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I have a few questions pertaining to the Contract Closeout process. Specifically:

1. When is a release of claims required?

Per my understanding, it's for FFP Construction (52.232-5) and Architect Engineer Contracts (52.232-10) as well as Time and Materials and Labor Hour (52.232-7). Is there any requirement for a release of claims for commercial items at any dollar threshold?

2. When a de-obligation is required what is the correct legal authority to cite on the SF-30?

For FFP commercial contracts, I usually go with FAR 52.212-4 (C) and a bilateral modification because a reduction in price is a change to the Terms and Conditions of the contract and must be made by mutual agreement of the parties.

For Construction, A&E, Labor Hour, or T&M where a release of claims has been submitted is there any reason it couldn't be listed as a funding only action and executed as a unilateral mod? 

Thanks in advance for the help

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1.  In addition to those you listed, a release of claims is required for cost-reimbursement contracts.  All of these releases are required before final payment, and are not part of the closeout process.  The FAR does not require a release of claims for closeout for any contract.

2.  A closeout deobligation is an administrative action, so you may check block 13.B. of the SF-30.

A closeout deobligation IS NOT a reduction in price, and IS NOT a change in terms.  A closeout deobligation should be a unilateral administrative modification.  Note:  Some agencies will process closeout deobligations without requiring a SF-30, especially for low-dollar deobligations.

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2 hours ago, ji20874 said:

1.  In addition to those you listed, a release of claims is required for cost-reimbursement contracts.  All of these releases are required before final payment, and are not part of the closeout process.  The FAR does not require a release of claims for closeout for any contract.

2.  A closeout deobligation is an administrative action, so you may check block 13.B. of the SF-30.

A closeout deobligation IS NOT a reduction in price, and IS NOT a change in terms.  A closeout deobligation should be a unilateral administrative modification.  Note:  Some agencies will process closeout deobligations without requiring a SF-30, especially for low-dollar deobligations.

Supplementing ji's response with regard to - 

 Number 1 - An agency may at its or the CO's discreation require a release for any type of contract.  I suggest consulting agency supplement to the FAR, agency policy, and most especially the contract.   If the contract states a release is required, its required.

Number 2 - I advise caution on deobligation with regard to a specific contract.  As evidenced by the standard language of 52.212-4(u) obligation of funds is addressed as a term and condition and an agency may decide to cover otherwise with regard to commercial item contracts where the terms and conditions are subject to tailoring and agency discreation.  

For me there is no general rule especially when a commercial item contract as there is a lot of leeway as to what may and will be required in a contract.

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So what about a case where:

1. FFP Commercial Service under SAT where a contractor has submitted final invoice and there's a nominal amount left? If by the language of 52.212-4 price is a term, wouldn't the deob have to be bilateral?

2. Again FFP Commercial. The government was unable to use all of the services on a line item, due to weather or other circumstances, leaving a partially funded line item that is no longer needed with an expired POP. Wouldn't the deob  have to be bilateral here too?

 It makes sense that if a release of claims has been submitted that the action could be unilateral, but in the cases above bilateral citing 52.212-4 (c) eems to be a safe way to go

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5 hours ago, nkd9 said:

1. FFP Commercial Service under SAT where a contractor has submitted final invoice and there's a nominal amount left? If by the language of 52.212-4 price is a term, wouldn't the deob have to be bilateral?

Yes, noting that your specific that price is a "term".

5 hours ago, nkd9 said:

Again FFP Commercial. The government was unable to use all of the services on a line item, due to weather or other circumstances, leaving a partially funded line item that is no longer needed with an expired POP. Wouldn't the deob  have to be bilateral here too?

There are those believe yes and there are those that believe no.   ji has provided you, in part, one view.  Let me offer another.  To form the contract the government and the contractor must  have consideration (price in your case) and have agreement on the consideration.   Blacks Dictionary (on-line) defines a term and condition as "Special and general arrangement, rule, requirements, standards etc. Forming integral parts of a contract or agreement."  Price therefore could be an integral part of a contract and removing the obligation from the contract that supports the price could be a term and condition.

