DAU GLOSSARY DEFINITION
Contract closeout is the final stage of the Government contracting process. It can begin when the contract has been physically completed, and is not finished until final payment is made, any disputes settled, and all administrative actions required by the Federal Acquisition Regulation and specific agency procedures accomplished.
Once the procuring or administrative contracting officer confirms that all receivables have been delivered/completed (often with the assistance of a contracting officer representative), the contracting officer begins the closeout process. Per FAR 4.804-4, a contract is physically complete when:
- The contractor has completed the required deliveries and the Government has inspected and accepted the supplies;
- The contractor has performed all services and the Government has accepted these services; and
- All option provisions, if any, have expired; or
- The Government has given the contractor a notice of complete contract termination.
Rental, use, and storage agreements are considered physically complete when the Government has given the contractor a notice of complete contract termination, or the contract period has expired.
FAR 4.804-5 lists the items which the contracting officer must verify during the closeout process:
- Disposition of classified material is completed
- Final patent report is cleared
- Final royalty report is cleared
- There is no outstanding value engineering change proposal
- Plant clearance report is received
- Property clearance is received
- All interim or disallowed costs are settled
- Price revision is completed
- Subcontracts are settled by the prime contractor
- Prior year indirect cost rates are settled
- Termination docket is completed
- Contract audit is completed
- Contractor’s closing statement is completed
- Contractor’s final invoice has been submitted
- Contract funds review is completed and excess funds de-obligated
The time standards for closeout of contracts, when closeout is accomplished by the office administering the contract, are as follows (FAR 4.804-1):
- Files for contracts using simplified acquisition procedures should be considered closed when the contracting officer receives evidence of receipt of property and final payment, unless otherwise specified by agency regulations.
- Files for firm-fixed-price contracts, other than those using simplified acquisition procedures, should be closed within 6 months after the date on which the contracting officer receives evidence of physical completion.
- Files for contracts requiring settlement of indirect cost rates should be closed within 36 months of the month in which the contracting officer receives evidence of physical completion.
- Files for all other contracts should be closed within 20 months of the month in which the contracting officer receives evidence of physical completion.
Sometimes, an office other than the one that administered a contract is tasked with contract closeout. In such cases, the time standards are (FAR 4.804-2):
- Contract files for contracts using simplified acquisition procedures should be considered closed when the contracting officer receives evidence of receipt of property and final payment, unless otherwise specified by agency regulation.
- All other contract files shall be closed as soon as practicable after the contracting officer receives a contract completion statement from the contract administration office.
The issues that the contracting officer must address during closeout can vary widely, depending on the nature of the contract (e.g., contract type, use of government property, security classification of documents). Cost reimbursement contracts in particular can present challenges during the closeout process. For these types of contracts, audits are required to determine the reasonableness, allowability, and allocability of costs incurred. Although there is a pre-award audit of the contractor's proposal, there is a cost-incurred audit of the contractor's claim of incurred costs and a close out audit to reconcile the contractor's final claim under the contract to incurred costs previously audited. When there is a delay in completing the cost-incurred and closeout audits, contracting officials must wait before completing the closeout process for many cost reimbursement contracts. However, the FAR provides quick-closeout for some contracts in advance of the determination of final indirect cost rates (FAR 42.708).
Once the contracting officer verifies all closeout actions have been accomplished, he/she fills out a contract completion statement (DD Form 1594 or equivalent) and places it in the contract file. Some closeout actions are completed in the Mechanization of Contract Administration Services (MOCAS) database. Once the closeout process is complete, the contract files are subject to the retention requirements at FAR 4.805.