Answer

Project procurement close out, or simply put, contract closure, is the procedure for completing and settling each contract in the procurement process (Hickey, 2015). It involves the determination of any open items, and closing of each of the contracts that are related to the project or the project phase. Part of the project procurement close-out process is the verification that all the work involved and the deliverables required have been accepted. There are also some cases when an early termination has to be made through mutual agreements concerning the premature termination. This paper aims to design a project procurement close-out plan.

Tasks in the Close-Out of Procurement Contracts

The contract close-out process normally is a simple but comprehensive administrative procedure. The main purpose of performing a contract close-out is to ensure that all the parties to a contract have complied with their contractual obligations, and there are no pending responsibilities (Kendrick, 2013). It is the very last step in the procurement process, and it is at this point when the procurement file gets closed. Additionally, it is during contract close-out that assessment of the success of the contract is carried out and lessons learned for a future contract if any is outlined. A contract will only be deemed complete at that point when all the goods or the services have been received and accepted; accomplishment of all the administrative actions have been verified; all the agency supplied material and equipment have been returned; and the final disbursement has been made to the contractor (Capizzi, Wilck & Li, 2012). Achieving all these involve various tasks. Below discussed are the various tasks associated with the close-out of procurement contracts.

Administrative issues

This task entails the consolidation and turning over of the contract administration files to procurement upon the completion of the closeout process. The central file at this point has to be complete, organized and conforming to the regulations that govern the contract administration as is specified by the public agency (Hickey, 2015). The contractor is also expected to have notified the agency of the completion of the contract and complied with all its terms and conditions. This task also ensures that all signatures on such documents like invoices, memoranda, letter of the contractor, and official correspondence among others are original. Other activities on this task include the completion of the final determination, confirmation of the expiry of all the optional provisions and signing, defining and inclusion in the central file of all the change orders and modifications. The very last activity here entails the confirmation of the completion of settlement of subcontract by the prime contractor.

Monitoring

This task involves solving of the monitoring issues, updating the monitoring plan and accurately documenting all the monitoring requirements to reflect the status of the monitoring activities as are outlined in the monitoring plan. It is at this point that the risk assessment gets updated and completed to reflect the status of the monitoring activity (Hickey, 2015). All the agency specific approvals should have been received, and the contractor confirmed to have complied with the terms and conditions of the contract.

Deliverables

This is a close out task that ensures reception, reviewing and acceptance of all the contract deliverables including all the required reports (Hickey, 2015).

Final property closeout

Confirmation of the reception of the property inventory from the contractor is the main activity in this task. It also involves accounting for all the government-owned property, person or real, either provided by the government or needed by the contractor for the account of the government (Hickey, 2015). This task will not be complete without the complete resolution of all the issues of property inventory and ownership which include licenses obtained, disposition of any equipment, or warranty information relating to the contract.

Final payments and invoices

Resolution of all the disallowed deliverables, payments, performance or the suspended costs is done here. All the reconciliation cases get completed in conjunction with a financial report for the verification of all the payments, and the credits, rebates and refunds are annotated in the file. A record of all the payments made to the contractor gets filed in the contract file. Finally, the final invoice gets received, then reviewed, accepted and finally paid.

Contract completion statement

Following the final acceptance and the final payment, a contract completion statement gets prepared and officially issued (Hickey, 2015). It is a statement that indicates the competition of the contract in its entirety so that it is ready for closure and maybe it could be properly archived.

Vendors Performance Report

 The vendors performance report is prepared in the most accurate way.

Post contract evaluation

This task can also be referred to as contract administration analysis. A report card on the contract analysis is produced by the contractor and the end-user.

Fulfilling the Requirements of a Procurement Contract

Contracts in most cases come to an end at that point when each of the parties has performed according to the contract terms; that is to say, the contract is discharged by due performance. The buyer and the seller have to fulfill all the requirements of the contract for the contract to be completed (Capizzi, Wilck & Li, 2012). There are some instances when the contract may fail to specify the end date, but the obligations under the agreement are normally considered to have been met following the shipment and acceptance of the last deliverables required as per the contract. Acceptance means that the items delivered have attained the agreed standards.

Termination of contractual relationships and settlement of seller claims

Termination of Contractual Relationships

A contract is a way of entering into an agreement so that both sides of the agreeing parties get to have what they want. Most contracts are open and can be terminated due to various reasons (Capizzi, Wilck & Li, 2012). Termination of contracts always happens if they fail to meet specific legal requirements or when there are other legitimate reasons to do so. Below highlighted are the various circumstances a contract can be terminated. 

The Contract is Impossible to Fulfill: When parties get into a contract, it is expected that they do exactly what the contract says. At times, though something can happen making it impossible to comply with what is set out in the contract, a situation referred to as impossibility of performance. Either party is free to break the contract if it is impossible to do those which the contract calls for. For instance, when one makes a contract with a famous sculptor to make a monument of that person, and the sculptor dies. The dead sculptor cannot make a monument. The contract to make the monument is said to have been terminated by the impossibility of performance.