There is another view as well not provided by ji and that is if you determine that your non-use of services is equal to a partial T4C.  If concluded to be a T4C the government does retain the right to do so unilaterally.

All said each situation will depend on its specific facts.   Overall I suggest that you do some searching right here in WIFCON Forum on commercial item contracts, specifically 52.212-4, and changes to commercial item contracts to form your own informed view as to how specific situations you encounter might, could and would be handled.

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On 3/23/2019 at 2:29 AM, nkd9 said:

1. FFP Commercial Service under SAT where a contractor has submitted final invoice and there's a nominal amount left? If by the language of 52.212-4 price is a term, wouldn't the deob have to be bilateral?

No.  If the contractor completed the work and the Government made payment four years ago on the contractor’s final invoice, and now it is time for closeout, the closeout deobligation is unilateral.  The price hasn’t changed, it’s just that the contractor didn’t invoice the full amount (it isn’t required to) and essentially gave its customer (the Government) a discount — isn’t that nice?  Deobligate the remaining funds and close out the contract.  Remember that closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.

On 3/23/2019 at 2:29 AM, nkd9 said:

2.  Again FFP Commercial. The government was unable to use all of the services on a line item, due to weather or other circumstances, leaving a partially funded line item that is no longer needed with an expired POP. Wouldn't the deob  have to be bilateral here too?

I don’t understand what is meant in this scenario, and need more information.  Did the contractor fail to perform because of the weather?  Were the quantities estimates?  Maybe this is a termination for convenience or cause situation, and not a closeout situation?  We do closeout after we have handled everything else.  Remember that closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.

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1 hour ago, ji20874 said:

No.

I will leave it to each there own on trying to profess their view but of interest and consideration to me is this.  Many clauses provide a unilateral right to the government but I have yet to see a clause in a commercial item contract that says the government has the right to make a unilateral change to funding, obligation, change of COR, change of CO, etc. etc.   If for one minute the government believes that such changes do not, I repeat do not effect my rights, obligations and costs under a contract, well then I guess those government folks that do not should think again.   Take money away, how do you know I won't want to make a claim; change appropriations - how do I know the government hasn't change it in such a way that my rights have not changed (one year versus no year monies); change COR or CO - if one thinks that folks designated in such positions are not taken into consideration when a contractor is pricing a contract think again.

I would add here that who cares what the FAR says about admin mods, it is again what the contract says and a commercial item contract says changes to terms and conditions by written agreement of the parties.   Until I am shown specifically that in commercial (common) law that one entity can go in and change something in a contract unilaterally without the commercial contract (not FAR defined but common law defined) saying so then I will rely on my position.

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Carl,

You might have missed my statement, which I stated twice:  “Remember that closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.”

A Government decision to close out a contract is an internal administrative decision of the Government — it does not alter the rights or obligations of either party to the contract.  

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6 hours ago, ji20874 said:

A Government decision to close out a contract is an internal administrative decision of the Government — it does not alter the rights or obligations of either party to the contract.  

I have not missed a thing.  While I understand your position, it is an opinion that is without reference.  Take your quoted statement above.   I hope you do not mean anytime! T4C, T4Cause sure as such right is in the contract but "close out"?  Where in a CI contract does it state you have that unilateral right?

From another view when you awarded me a contract you stated a sum certain in some way (FFP, ceiling) and now you believe it's your unilateral right to take that money away for other than a T4C or cause, again explain per the contract how?

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22 hours ago, C Culham said:

I have not missed a thing.  While I understand your position, it is an opinion that is without reference.  Take your quoted statement above.   I hope you do not mean anytime! T4C, T4Cause sure as such right is in the contract but "close out"?  Where in a CI contract does it state you have that unilateral right?

I think your understanding of closeout differs from mine.  To me, and amenable to FAR 4.804, closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.

