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Wednesday, December 1, 2010

CONTRACT CLOSEOUT IN SMALL BUSINESS FEDERAL GOVERNMENT CONTRACTING


INTRODUCTION

If you are an off-the-shelf or purchased-finished supplier of goods to the federal government, your contact closeout is reasonably simple. You will make delivery at a firm, fixed price to the agency to which you have contracted and submit an invoice. The government will receive and inspect the delivery and approve your invoice for payment. Assuming there are no ongoing warranties, logistics support or similar contract line items involved, the government will then closeout the contract, as will you.

Contracts involving progress billing with retention, cost type contracts and those with intellectual property, government property, classified documents, provisional billing rates and similar more complex matters require astute attention to detail and considerably more administrative support and coordination between the contractor and the government for closeout. Successful contract closeout of these types of programs is an ongoing process beginning at contract award.


This article will discuss the principal features of the closeout process in small business federal government contracting and provide references for further process detail.


THE GOVERNMENT PERSPECTIVE

Below is a synopsis from the introduction to the Defense Contract Management Agency (DCMA) “Contract Closeout Guidebook” which is a free download from the second vertical “References” Box Net cube at this site. The synopsis and the book should be read carefully by small business federal government contractors:

“The contract closeout process starts at contract receipt and review and proceeds throughout the life of the contract. MOCAS input data must accurately represent the contract in order to ensure proper management, payment, and closeout. When all contract requirements have been met and the contract is physically complete, it should be moved to MOCAS Section 2. The easiest contracts to close are short term Firm Fixed Price contracts with one Accounting Classification Reference Number (ACRN) for each Contract Line Item Number (CLIN) and no special provisions. Cost-Type contracts with multiple ACRNs for each CLIN and special payment provisions are the most difficult to close.
Many closeout problems increase in difficulty over time. The inability to locate transaction support documents and to read faded print in hard copies of documents are two recurring problems. 

Furthermore, if funds cancel before closure, appropriation law limits the types of adjustments that can be used to correct lines of accounting payment errors. Also, it can be difficult identifying and locating the responsible contracting officer because of reorganizations and closures directed by the Base Realignment and Closures Commission. In addition, over the past 20 years thousands of companies have gone out of business or been purchased by larger companies.  Novation agreements may or may not have been signed by the gaining company. These activities have contributed to the difficulty in closing old contracts.”

TIPS TO INSURE SUCCESSFUL CONTRACT CLOSOUT

Consider the type of contact under which you are operating and locate that type in the DCMA “Contract Closeout Guidebook”. Insure the processes specified in the guide are followed in your contract administration from the onset of your contact. Government contract types are discussed at the following link:

http://www.smalltofeds.com/2008/04/federal-government-contract-types.html

Note the guide discusses both the role of the government and the contractor in closeout and the stages in achieving closeout in MOCAS - The government "Mechanization of Contract Administration Services" System.

Support Cost-Type Contracts With Timely Incurred Cost Proposal Rates and Submissions – Several articles at this site have addressed the development of forward pricing rates and associated DCAA audits and submissions. Here are the most important articles with respect to contract closeout:

http://www.smalltofeds.com/2008/03/establishing-far-and-cas-compliant.html

http://www.smalltofeds.com/2008/02/dcaa-audits-and-small-business-job-cost.html

http://www.smalltofeds.com/2008/08/provisional-indirect-rates-in-small.html

To close out a cost type contract that has been billed throughout its life at provisional rates, regular incurred cost submissions must be submitted by the contractor and verified by DCAA. Provisional rates must then be adjusted to audited applied actual costs and the final billing determined. This could result in net excess funding on the program that must be returned or a requirement for addition funding at closeout. In either case, the business impact could be substantial for a small enterprise.

Note the Simplifying Techniques Specified by the Government in the DCMA Guidebook:

“What Contractors Should Do To Simplify Closeout
  • Verify payment accuracy and report discrepancies immediately.
  • Provide Contracting Officer with cost estimates for 75% and 100% of projected cost (usually 60 days in advance) in compliance with Limitation of Cost/Funds Clauses (FAR 52.232.20 through 21) for cost reimbursement and facilities contracts.
  • Submit patent reports on time to the Administrative Contracting Officer when required by the patent clause.
  • Submit Overhead Rate Proposals no later than 6 months after the end of the contractor's fiscal year.
  • Prepare final voucher no later than 4 months after settlement of overhead rates.
  • Consider Quick Closeout procedure when it's determined that normal closeout will be delayed.
  • Execute government property disposition instructions expediently.”
SUMMARY

Becoming informed on government contract closeout steps and putting in place processes to support them in your business system is the most important general principal to remember. Consider the type of contract you are releasing for incurred cost. Bear in mind how an individual contract impacts on your business system and insure your business system supports the type of contact you are putting into play. Develop a good working relationship with your contracting officers, DCMA and DCAA.  For more on the roles of these government functions, please see the following link:

http://www.smalltofeds.com/2007/06/federal-government-contracting-customer.html










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