract did not require it and the FAR only applies to the extent incorporated into the contract.
In this hypothetical it seems to me that the contractor was not required to submit a final rate proposal but the FAR contemplates that one will be submitted. Both parties are stuck but it's not adversarial; both parties want to resolve this issue quickly.
Also please assume for this hypothetical that quick-close rates cannot be negotiated.