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Why the Closeout Process is So Critical for Successful Defense Contracting

Apr 19, 2016

For the past 15 years, the world of defense agency contracting has benefited from a growth period that continues at a frenetic pace. More often in today’s defense contracting system, integration and cohesiveness between Federal and commercial entities makes efficiency and success dependent on the synergy between government and business.

Contracting has evolved into an indispensable part of government function, with billions of dollars in work bid upon daily. There are varying aspects pertaining to a government contract lifecycle, with the final step being the contract closeout process.

The formal steps taken to closeout a contract are often mundane, yet a vital piece of the contract lifecycle. The closeout process involves reviewing a contract’s final value, determining if any funds are left unused to either be de-obligated or billed against, and validating the contract’s final value before formal closure.

The coordination effort between the vendor, DCMA, DCAA, and contracting officers ensure that all parties agree on the final value of the contract and the disposition of any remaining funding or government property associated with the contract’s execution. A review of all funding actions is necessary to verify the accuracy of the recorded total contract value, and any funds left unused on the contract are de-obligated. Once all parties verify and agree that the contract has been paid in full, documentation of the formal closure is added to the physical file, and the contract is archived for a given time; pending any necessary audit or review prior to final destruction.

Management of a formal closeout process is dependent on a number of factors, and issues can arise to  pose challenges in completing the process in a timely manner. For instance, depending on the government agency, contracts above a certain dollar threshold require bilateral agreement with the vendor, to confirm the final contract value or de-obligate unused funds. Also, contracts that are more than a four years old may have unilateral modifications de-obligating significant amounts of money can be found fully executed; due to different requirements at the time. These modifications require identification and reconciliation, to ensure final figures align between agency and vendor.

Occasionally, a vendor who will be delayed in confirming final documentation, due to the need to disposition government furnished property, await the final actions from subcontractors, or the validation of indirect rates from DCAA. At present, DCAA has a standing backlog in its internal review process, leaving rates unsettled on most recent contracts. These and other factors can result impeding the ability of analysts from closing a contract; with some waiting years for a combination of outside factors to be resolved.

A critical part of the process that is sometimes overlooked happens well before the closeout begins. Proper file management throughout the contract lifestyle, including documentation of all unilateral and bilateral modifications, helps to facilitate a smooth closeout process. Having chronological records of all signed modifications eases the reconciliation of payment history during the closeout process itself.  

The ultimate goal is a contract process that is completed in an efficient and cost-effective manner. Through regular communication, coordination and a standardized process for closing contracts, vendors can develop a better process that will provide added value through every contract. 

Written by: Daryl Taylor

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