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When may final payment be made to a contractor?

Even though a contract may have expired, final payment may not be made until the government verifies that the contractor has:

Fulfilled the terms of the contract

Resolved all issues concerning government property

Registered with the government all inventions conceived under the contract

Submitted all necessary reports (e.g., technical or progress reports) to the government

Received final technical acceptance and

Submitted all necessary financial information.

What is the purpose of contract closeout?

The closeout process verifies that the above conditions have been fulfilled after the contract expires. Once all conditions are met, final payment can be made and the contract closed out. The contract is then physically retiredit is boxed and either stored locally or shipped to a federal records storage facility.

When is a contract considered closed?

The contract is considered physically complete and is closed only when one of two events has occurred:

All required supplies or services have been delivered or performed, inspected, and accepted; all administrative tasks have been finalized; and all existing options periods have expired


Notice has been issued to the contractor that the contract termination has been completed.

What must be done to close out a contract?

The office administering the contract is responsible for initiating automated or manual administrative closeout of the contract after receiving evidence of its physical completion. A review of the funds under the contract is carried out by the COR and the contract specialist administering the contract in coordination with the budget office; where appropriate, excess funds are identified to the CO.

What is the COR's role in contract closeout?

The COR should:

Verify that the contractor has fulfilled the terms of the contract

Initiate deobligation action (i.e., coordinate with the budget office to recoup excess funds if appropriate, or secure additional funding if required)

Assist in property certification action (i.e., perform an inventory and verify that all government property has been returned to the government or otherwise disposed of as required by the contract).

The COR's duty is completed successfully when the contractor and government have fulfilled their obligations in a timely manner, all outstanding contract administration issues have been resolved, and all records are properly stored in accordance with record retention requirements specified by the FAR or the particular contract.

What should the COR do with his or her files upon closeout?

Upon completion of the contract, including the making of final payment, the COR should return the COR files to the CO to be retired with the official contract file and kept in records storage. Failure to store the two files together has often resulted in the government's inability to deny post-contract claims for lack of supporting evidence. This is particularly troublesome if finance offices are merged during downsizing and supporting records cannot be accessed.

What does the COR do to close out the contract file?

CORs are required to close out the contract file, which is used to document actions taken under the contract. The COR is responsible for documenting that the contract file is physically complete. Some agencies provide a checklist or other forms for this purpose. At a minimum, a closing memorandum to the file should be prepared and signed by the COR. All files, correspondence, and other documents pertaining to the contract should then be forwarded to the CO for inclusion in the contract administration file. There are three steps the COR should take when closing out a contract file:

1. Identify any outstanding claims or disputes.

2. Identify and recommend deobligation of excess funds.

3. Verify the return or disposition of government property.

1. Identifying any outstanding claims or disputes

The COR should be aware that a contractor may raise issues after a contract closeout action is taken. To avoid having to reopen a contract file that has been closed, some agencies make it a standard practice to request a release of claims from a contractor as a condition of final payment. If this release is required, the CO may request that the COR document the release in the contract administration file.

See Figure 8-3 for an example of a release of claim form.

2. Identifying and recommending deobligation of excess funds

An obligation of funds is defined as a monetary liability of the government that results from the award of a contract by a CO. The COR should identify any funds remaining on a contract. If there is no known potential for the funds to be used in the future on the contract, a

Release of Claim Form

FIGURE 8-3. Release of Claim Form

recommendation should be made to the CO for the deobligation of the funds. To deobligate funds, the CO issues a bilateral modification to the contract deobligating and removing the excess funds (i.e., removing the monetary liability of the government).

During the closeout of cost-reimbursement contracts, the COR should be aware of the following:

- Audits of final indirect (overhead) rates and incurred costs by the government auditors may take years to complete. The contractor must wait until final rates are established to prepare the final invoice.

- The government must retain sufficient funds to pay the final voucher (same as a final invoice on a fixed-price contract).

- Excess funds should be deobligated if they will not be used.

The contract specialist will consult the COR for a revised estimate of cost:

- To pay for any pending claims

- To identify the amount of excess funds remaining, if any.

3. Verifying the return or disposition of government property

The COR should verify and document whether the contractor has:

- Returned or otherwise disposed of government-furnished property and

- Properly disposed of classified material.

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