Rose Report: Issue 10

Closing Out Contracts

The work is done, the contract has ended, and the government has signed off on the final results. But the process isn’t over. Depending on the type of government contract an organization has completed, actually closing out the contract could happen within months of the work being finalized, or it could take years.

Closing out a fixed-price contract is relatively simple. Under this type of contract, the contractor commits to delivering the work or product for an agreed upon price, that is seldomly adjusted. This means there’s no “negotiating” left to do once the contract ends, and the close-out can usually occur within six months.

Contractors performing cost type contracts, such as cost-plus-fixed-fee, face a more complex and intensive close out process. At the end of these contracts, there are still rates that need to be reviewed and negotiated before final invoices can be submitted. This can take years, especially since the DCAA is dealing with a serious backlog. While the target for close is three years, many contractors are still waiting to hear back on the status of their rates from 2006. DCAA is taking action to catch up. However, it may take until 2016 or longer to get back on track.

In some instances, contractors are able to avoid the wait by qualifying for a quick close out or an early close out, which gives the contracting officer assigned to a specific contract the authority to negotiate a final settlement. There are some limits, though. For instance, a quick close out cannot be used if the total unsettled direct and indirect costs to be allocated to any one contract, task or delivery order exceeds $1,000,000 or 10% of the total contract amount. Contractors can check their contracts for the FAR clauses that allow these options.

The long wait time to close out can present many challenges for contractors. Among them, the Government has the right to withhold retainage, up to $100,000 in some cases, until the contract is closed out. In addition, a contractor may be acquired by another company or go through other significant changes before its contracts close out. In any case, it’s key for an organization to keep all documentation related to the contracts well organized and easily accessible. Problems should be solved and timely submissions should be made to simplify the closeout process when the time comes.

So remember—the contract may be completed, but the work isn’t over.