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I want to pick y'alls brains regarding an issue we have in my organization regarding deobligations. Basically the situation is that a contract has ended. There is unused money/quantities on the contract. (For this, let's not worry about why there is as I do not think the reason matters at this point.) End-user submits a deob request to remove the unused funds from the contract. The bilateral mod is created and it is sent to the vendor for signature. The vendor doesn't reply. Why? Who knows. Doesn't matter really as the problem remains of the unused funds are still obligated onto the contract. Mind you this is a commercial contract. Changes to the terms of the contract are supposed to be bilateral. I am wondering how any of you deal with a situation like this.  Over the years our office has done the following: 1) make repeated attempts to contact the vendor (to include certified mail) and if no response, change it to a unilateral mod (still using 52.212-4(c) Changes) and document that we attempted contact, OR, 2) Did a Termination for Convenience (52.212-4(l) Termination for the Government's Convenience) , removed any Release of Claims on the mod and unilaterally removed funds/quantities.

Recently our Policy people have said we can't do it either way. Because changes to the terms and conditions of the contract require bilateral mods and they say you can't do a T4C on an expired contract. So we asked how should we do it. Their response was that they were looking into it. It's been a couple of months and no solution from them. Surely my organization can't be the only one that has this issue. Have any of you had this situation regarding unused funds on an expired contract and how do you resolve it? (yes we are aware of the FAR requirements of when contracts should be closed out - let just say too much work and not enough people and close outs get pushed off.) I just want to get some view points/thoughts from people outside of my organization and maybe give my policy people some possible solutions to look at. 

A side debate is when is a contract really expired. When the POP ends or when all of the items/hours are delivered/completed. 

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The reason could matter.  Which comparison below is closest to your reality?

(1) The contract is for 10 EA at $100/EA for a total price of $1,000, but the contractor only delivers 9 and invoices for $900.

(2) The contract is for 10 EA at $100/EA for a total price of $1,000 -- the contractor delivers 10 but invoices for $95/EA for a total amount of $950.

(3) Service contract (either fixed-price for $1,000 or T&M with ceiling price of $1,000), but work finishes and contractor invoices for $950.

(4) Services contract same as above, but work is not finished and contractor invoices for $950.

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The contract expires when both parties have met all obligations under the contract.

Yes, you can modify a contract, unilaterally or bilaterally depending on the circumstances, even after the stated period of performance has ended.

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1 hour ago, Voxx said:

A side debate is when is a contract really expired.

The first thing you need to do is define what you mean by "expired."  For many contract types, contractual obligations continue forever.  For example, under the assignment given as a precondition to final payment on a cost reimbursement contract, the contractor is obligated to give the government credit for any refunds, rebates or income it receives relating to costs that were reimbursed under the contract regardless of when received.  Similarly, the government's ability to revoke acceptance under a FP supply contract for latent defects in the item continues indefinitely.

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ji20874, It would be most like choice (1) The contract is for 10 EA at $100/EA for a total price of $1,000, but the contractor only delivers 9 and invoices for $900.  

Whether for supplies or services, either the vendor did not perform all of the required hours of work or not all of the supplies were delivered for one reason or another. Quantities and funds both need to come off. I'll add a little more: most of these contracts are FFP.

 

As for 'expired' - our policy people seem to believe that a contract is expired when the PoP ends or when all quantities have been used. My personal opinion is that a contract is 'expired'  when  all of the quantities have been used/delivered even if a PoP has ended (if it takes a T4C to do it, so be it). Basically, we wanted X amount of something in a certain timeframe, the vendor agreed to it and even though the PoP has ended, the vendor is still on the hook to provide the items or work. And to me, even though the PoP ended, the contract should still be 'alive' because there are items that have not been delivered or used. So in my mind, I should be allowed to do a T4C as all parties have not completed their ends of the agreement; they haven't delivered and we haven't paid. (I have previously asked Policy to define/explain their opinion of expired - they have been avoiding me/ducking the question). 

Oh in case you wonder why we used to use Termination for Convenience, instead of default, it was mostly for the convenience :) . As we maybe didn't need all of the items/hours of work required or there isn't a way for them to redo or perform the unused quantities. T4C was just a handy tool to cut the quantities down to what was used so that we could get the funds off and closeout the contract.