Fraud, Mistake, Misrepresentation: One party to the contract can have substantial reasons to break the contract if something that is deemed to be improper occurs (Rendon & Rendon, 2015). The contract can also be broken if both parties to the contract made a common mistake while getting into the contract. Breaking a contract for such reasons is called rescission. Being duped into making a contract by the other party is again a reason for which a contract can be rescinded. The side that has been tricked can get out of the contract citing fraud and misrepresentation as the main reasons (Rendon & Rendon, 2015). Again there are some cases when an individual is forced out of the contract because he or she has not attained the age or does not have a sound mind to be a party to the contract as spelled out by the law. For example, a twelve-year-old child signs a contract allowing him/her to purchase a used car. In such a situation the contract is not valid as per the law because always minors are not old enough to make a contract. Another case is where an elderly person who has lost the capacity to understand what he/she is doing signs a contract makes a contract to buy a home. The contract can be rescinded because he/she was not mentally capable to understand the terms of the contract (Rendon & Rendon, 2015).

Breach of Contract: If one of the parties breach the contract the other party ceases to be obliged to do his or her part. A breach of a contract is always considered to have occurred if one side:

• Declines to do his/her part
• Does something he/she that was not required according to the agreement or
• Blocks the other party from doing what he/she was supposed to

The issues raised have to attain a specific level of seriousness, or “material,” for the breach to be all that serious. A material breach enters into the heart of the contract. The other party can sue the side that has made the material breach and gets a ruling that orders the breaching side to pay for the resulting damages (Ariño, Reuer, Mayer & Jané, 2014). Sometimes the breach can be immaterial; one which does not matter. This type of breach does not mean anything, and one cannot have a very strong case to argue in the court of law.

Prior Agreement: Termination of contracts can also happen through prior agreements. The contract can have a provision that it may come to an end by either side giving written notice to the other side. The provision will spell out the process of termination, and the contract will end the moment those conditions are met (Ariño et al., 2014). The provision has to be concise and specific for ease of interpretation.

Waiver: A contract can be ended when one side leads the other to reasonably believe that even if strict performance can still theoretically be demanded, there will be no need to insist upon it. This sis the case when the buyer or the seller agrees to defer the delivery date of goods as per the request of the other party (Ariño et al., 2014).

Novation or substitution: This occurs when both sides have the urge to continue the contractual relationship though on different terms to the original agreement (Ariño et al., 2014). In general terms, substitution is used in such cases where there are continuing liabilities while novation in such a case when the new contract gets to replace the old one, which brings to an end the old liabilities.

Frustration: Frustration results when the obligations become impossible to execute.  Such cases come about when an uncertain event changes the original position of one of the sides. In practice, terminating a contract through frustration occurs in very rare cases, and contracts have to contain clauses that

Repudiation: When one party intimates by words or conduct that it does not wish to undertake its obligations as was the initial agreement. The contract automatically comes to an end the moment the other party communicates acceptance of the repudiation.

Termination for convenience: The termination takes place following the issuance of a suitable notice to end a contract for the convenience of the buyer. This clause has to be given a careful consideration (Ariño et al., 2014). The provisions for termination for convenience normally spells out the terms of compensation to the contractor of the incurred costs or those that are unavoidably committed at the date of termination.

In all the above cases, it should be noted that the most important point is that termination of a contract has to be fully documented. Under normal circumstances, the agreement to terminate a contract will be effected by the provisions of the initial terms of contract, by a written settlement that spells out the terms of termination, or by a deed of termination (Ariño et al., 2014). The terms of termination include settlement of the outstanding actions or claims and payments owing. 

Settlement of Seller Claims

A seller in a procurement contract may be used to refer to a contractor, a subcontractor, or a vendor among others. There are some times when these sellers have legitimate claims that have to be settled. The period needed for settlement of the seller claims makes a very important part of the contract and should be mutually agreed by both sides. The terms of the settlement should also be set during signing of the contract with the likely occurrences outlined and how they will be approached should they occur. It is always advisable to involve an expert in setting the settlement terms including the time frame for settlement, the means of settlement, and the compensation as commensurate with the claims raised by the seller. Sometimes the claims may come from the unpredictable event. Such claims again call for the involvement experts to determine how and when the settlement should take place. 

Contract Close-out Process Flowchart

Figure 1: Contract Close-out Process Flowchart, From Hickey (2015)

Block 1, Government accepts final delivery:  Upon completion of all contract line items, the contractor notes the final DD250 delivery number with a "Z."  The "Z" DD250 does not certainly mean that all contract obligations have been met, but it does designate that all the line items to be delivered by the contract have been accepted. 

Block 2, Government inputs final DD250:  this is the point where an electronic interim notice to the buying activity is generated, and it indicates the end of the contract delivery activity. The contracting officer is also notified of the beginning of the contract close out.