There is no clause anywhere that allows for closeout, either unilaterally or bilaterally, for CI contracts or any other type of contract.  And yet, both the Government and her thousands of contractors administratively close out contracts every day of the year.  Closeout only means that the party doing the closeout takes the contract out of active status and moves it to inactive status.  One party does not need the other party’s permission to closeout.  One party’s decision to closeout has no bearing on the other party.

22 hours ago, C Culham said:

From another view when you awarded me a contract you stated a sum certain in some way (FFP, ceiling) and now you believe it's your unilateral right to take that money away for other than a T4C or cause, again explain per the contract how?

Who said anything about taking away money?  Remember, I have repeatedly said (and you have repeatedly not noticed) that none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.  If a contract had a single CLIN for $15K, and four years ago the contractor delivered and invoiced for $14K, and the Government paid the invoice amount, that contract has long been ready for closeout. In closeout, we unilaterally deobligate the uninvoiced amount of $1K.

We have not changed the contract price.  The contract price remains $15K.  The invoiced and paid amount is $14K.  The remaining uninvoiced amount is $1K, and this amount is deobligated in closeout because there is little likelihood the contractor will invoice for it.  We move the contract from active status to inactive status.  The contractor probably closed out the contract in its files a few years ago.

If the contractor later submits an invoice for the uninvoiced amount, and provided there was no release of claims and the six-year period for a claim has not ended, the Government simply pulls the contract out of closeout, obligates the needed amount, and pays the new invoice.  There is a risk that this might happen, and the Government probably shouldn’t closeout a contract where there is a high likelihood of a future invoice — but we may still close out the contract with that risk — it’s risk management rather than risk avoidance.

That is how closeout works.  Any notion (or agency practice) that the Government may close out a contract only with the contractor’s permission is error.  Surely, our thousands of contractors don’t seek our permission before they move contracts from active status to inactive status in their files.

The Government closes out a contract when it reasonably thinks there will be no further action under the contract — if there is any need for T4C or any other action under the contract, then it is not ready for closeout.  Closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.

 

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I agree with ji here. Why overcomplicate it?  If the contract is over, invoiced and paid - especially when a release of claims is involved - administrively close the thing out. 

Our agency had close out procedures. 

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Note to NKD9, why don't you ask the contractor what it was contemplating with respect to the contract, if anything?

Edited by Neil Roberts
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14 hours ago, ji20874 said:

I think your understanding of closeout differs from mine.

No it does not but we do differ on when you can do a unilateral modification to a commercial item contract.  While you have attempted to use the FAR to support your argument your position is in my view counter to FAR Part 12.102 which states - " (c) Contracts for the acquisition of commercial items are subject to the policies in other parts of the FAR. When a policy in another part of the FAR is inconsistent with a policy in this part, this part 12 shall take precedence for the acquisition of commercial items."  Changes made unilaterally to a commercial item contract without the authority of a contract clause is in consistent with 52.212-4(a). 

14 hours ago, ji20874 said:

Who said anything about taking away money?

You have and continue to paint it otherwise.   Commercial item contracts under the FAR must be FFP, FP w/economic adjustment, T&M or LH.   Any adjustment you make at anytime inclusive of close out is removing of monies otherwise designated for the FFP, FP or the ceiling price of the T&M and LH.

As you know the early drafting of FAR part 12 was to emulate common commercial practice.   Noting this I suggest a read of the use of a "Variations Clause" in commercial (or common law) contracts.   I believe it will give you perspective.

4 hours ago, joel hoffman said:

I agree with ji here. Why overcomplicate it?  If the contract is over, invoiced and paid - especially when a release of claims is involved - administrively close the thing out. 

Our agency had close out procedures.

Joel I agree with close out  in keeping with standard commercial standards that is supported by 52.212-4 as written, unless tailored, that doing so must be bilateral.  Commercial item contracting is not your daddy's rodeo anymore.

1 hour ago, Neil Roberts said:

Note to NKD9, why don't you ask the contractor what it was contemplating with respect to the contract, if anything?

Yes, mutual agreement and understanding!

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Carl,

Closeout is not a change.  I do not think of closeout as a change.  Closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.  The Government does not need a contract clause to allow it to move a contract from active to inactive status.

