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Sunstrider

Contract Closeout Process

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I have a few questions regarding the contract closeout process, especially with regards to common practices I see.

1) Why releases of claims included in modifications to deobligate excess funds? I am not finding a basis for this practice in regulation, and, IMO, it's far easier to just let the contractor submit a claim, should they deem such action necessary.

 

2) Would you consider a unilateral modification in order to remove all excess funds for contract closeout? If so, what authority would you cite on the SF 30?

 

3) I cannot locate guidance for how to properly use Block 5 on the DD 1594 - Contract Completion Statement. Under what circumstance will it be authorized to close a contract out with excess funds remaining? What about the checkbox "In Process"?

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1) Unless the contract clause requires a release of claims, which should be provided with the final invoice, the contractor is not required to sign a release.  There is no requirement in the FAR for a release to be part of a modification to deobligate excess funds.  I wouldn't make a practice of doing so, primarily because the contract does not require it and it is usually unnecessary.

2) Only if the contract contains a clause permitting unilateral deobligation of funds.  Commercial item contracts require all changes in the terms and conditions of the contract to be "made by written agreement of the parties" (52.212-4(c)).  Price is a term of the contract, so for commercial items contracts both parties would have to agree to the change unless some other term in the contract permits the CO to do so unilaterally.

3) I'm not familiar with the DD form and processes.

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30 minutes ago, FAR-flung 1102 said:

What steps should I take to avoid an Anti Deficiency Act Violation for improper drobligation?

I don't understand the question.

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7 minutes ago, FAR-flung 1102 said:

I apologize for the typo: deobligation. 

For info on ADA you might start with this site:

http://www.gao.gov/legal/anti-deficiency-act/about

 

I know what the Antideficiency Act is.  I'm trying to understand your question.  What violation are you concerned with in the context of a deobligation modification at closeout?

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FAR FLUNG is worried about deobligating all the funds and then the contractor sends another invoice making the contract anti-deficient.  That is why there is the need to get the contractor to certify they are done invoicing and have received all payments they are expecting.  I don't know about other agencies,  but at mine, this started being an issue a couple of years ago when from Congress, GAO, OIG and down started scrutinizing unliquidated obligations.  Based on various reports our OIG seems to push that they would like us to fully deobligate and day the contract expires but of course that makes no contractual sense. GAO is doing a study of close outs right now and deobligating as quickly as possible seems to be thier emphesis too. Most funds cannot be reused at close out so I am not sure of the push to deobligate them.  (No year x funds excluded).    

There are close out time frames in FAR Part 4 but due to lack of resources most of them are missed.  Then there are the big cost reimbursement contracts that need funding left on them until DCAA does the indirect cost audits sometimes 5 years after the contract expires.  And on those big complicated contracts you have the contractor submitting invoices right up to the 6 year statute of limitations (and after sometimes). So as CO you have to be careful not to leave a fortune on the contract but you must leave enough to cover unexpected invoices and increases in indirect cost.

    

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Boof, I'm not sure why you wonder why the push to deobligate excess funds. I can think of some important reasons. 

As you know, many funds remain available to meet existing obligations after the period of obligation expires. Certain in-scope contract actions, such as overruns of unit priced items, settling REAs and claims; settlement of un-priced changes after expiration, etc.  

Even if not required for the instant contract, the government needs to know the status of unliquidated obligations that could be made available to fulfill other obligations. Such obligations can include those during the period of availability for new obligations or antecedent liabilities within contracts after the period of initial availability. 

Im sure that everyone here would want to know the status of their own bank account balances so that they can pay their bills or other surprises. 

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Speaking of the DCAA backlog, I wonder what the cost/benefit ratio is for understaffing of audit staff vs . the delays in obtaining proposal or incurred cost audits, the short cuts taken in audits or when negotiators have to deal with no audit support or rely on old audits.   

Years ago, when the Corps of Engineers had their own auditors for Civil Works contracts, they paid for themselves in my opinion, for the assistance they provided me in my negotiations of sole source contracts and of changes and claims on existing contracts.   

The DCAA audits for military construction contracts have almost always been less useful to me because of the auditors' lack of expertise in Construction specific cost rules,  construction contracting business practices and in their higher level audit reviews, which were probably partly due to their work loads. I used to have to provide DCAA auditors guidance on how to determine contractor owned construction equipment ownership and hourly operating costs and how to remove such costs and related support costs from the overhead and G&A pools.  Construction contractors typically included such costs in their indirect cost pools, resulting in charging the same costs twice- both as direct and indirect costs.   

When we had our own dedicated DCAA staff on the Corps' huge Saudi Arabia program in the 1980's, we had much better success, because we trained them and they trained us at the same time. I never had the same luck with DCAA Stateside and I firmly believe that poor audits cost the taxpayers much more than a properly staffed and trained DCAA would cost. 

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4 hours ago, Boof said:

FAR FLUNG is worried about deobligating all the funds and then the contractor sends another invoice making the contract anti-deficient.  That is why there is the need to get the contractor to certify they are done invoicing and have received all payments they are expecting.  I don't know about other agencies,  but at mine, this started being an issue a couple of years ago when from Congress, GAO, OIG and down started scrutinizing unliquidated obligations.  Based on various reports our OIG seems to push that they would like us to fully deobligate and day the contract expires but of course that makes no contractual sense. GAO is doing a study of close outs right now and deobligating as quickly as possible seems to be thier emphesis too. Most funds cannot be reused at close out so I am not sure of the push to deobligate them.  (No year x funds excluded.)

