My question: Is it necessary/wise to do a de-scope?
It is necessary to perform a de-scope or a partial termination for convenience and the rationale is as follows:
FAR 4.804-5, Procedures for closing out contract files, describes the steps for closing a contract after physical completion. In all areas, physical completion is key. FAR 4.804-4, Physically completed contracts states, “…a contract is considered to be physically completed when— (1)(i) The contractor has completed the required deliveries and the Government has inspected and accepted the supplies; (ii) The contractor has performed all services and the Government has accepted these services; and (iii) All option provisions, if any, have expired; or (2) The Government has given the contractor a notice of complete contract termination. …”
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In your contract is not ready for close out as it does not fit the definition of physically complete. The contractor has not performed all services, the contract period has not expired, and the Government will not be completely terminating the contract.
Thus, as your question implied, there must be a de-scope or a partial termination for convenience to remove the services which have not been performed. Often, with the cooperation of the contractor, if there are no more invoices, you can process the modifications and receive the contractor completion statements concurrently.
There was a previous AAP question on the best way to de-scope a contract, https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=22&cgiQuestionID=104655. I am including the verbiage from this question as asking for a new Statement of Work from the contractor is not required, but not advisable. A new Statement of Work implies new work. Instead, you are removing work that has not been performed. The previous AAP question stated,
“There is no one best way to de-scope a contract. You have several approaches in accordance with the Federal Acquisition Regulation (FAR) to de-scope a contract, … FAR 49.304 outline the procedures for partial termination; and the other approach is to do a bilateral modification to de-scope the contract in accordance with FAR Part 43. In either option, the work that is no longer needed is terminated.
If a termination for convenience is done as outlined in FAR Part 49, the Contracting Officer terminates the portion of the contract no longer needed unilaterally. After receipt of the unilateral modification terminating a portion of the work, the contractor then prepares a settlement proposal for any allowable costs associated with the termination. (The allowable termination costs are outlined in FAR 31.205-42 Termination Costs.) The Government receives the proposal, audits it, analyzes it, and negotiates the termination settlement. A bilateral modification is then issued signifying agreement of the termination settlement terms.
In the approach to do a bilateral modification reducing the scope, the Contracting Officer sends a notice of the intent to reduce the scope of the contract and requests that the [Contractor] submit a proposal reflecting the reduced scope of work. The contractor then prepares their proposal and forwards it to the Contracting Officer. The Contracting Officer then receives it, audits and analyzes it and proceeds to negotiate any issues that are required for negotiation. Then a single bilateral modification is issued signifying the reduced scope and any associated cost impacts.”
In both examples, the Contractor submits a proposal on costs associated with the reduction of work. The Contractor does not submit a proposal for new work.
Because your e-mail is Air Force, I have included information from the Air Force’s Contracting Officer Termination for Convenience (T4C) Quick Reference (12 Dec 2011). Using this guide, your scenario is a textbook example of the question of whether to terminated or descope:
“When to T4C or De-Scope
As you described, your organization no longer has funds available. The guide includes factors to consider when determining whether a T4C or De-Scope is more favorable. In general, the Air Force and most services and federal agencies recommend De-Scoping the contract rather than Terminating the contract for Convenience. It is an easier process and it is often better for the contractor not to have a termination, even a T4C, on record. Additionally, it is cheaper and less administratively burdensome for both parties…and usually, a good working relationship on future efforts can be continued.
• CO determines and documents whether to terminate (partial or total) under the T4C Clause or to de-scope under the Changes clause
o T4C clause is normally used for major deletions, and identifiable work tasks
o The Changes clause is normally used for minor variations and work deletion by changing the specification (FAR 43)
• CO considers the following:
o Is termination in the best interests of the Government?
o If the cost to terminate exceeds the cost to complete the contract, do not terminate
o If the undelivered balance of the contract is $5,000 or less - do not terminate - allow contract to run to completion
o Do you have reason to believe Contractor would accept a no cost-termination? If so, pursue it. (If contract is new, contractor may not have incurred costs yet)
o Can you can de-scope rather than partially terminate? (It is an easier process)
o Can you convert contract to FFP prior to termination? (It will be easier to close)
o Legal review of the decision to T4C is mandatory”
Following this guidebook, for anyone in DoD, will allow you to make a determination on termination versus scope reduction and execute that plan so that you can process your closeout. Please remember to follow the closeout steps which will not include asking for a contractor’s statement of work and will include items such as contractor statement of completion. In addition to local closeout procedures and checklists, there are other resources available to you once your contract is ready to close. This includes following FAR 4.804, potentially FAR 42.708, using a DD Form 1594 – Contract Completion Statement, and reviewing other guidance.
- When the supplies/services, for which we contracted, are no longer required
- When requirements change (reduced)
- When contract funds are not available”