A unilateral deobligation of funds at closeout does not change the contract price and does not impair the contractor’s right to later submit an invoice.

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1 hour ago, ji20874 said:

Carl,

Closeout is not a change.  I do not think of closeout as a change.  Closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.  The Government does not need a contract clause to allow it to move a contract from active to inactive status.

A unilateral deobligation of funds at closeout does not change the contract price and does not impair the contractor’s right to later submit an invoice.

Ji, I am not completely on board with understanding what "closeout" is for this blog. In my experience, the closeout process includes disposition of government property, identifying any patents or royalty items/issues, etc. To that extent, a broad brush that the contractor is wholly uninvolved with the closeout process and there are no contract rights and obligations involved, seems a stretch. The contractor and the government are both involved with the laundry list of those items. On the other hand, if those standard laundry list of closeout items were already completed, and all contracted items were physically delivered and paid for per the contract amount/price, the contract could be considered complete in my view. It does sound like there are some internal government steps to take to de-obligate  some funds and I also think of that as a unilateral government action. However, where all contracted items were not delivered and paid for, my experience, advice and practice in the subcontract world for a major prime contractor, was to negotiate a final closeout change notice with the subcontractor when there were outstanding contract issues such as presented in this blog i.e., "Government did not order and contractor agreed not to provide x." This made it bilaterally clear. Contract clauses were inserted to foreclose any claims.         

Edited by Neil Roberts
typo
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All contracted items were not delivered?  That’s a termination matter.  Or maybe it’s a de-scoping matter.  Regardless, it is not a closeout matter.  Disposition of government property and clearing the final patent report is part of the contract administration process.  Closeout occurs after all required contract administration actions have been fully and satisfactorily accomplished.

Imagine a contract was for 1 EA commercial item at $15K FFP, and the contractor delivered and invoiced for 1 EA at $14K.  And we paid $14K.  What’s the problem?  The contractor has six years to invoice for the additional amount if the contractor wants it.  If four years have passed, the Government might figure that the contractor is unlikely to file an invoice and may administratively close out the contract and deobligate the $1K remaining amount (the contractor probably closed out the contract on its books a long time ago).

If one wants to avoid all risk, he or she may seek a release of claims from every contractor on every contract, even though the FAR never requires a release of claims for closeout.  And he or she could also insist on doing any needed deobligaton as a bilateral modification.  But it is unreasonable to try to avoid all risk.  Instead, we’re supposed to manage risk.  In the case above of the $15K contract where the contractor delivered and invoiced for $14K four years ago, and there had been no action on the contract since then and everyone is happy, there is a risk that the contractor will invoice for the remaining $1K — but the risk is very small, and it is eminently reasonable and entirely amenable to FAR 4.804 to close out that contract and administratively (unilaterally) deobligate the $1K.

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ji and I disagree on the view of a unilateral contract modification under a commercial item contract.  Rather than continue a protracted discussion in this thread intended for a beginner I will simply offer that ji has provided no reference to his opinion and has from my view carried the conversation of an administrative modification beyond its intent. 

I believe that a unilateral modification of a commercial item contract cannot occur unless such modification is authorized by a specific clause of the contract based on the following –

  1. FAR suggested terms and conditions for commercial item contracts are intended to provide common commercial practices.   Commercial practice as support by the common law commercial practice of a “Variation Clause” support that unilateral modifications in the commercial market place are rare.

  2. Should one want to depend on FAR part 43 one should refer to both the definition of Administrative Change in FAR 43.101 and use of an administrative change modification at 43.103(b) neither of which provides for a closeout modification being unilateral.

  3.  FAR subpart 4.8 dealing with contract closeout makes no reference to the use of the modification to closeout a contract. This is likewise supported by direction in the “DCMA Manual 2501-07”  dated January 19, 2019 that provides for unilateral modifications for uncooperative, bankrupt or non-communicative contractors.   This more current document is supported by the “CONTRACT  CLOSEOUT PROCESS FOR THE 50TH CONTRACTING SQUADRON(50CONS) SCHRIVER AFB (SAFB) COLORADO” dated May 2009 that provides for closeout modifications to be bilateral.