I still don't understand the concern with being antideficient and a release of claims isn't necessary. Simply have the contractor sign a bilateral deobligation modification agreeing that the funds are no longer needed and the remaining obligation amount is sufficient for all invoices paid or pending.  Even if an unexpected claim is received at a later date, that alone is not a sufficient basis to leave excess funds on a contract nor would no longer having funds obligated cause an Antideficiency Act violation.

Excess unliquidated obligations are also an issue of concern in the agency I work for, as it should be. If a recorded obligation is in excess of what is needed then it should be adjusted at the time it is known and not wait until closeout.  Obligations are not supposed to be over or under recorded.   Also, if deobligated timely, single year and multi-year funds may be reobligated for other contracts during their period of availability.  The total of excess open obligations can be very significant across an entire agency, some of which could be put to good use, especially with budgets continuing to shrink.

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14 hours ago, joel hoffman said:

Speaking of the DCAA backlog, I wonder what the cost/benefit ratio is for understaffing of audit staff vs . the delays in obtaining proposal or incurred cost audits, the short cuts taken in audits or when negotiators have to deal with no audit support or rely on old audits ... I never had the same luck with DCAA Stateside and I firmly believe that poor audits cost the taxpayers much more than a properly staffed and trained DCAA would cost. 

Joel, I would refer you to the recent ASBCA decision on Technology Systems, Inc. (TSI) for a great example of the impact(s) on the contractor and taxpayer. I would refer you to that decision but the ASBCA site is (still) down.

 

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Joel, I agree with your statement that poor audits cost the taxpayers.  However, I think your prescription for minimizing such audits is somewhat wide of the mark.  Similarly, I do not accept that the backlog of DCAA audits is the result of a lack of staffing.  My views are based upon my working for DCAA for 15 years and dealing with DCAA auditors on the contractor side for almost 20 years now 

If we look at the figures for DCAA prior to 2008 and compare them to the same metrics after 2008, we see a great drop off in productivity.  For example, on an average yearly basis, DCAA did substantially more audits prior to 2008 as afterwards.  The number of audit reports per auditor had a similar reduction while the time taken to perform the few audits that got done expanded greatly.  The reason 2008 is the significant year is  because that is when GAO issued its first report finding that some DCAA auditors had not fully complied with the GAO auditing standards (GAGAS) when performing audits.  Among the standards that were allegedly violated was the standard on documenting adequate transaction testing.  This report resulted in several congressional hearings and the reassignment of the DCAA Director to the DoD Comptroller's office.  Internally, DCAA went overboard on transaction testing.  DCAA was no longer turning over the big rocks when conducting audits but were turning over grains of sand to show that it had done adequate testing in order to obtain evidence to support an audit opinion.  Obviously, this focus on process resulted in DCAA not being able to get reports out the door.

Also, I suspect that some of the backlog has a political component to it as this was a tactic DCAA used while I was there.  In Washington, one of the favorite solutions to every problem has been more money.  Having a backlog is something that can be blamed on a lack of resources so you can get more money.  DCAA intentionally did not reduce its backlog of audits so that it could justify its budget and staffing levels.

As for training, I doubt there is a more trained civilian workforce anywhere in the government than DCAA auditors.  The problem is that most of the training they get is from other DCAA auditors.  This perpetuates internal biases and avoids "corrupting" outside influences.  DCAA has traditionally not permitted its auditors to attend DAU or other outside procurement training.  Maybe Don can speak to this point.

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7 minutes ago, Retreadfed said:

DCAA has traditionally not permitted its auditors to attend DAU or other outside procurement training.  Maybe Don can speak to this point.

I didn't know that. I haven't had any current DCAA auditors in my classes, but I have had some former auditors.

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On 2/27/2017 at 4:24 AM, Sunstrider said:

1) Why releases of claims included in modifications to deobligate excess funds? I am not finding a basis for this practice in regulation, and, IMO, it's far easier to just let the contractor submit a claim, should they deem such action necessary.

From a practical standpoint, I think it is included to spur the contractor to raise any claims sooner rather than later.  A contractor has 6 years to file a claim, and the longer it waits to submit one, the more difficult it is for the government to negotiate, settle or litigate.  (Files disappear, people change jobs, etc.)  Whether a release of claims in a mod to deobligate funds is actually enforceable is a different question.

 

On 2/27/2017 at 4:24 AM, Sunstrider said:

2) Would you consider a unilateral modification in order to remove all excess funds for contract closeout? If so, what authority would you cite on the SF 30?

In my opinion, a modification that only deobligates excess funds does not affect the rights and obligations of the parties.  If a contractor has the right to be paid under the contract, that right exists irrespective of whether the government changes or deobligates the funds on the contract.  Similarly, an improper recording of funds does not create a contractual right.  Therefore, a stand-alone deobligation of funds modification should be considered an administrative modification carried out so that the government can reconcile its fiscal books.

 

With regard to Commercial Item Contracts, 52.212-4(c) only provides that “Changes to the terms and conditions of this contract…” must be bilateral.  In my opinion, a statement in the contract about the government’s funding source, which is not binding on either the government or the contractor, is not a term or condition of the contract. Therefore, a unilateral modification is appropriate and Block 13 B should be checked for the authority.

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