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As an aside why can’t you use unit priced items with estimated quantities? Payment would be based upon quantities ordered and delivered/provided. Ideal for situations where exact quantities can vary within some boundaries - or not to exceed quantities. Still considered fixed price because the unit prices are fixed. Easier to closeout. 

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Don, I like the Hitchen's Razor reference.

Voxx--

(1) A contract expires when both parties have completed all their obligations.  Do not confuse contract with POP or delivery date.   If the POP or delivery date has passed, you need to decide if you will allow the contractor to perform late.

(2) T4CTermination for Convenience is wholly wrong in your situation-- either T4DTermination for Cause or no-cost termination in lieu of T4DTermination for Cause, but certainly not T4CTermination for Convenience.  Your contractor failed.  Record the failure in CPARS.  You can do the T4DTermination for Cause unilaterally if the contractor will not agree to a no-cost termination.  But still, yes, you can unilaterally do a T4CTermination for Convenience after the POP or delivery date has passed.  You do not need to first bilaterally extend the contract to make it alive so you can then terminate it.

[Note: I write this based on the information provided by the original poster, and to try to teach correct principles.  If more facts are provided, my thoughts might change.]

[Note 2:  As Carl points out below, for a commercial item contract the correct term is Termination for Cause rather than Termination for Default.  I edited my text above accordingly.]

Edited by ji20874
to add Note 2
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After re-reading the initial post, I did not get the impression that anyone actually CALLED the contractor to discuss closing out the contract and de-obligating the excess funds.

“(For this, let's not worry about why there is as I do not think the reason matters at this point.)”

The bilateral mod is created and it is sent to the vendor for signature. The vendor doesn't reply. Why? Who knows. Doesn't matter really...”

”Over the years our office has done the following: 1) make repeated attempts to contact the vendor (to include certified mail) and if no response, change it to a unilateral mod (still using 52.212-4(c) Changes) and document that we attempted contact, OR, 2) Did a Termination for Convenience (52.212-4(l) Termination for the Government's Convenience) , removed any Release of Claims on the mod and unilaterally removed funds/quantities.”

I did not read where the government orally contacted or tried to orally contact a contractor. The FIRST thing I would do is call the contractor to discuss closing out the contract so that excess funds can be de-obligated, THEN follow up in writing. I know that that is a novel idea these days.  But it  usually worked for me.

And, as others have noted, the reason why excess funds are still on the contract makes all the difference in how to close out the contract.

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In this particular case I  agree with @ji20874 noting that the OP has picked No. 1 of the scenarios that ji posed.   The rights of the contractor are essentially being altered by removing a unit that they could be paid for.  It makes sense that the amount and the unit should be removed forcibly - Termination for Cause I might add is the more correct term.  Yes a call to the contractor as @joel hoffman has posed is in the mix but if the contractor is not responsive, what then?  Contractor failed in its ability in "management".   

 

 

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OK I feel this is going beyond what I was originally trying to find out which was how does your office remove funds off of a contract after the delivery or PoP has ended AND where the vendor does not respond after a deob mod has been sent to them? But if it helps I'll add details that others have asked about.

The funds or quantities that were not used/delivered are often remaining because either the Govt did not order all of the items or the vendor failed to work all of the required hours on the contract (open position, contractor employee missed work because of illness and there was no backfill). Joel -  many of the contracts for supplies are based upon Not to Exceed and the Govt will only pay for items ordered.  I'd say that the reasons for a contract to still have funds/quantities on it are about split between those two scenarios. For those that wonder why the Govt did not demand delivery of remaining supplies, it is simply because the Govt did not need any more of the item or it wouldn't make sense because there is a new contract in place to secure the items. 

As mentioned we have tried contacting the vendor to complete a bilateral modification. Often trying several different ways - email, phone, regular mail. No reply or response from the vendor. Sometimes the vendor is no longer in business. 

We used to use Termination for Convenience in these cases simply because by this time, we just want to remove the funds. And when I say 'by this time' the end date of the contract has been past by a year or more. Termination for Cause in my understanding is used in non-commercial acquisitions. Everything we do is commercial. Our T4C's are no cost. We could do a T4D but if the vendor is not at fault such as when we did not order all of the items, it doesn't make sense to say they defaulted. Unless C Culham, you are saying that because the vendor is not responding to the mod, they failed at managing their contract and use that as a reason to do a T4D. CPARs have already been written. 

ji20874 - I agree with your definition of when a contract is expired. Our policy people seem to believe otherwise. 

