The Contract Closeout Tsunami

What does it take to close out a contract? A lot, actually. FAR (Federal Acquisition Regulations) 4.804-5 lays out the steps that must be completed before a contract can be officially closed. Although the process is within the responsibility of the contract administration office, most of the steps require some involvement or input by the contractor. Let's look at some of the steps:

1. Disposition of classified material is completed
2. Final patent and royalty reports are cleared
3. There are no outstanding value engineering change proposals
4. Plant clearance report is received
5. Property clearance is received
6. All interim or disallowed costs are settled
7. Price revision is completed
8. Subcontracts are settled by the prime contractor (don't underestimate this requirement)
9. Prior year indirect cost rates are settled
10. Termination docket is completed
11. Contract audit is completed
12. Contractor's closing statement is completed
13. Contractor's final invoice has been submitted, and
14. Contract funds review is completed and excess funds deobligated.

It hasn't been too long ago that DCAA (Defense Contract Audit Agency) was sorely behind in completing incurred cost audits (see number 11, above). In fact, DCAA had to write off hundreds of contractor's submissions because they were beyond the six-year statute of limitations. DCAA has largely worked off the backlog now but not because they are performing audits. They've developed systems to identify high risk contractors and have accepted the proposed final rates for non-high risk contractors.

Of course, the huge backlog of unaudited incurred cost proposals created a huge backlog in contracts waiting to close and contractors, through no fault of their own, are now finding themselves scrambling to close out their old contracts. The Government (contract administration) is also feeling the effects of the closeout tsunami as their resources become burdened. Some of these contracts have been completed seven, or eight or more years ago now and companies are finding that records are incomplete or have been archived, personnel have changed, and memories have faded. The Government's records are equally incomplete or outright wrong. Contractors are finding out that the Government did not necessarily exercise due care when recording invoices and payments as CLINs and ACRNs often do not align with contractor records.

Is it going to end soon? Not soon enough.