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    Can you close-out (1594) a cancelled contract?


    Contract closeout is the process to finish or resolve all contractual requirements on a physically complete contract. The definition of a physically complete contract is located at FAR 4.804-4:
    (a) Except as provided in paragraph (b) of this section, 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.
    (b) Rental, use, and storage agreements are considered to be physically completed when—
    (1) The Government has given the contractor a notice of complete contract termination; or
    (2) The contract period has expired.
    A “canceled contract” has at least three recognized meanings. The first is related to Termination for Default, FAR 49.401, which states in part:
    (a) Termination for default is generally the exercise of the Government’s contractual right to completely or partially terminate a contract because of the contractor’s actual or anticipated failure to perform its contractual obligations.
    (b) If the contractor can establish, or it is otherwise determined that the contractor was not in default or that the failure to perform is excusable; i.e., arose out of causes beyond the control and without the fault or negligence of the contractor, the default clauses prescribed in 49.503 and located at 52.249 provide that a termination for default will be considered to have been a termination for the convenience of the Government, and the rights and obligations of the parties governed accordingly.
    (c) The Government may, in appropriate cases, exercise termination or cancellation rights in addition to those in the contract clauses (see for example, paragraph (h) of the Default clause at 52.249-8).
    (d) For default terminations of orders under Federal Supply Schedule contracts, see Subpart 8.4.
    The second meaning is related to multi-year contracting. FAR clause 52.217-2, states in part
    (a) “Cancellation,” as used in this clause, means that the Government is canceling its requirements for all supplies or services in program years subsequent to that in which notice of cancellation is provided. Cancellation shall occur by the date or within the time period specified in the Schedule, unless a later date is agreed to, if the Contracting Officer-

    (1) Notifies the Contractor that funds are not available for contract performance for any subsequent program year; or
    (2) Fails to notify the Contractor that funds are available for performance of the succeeding program year requirement.
    (b) Except for cancellation under this clause or termination under the Default clause, any reduction by the Contracting Officer in the requirements of this contract shall be considered a termination under the Termination for Convenience of the Government clause.
    (c) If cancellation under this clause occurs, the Contractor will be paid a cancellation charge not over the cancellation ceiling specified in the Schedule as applicable at the time of cancellation.

    The third meaning is related to the acquisition of commercial items. FAR 12.403 is often used as the process for a no-cost cancellation, with a modification to that effect. 
    In sum, the three instances cited above can be justification for the contracting officer to equate “cancellation” with termination for default or convenience. Then the guidance provided for conducting contract closeout for terminated contracts would be triggered. Should you need more specific guidance, I recommend that you contact your agency policy division.


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