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22 minutes ago, Voxx said:

The funds or quantities that were not used/delivered are often remaining because either the Govt did not order all of the items or the vendor failed to work all of the required hours on the contract

Voxx, can you clarify this statement?  I am confused as to why funds are remaining on a contract if the government did not order all the items.  are you talking about an IDIQ contract in this case?  If not, what type of contract are we dealing with?  As for the contractor not performing all the "required" hours, are you talking about a level of effort contract?  If not what type of contract are you talking about? 

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These are VERY different situations...

Quote

...the Govt did not order all of the items...

Do an administrative modification unilaterally to remove the unneeded funds for the unordered items.  If the Government had the privilege of ordering or not ordering, then this is not a change in terms and conditions and para. (c) of FAR 52.212-4 does not apply.  Do it.

Quote

...the vendor failed to work all of the required hours on the contract (open position, contractor employee missed work because of illness and there was no backfill)...

Terminate for Cause -- the contractor failed.  Do it.  I am assuming that "required" means "required."

Termination for Convenience for either of the above is wrong, wrong, wrong.

 

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Voxx,

I sympathize with your situation.  After struggling with this at my prior agency for a long time, we decided to do “administrative” mods annotated with “internal distribution only.”  Prior to arriving at this approach, we researched what many other agencies were doing and talked with auditors.  Surprisingly auditors were the most supportive noting that leaving excessive funding was a major issue noted in their reviews.

We documented attempts to contact the contractors and reasons for the actions.  We also had agreements with the finance/comptroller office to quickly restore or use of prior year funds should we be in error.

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1 hour ago, ji20874 said:
Quote

...the vendor failed to work all of the required hours on the contract (open position, contractor employee missed work because of illness and there was no backfill)...

52.212-4 Contract Terms and Conditions—Commercial Items (OCT 2018)

“(a) Inspection/Acceptance. The Contractor shall only tender for acceptance those items that conform to the requirements of this contract.... The Government may require repair or replacement of nonconforming supplies or reperformance of nonconforming services at no increase in contract price. If repair/replacement or reperformance will not correct the defects or is not possible, the Government may seek an equitable price reduction or adequate consideration for acceptance of nonconforming supplies or services. The Government must exercise its postacceptance rights (1) within a reasonable time after the defect was discovered or should have been discovered;...”

”(g) Invoice. (1) The Contractor shall submit an original invoice and three copies (or electronic invoice, if authorized) to the address designated in the contract to receive invoices. An invoice must include—

(i) Name and address of the Contractor;

(ii) Invoice date and number;

(iii) Contract number, line item number and, if applicable, the order number;

(iv) Description, quantity, unit of measure, unit price and extended price of the items delivered;...”

“(i) Payment—(1) Items accepted. Payment shall be made for items accepted by the Government that have been delivered to the delivery destinations set forth in this contract.”

Of course, the specific circumstances and specific item description matters.

However- if the contractor didn’t provide certain required services or  hours or payable hours of services - and didn’t bill the government and/or the government didn’t pay for the services, there are administrative remedies that are or were available to the government. 

You can’t just decide to TFD at some later date because the contractor didn’t bill for the total contract amount and especially if the government did nothing at the time to rectify or seek a reduction.

It is fact dependent...

Consider this, also. The Contractor can’t unilaterally change the contract requirements, then expect payment for required services not provided. Take the doggone price  reduction.

For the examples provided, I would question why the contract administrators are NOT taking some action during administration of the contract performance, then everyone wonders what to do later????

If the contractor can’t invoice for services not provided, then what would be the basis for a claim if the government takes an equitable adjustment, provided that it represents the value of the undelivered and unpaid services? 

 

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Joel,

I am assuming that "required" means "required."  The contractor does not have the luxury of electing not to provide "required" hours -- that is failure, breach, default, cause -- and while it is nice that the contractor did not invoice for the hours it chose not to provide, that does not excuse or lessen its failure to provide required hours.  The contractor failed, according to the story being told here by the original poster.

Your last posting is really non sequitur in this discussion.  I never suggested that the basis for a termination for cause would be because "the contractor didn't bill for the total contract amount" -- no, the basis for a termination for cause would be because, to quote the original poster, "the vendor failed to work all of the required hours on the contract."

Too often, it seems members of our community want to cover for contractor failures.  We seem to want to interpret contract requirements as mere requests that the contractor may or may not fulfill, as it sees fit, and then we'll pay the contractor whatever it asks for.