All considered a unilateral modification that lacks proper contract clause authority to issue would be inconsistent with contract authority in a commercial item contract by a view of the FAR or otherwise.  As important if one believes that contract closeout fits the use of unilateral contract modification as an administrative action this too would be inconsistent with FAR principles.

 

As I provided early on I will leave it to the readers of this thread to arrive at their own conclusions based on information provided herein and the direction that they might find within their own agency policy.

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Okay, my last word--

I have never said that a contract modification SF-30 is needed to effect a contract closeout. 

But if a modification is used, it certainly can be unilateral (provided that it is simply a closeout modification to deobligate remaining or excess funds).

Some 1102s were raised to think that closeout must be done by bilateral modification, but this belief is not required by the FAR.  FAR 4.804 never requires a modification for closeout, much less a bilateral modification -- and it also never requires a release of claims for any contract as part of the closeout process.  Organizations that require these things are trying to avoid all risk, rather than reasonably managing risk.

A contractor can close out a contract and move it to inactive status in its own books without the Government's permission -- if the Government later presses an action on the contractor, the contractor might have to return it to active status.  Similarly, the Government can close out a contract and move it to inactive status in its own books without the contractor's permission -- if the contractor later presses an action on the Government, the Government might have to return it to active status.

But here is the best answer -- read FAR 4.804 and do what FAR 4.804 says.  By its own words, FAR 4.804 speaks to “administratively” closing out contracts, and the entirety of FAR Subpart 4 is “Administrative Matters.”  If you have to deobligate excess funds, maybe your agency will do the deobligation without a SF-30 contract modification -- some agencies do.  If you have to do a modification to satisfy your automated systems or your agency policy, well, remember that closeout is an administrative action on the Government’s part — the contractor is wholly uninvolved, and none of the contractor’s rights or obligations are affected by the Government’s administrative closeout of the contract.  Thus, a unilateral modification may be done (unless your agency policy dictates otherwise).  However, if you want to change the contractor's rights or obligations, then a bilateral contract modification would be more appropriate.

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It's probably worth discussing relevant terms:

Physically completed - except for rental, use, and storage agreements 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. (FAR 4.804-4)

Closeout/Administrative Closeout - per DAU, "[c]ontract 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." For contracts other than SAP, closeout means using the procedures at FAR 4.804-5.

Discharge - occurs when obligations of a contract end, which entails a termination of a contractual relationship. (click for full description) 

Administrative change - means a unilateral (see 43.103(b)) contract change, in writing, that does not affect the substantive rights of the parties (e.g., a change in the paying office or the appropriation data).

Administrative closeout of a contract generally occurs after receiving evidence of its physical completion or discharge. Administratively closing AND deobligating funds where a government/contractor obligation still exists is problematic because of the Anti-Deficiency Act and obligation recording rules. (NOTE: closing a contract doesn't have to affect the substantive rights; nor does it require a modification)

In order to properly close and deobligate funds the parties' obligations need to be discharged. 

20 hours ago, ji20874 said:

Imagine a contract was for 1 EA commercial item at $15K FFP, and the contractor delivered and invoiced for $14K.  And we paid $14K.

I wonder what people would do if annual O&M (Operations & Maintenance) appropriation was used and surpassed the 'current' and 'expired' timelines, and is 'cancelled' (i.e., no longer available for use for any purpose including disbursements/payments) ... or if a file was lost.

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In addition to what Jamaal wrote, it's not correct to say the Government closes out contracts. The Government closes out its contract files. FAR subpart 4.8 covers "Government Contract Files" and FAR 4.804 covers closeout of Government contract files. A contract may or may not exist after the closeout of a Government contract file.

Also, the amount that must be legally recorded as an obligation is not affected by payments made or the passage of time since the obligation was recorded. The introduction of risk management into such a scenario is misplaced, unless the risk that's being managed is the risk of being caught under-recording obligations.

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