[Note:  I am taking the original poster at his or her word.  I do not know the text of the contract.  If he or she provides more facts, my thoughts might change.]

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formerfed,

I have done the same thing.  Administrative modifications are not changes to terms and conditions -- removing excess funds can be done without changing the rights or obligations of the parties in an administrative modification.

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1 hour ago, ji20874 said:

Joel,

I am assuming that "required" means "required."  The contractor does not have the luxury of electing not to provide "required" hours -- that is failure, breach, default, cause -- and while it is nice that the contractor did not invoice for the hours it chose not to provide, that does not excuse or lessen its failure to provide required hours.  The contractor failed, according to the story being told here by the original poster.

Your last posting is really non sequitur in this discussion.  I never suggested that the basis for a termination for cause would be because "the contractor didn't bill for the total contract amount" -- no, the basis for a termination for cause would be because, to quote the original poster, "the vendor failed to work all of the required hours on the contract."

Too often, it seems members of our community want to cover for contractor failures.  We seem to want to interpret contract requirements as mere requests that the contractor may or may not fulfill, as it sees fit, and then we'll pay the contractor whatever it asks for.

[Note:  I am taking the original poster at his or her word.  I do not know the text of the contract.  If he or she provides more facts, my thoughts might change.]

ji, paragraph (a) provides an administrative (a contractual course of action)  solution for the contractor  not providing all the required services (hours). No need to “terminate” after the contract performance and/or completion period to de-obligate funding. In the example scenarios, the government should be closing out the contract, not terminating for default. The contractor hasn’t and CANT now invoice for the missing hours that it couldn’t invoice for earlier. The contractor would have very little recourse at this point. And shame on the government for not administering the contract during actual performance. Now do you think termination for default is justified long after performance has ended? I think not.

I am assuming here that the government either said nothing during the performance. Or perhaps at the best told the contractor not to invoice for the services not provided.

The OP wants to know what the government can do to de-obligate the unspent funds now that the contract performance has ended. As I saw it, that’s the just of the basic question. The government has to closeout the contract anyway!   

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ji, we may be talking about different scenarios.

The OP later clarified after you provided your three examples -

“The funds or quantities that were not used/delivered are often remaining because either the Govt did not order all of the items or the vendor failed to work all of the required hours on the contract (open position, contractor employee missed work because of illness and there was no backfill).”

Thus, for supplies, it wasn’t a failure to perform per the clarification. 

My comments concern the highlighted reasons and the contract performance is now over.

Take the credit, close out the contract and note the poor performance aspects in the performance rating. Per the commercial contract terms, the contractor can only invoice for the services it provided/performed. 

I don’t think that a post performance TFD would withstand an appeal if the government never raised objections during the performance period and simply has unspent dollar balance  remaining on the contract. 

 

 

 

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Joel,

I agree: Shame on the Government for not administering the contract.

I disagree: Para. (a) provides an administrative solution for the contractor's failure to provide required hours.

No, para. (a) does not provide a solution.

It might be that a termination for cause cannot be upheld because too much time has passed.  The original poster hasn't said that, so I have not adopted that position.  I prefer to deal with the facts in evidence.  

Your continued talk about the contractor invoicing for hours it didn't provide is still non sequitur to this discussion.  No one (except you) has talked about the contractor invoicing for non-performed work.  The reason for a termination for cause is not because the contractor hasn't invoiced; rather, it is because the contractor failed to provide required hours, according to the original poster.

Generally, contract close-out occurs after a contract is physically complete.  See FAR 4.804-1(a)(4).  This contract is not physically complete.  A contract is physically complete when either FAR 4.804-4(a)(1) or (2) applies.  Neither fits here.  But a termination for cause would make the contract physically complete.

This contracting office is letting the contractor lead it by the nose.  There is nothing good in this entire thread from this contracting office, not a single thing, except that a person is asking questions.

In lieu of a termination for cause, the contracting officer could seek a no-cost termination to reduce the number of required hours based on the principle shown in FAR 49.402-4(c).  I say based on the principle shown there, as FAR part 49 does not strictly apply to contracts for commercial items.

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ji20874 - when you mention administrative modifications to do this, are you not changing the terms and conditions of the contract? Which in commercial modifications are supposed to be bilateral. Are you suggesting to keep the unused quantities on the contract but remove the funds? The only situations where admin mods are used are when they deal with things like changing a line of accounting or changing the administrative office of the contract. 

Retreadfed - the contracts are usually FFP. They might be purchase orders, some might be TO or DOs, it can vary. Many of the supply contracts contain language such as 'not to exceed' and 'the Govt will only pay for what has been ordered'. Some cases can be made that contracts should be ID/IQs, and I can see the validity of that argument. As for services typically a contract calls for X amount of hours per year. For example you need a vendor to provide clerk services to fill a spot. The contract will call for 1920 hours of work (basically 8 hours a day for the year not counting holidays). Vendor employee misses some hours because they are sick, or something. Those hours are not filled and cannot be made up. There are allowances in the contract for missed hours because of reasons like Dr. appts and such. However at the end of the contract, there are still those hours on the contract that were not used. 

Formerfed - under what authority would you use to accomplish your removal of funds?

A couple of other clarifications for y'all: When we would do a T4C, it would be a partial T4C (maybe that was obvious, maybe not).  The T4C did not terminate the vendor's rights to make a claim in the future is they discovered an invoice hadn't been paid for example.  The items and services we acquire are medical in nature so exact quantities are not always known. Consider, for example, a contract for ambulance services. FFP contract. For each transport, the vendor can bill for one unit. When the contract was created, based upon past history, 20,000 transports happen in a year. During the contract only 19,000 transports were billed because people were healthier that year. Vendor was already aware that the 20k transports was an average (solicitation mentioned it) and the contract mentions that the Government will only pay for services used. So now you have 1000 transports unused and funding to go along with them that you need to remove. Yes normally the COR would request a deob of unused items. But for whatever reason never did. Now after the contract PoP ended, we want to recover those unused funds from the contract. At this point the vendor is unresponsive to any communication. How do you get the funds off the contract?

And yes I am fully aware that ideally this should happen within a few months after a contract has ended. The reality is it doesn't. We have end-users and CORs who do not request deobs. At this point we are just trying to clean up and close out contract actions. Generally because of the time that has passed, trying to do it without blame as usually the only blame is that the Govt didn't request the deob sooner. 

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As I am rereading some of the responses, it seems that some of you are just saying to just do an admin mod and pull the funds. Would you be leaving the quantities alone? IN my previous response concerning ambulance services, would you leave the quantity of 20,000 and just remove funding for 1000? technically leaving 1000 units unfunded.

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5 hours ago, ji20874 said:

Joel,

I agree: Shame on the Government for not administering the contract.

I disagree: Para. (a) provides an administrative solution for the contractor's failure to provide required hours.

No, para. (a) does not provide a solution.

It might be that a termination for cause cannot be upheld because too much time has passed.  The original poster hasn't said that, so I have not adopted that position.  I prefer to deal with the facts in evidence.  

Your continued talk about the contractor invoicing for hours it didn't provide is still non sequitur to this discussion.  No one (except you) has talked about the contractor invoicing for non-performed work.  The reason for a termination for cause is not because the contractor hasn't invoiced; rather, it is because the contractor failed to provide required hours, according to the original poster.

Generally, contract close-out occurs after a contract is physically complete.  See FAR 4.804-1(a)(4).  This contract is not physically complete.  A contract is physically complete when either FAR 4.804-4(a)(1) or (2) applies.  Neither fits here.  But a termination for cause would make the contract physically complete.

This contracting office is letting the contractor lead it by the nose.  There is nothing good in this entire thread from this contracting office, not a single thing, except that a person is asking questions.

In lieu of a termination for cause, the contracting officer could seek a no-cost termination to reduce the number of required hours based on the principle shown in FAR 49.402-4(c).  I say based on the principle shown there, as FAR part 49 does not strictly apply to contracts for commercial items.

ji, the point I’m trying to make is that since the contractor can’t invoice for more services than it actually provided, it has no basis for a claim for the remaining hours if the government reduces the quantity and funding to match “actual hours” provided. The contractor can’t make up those hours now as the period of performance is over. There is no change to the commercial contract’s terms and conditions or to the rights of either party, just to the final contract price paid.

The contract terms and conditions (52.212-4) provide that the contractor is only due payment for the number of hours furnished, if less than the number required by the statement of work or line items by operation of paragraphs (a) and (g) and (i). 

I’m  just saying that the commercial service contract format they are using appears to provide a mechanism for payment only for services provided, if less than the required services (Specified hours). There is no entitlement to payment for services not provided. 

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