Block 3, Validation of quantity ordered & delivered:  it is at this point that the "Z" DD250 informs the contracting parties to examine each line item to reconcile contract shipment requirements with the actual contractor deliveries. 

Block 4, reconciliation: the responsible organizations should be noted of any discrepancy noted in the ordered contract items versus the items delivered within the contract administration office to investigate and find solution to the problem. 

Block 5, perform initial review & remove excess funds: The final delivery and approval of the product or service on firm fixed price contracts authorizes the contractor to get the final payment.   

Block 6, initiate DD form 1597: The Contract Close-out Checklist is optionally used to initiate the process of contract close out.

Block 7, FFP or small purchase: Small purchase contracts at this point are entitled to final payment upon the completion of the appropriate steps designated under block 6. 

Block 8, all overhead rates negotiated: The clause on "Allowable Cost and Payment" provides for the compensation of costs accrued in contract performance that are considered by the contracting officer as "allowable" in line with the procurement regulations and terms of the contract. 

Block 9, proposal submitted: This point contains a clause requiring the contractor to, within 90 days folowing the end of the fiscal year of the contractor, remit its ultimate overhead cost proposal to the contracting officer. 

Block 10, quick close-out rates established:  This point provides the procedure for the negotiations to meet the indirect costs for a particular contract prior to the establishment of the final indirect cost rates.

Block 11, DCAA audits overhead proposal: The agency is charged with the responsibility of ensuring that all the proposed overhead costs are in line with both the Cost Accounting Standards (CAS), if appropriate, and the cost principles.

Block 12, negotiating the final rates: The final overhead rates for the contractor entity are negotiated.  Each of the entities overhead rates have to be settled before the final closure of the contract in a case where there are multiple entities.

Block 13, incentive contract:  The processes for settlement of a cost contract need no further negotiation following rate settlement.   

Block 14, final settlement proposal submitted: In such a case when the contract is an incentive contract, and all the overhead rates pertinent to the contract have been discussed; the contractor is allowed to submit its repricing settlement proposal. 

Block 15, auditing and negotiation of settlement: The final settlement proposal is negotiated and the contract modifications are processed by adding or subtracting funds.

Block 16, completion statement and final voucher submitted:  After all the receipt and the final modifications, or when all the overhead rates related to the contract have been discussed under a cost contract, the contractor hands over its voucher or its commercial invoice for the final settlement.   

Block 17, approval of the final voucher:  it is the responsibility of the Defense Contract Audit Agency (DCAA) to audit the final cost contracts voucher to ensure that all costs are acceptable and allocable.

Block 18, DFAS makes final payment:  The final contract payment is made where all the funds obligated on the contract are liquidated. 

Block 19: The government establishes the unliquidated obligations (ULOs) remaining, or the unexpended funds on the contract. 

Block 20, reconciliation with PCO & DFAS: When a ULO balance gets discovered a responsibility for reconciliation of the contract requirement records and the payment records is mandated.

Block 21, signing DD form to end contract: A contract completion statement is generated when the final payment has been accomplished.

Block 22, consistency between ACO/PCO procurement system records: A reconciliation action is called for in such cases when there is an inconsistency between the records of the procurement system and the contract completion statement of the organization.

Block 23, PCO reconciles:  The reconciliation action is accomplished by matching the contract record of obligations against the system's obligation records and the DFAS payment records and balances in the organization system. 

Block 24, signing of DD form 1594 to close contract and retire files:  The DD1594 document is signed, and the contract files are submitted after removing all the unnecessary materials from the files.

Block 25, DFAS accounting technician reconciles and closes accounting records:  The contract is deemed to be financially closed when the unliquidated obligations for each of the accounting arrangements on the contract get to zero. 

Block 26, files retired: The accounting station at this point retires its contract files following the final payment and reconciliation.

Handling of Unsettled Invoices

Any organization has a definite number of days over which it makes payments to the vendors as per the terms of the contract. There are however some instances when the pledge may be made but not honored even after the expiry of the agreed period, and this could be so because of various reasons (Capizzi, Wilck & Li, 2012). In the case of a compliant or dispute regarding the payment of the invoice, the person named in the person order should be contacted in the earliest opportunity possible to discuss and shade light on the problem. The problem could be resulting from some mistakes either by the vendor or the buyer. Some of the most common causes of delay in payment of invoices are failure to receive a purchase order or failure by the vendor to quote the number of the invoice.

There are certain instances when goods are paid for before they are actually received. Additionally, an invoice may be received for goods that are not yet delivered. Proper tracking of payments and invoices for the undelivered goods will help define the financial position of the organization (Capizzi, Wilck & Li, 2012). There are two choices to account for this: cash basis and accrual basis. One counts the expenses in the cash method when they are actually paid. The unpaid invoices for undelivered items should not be entered into the ledger. There could be a contractual obligation to pay for the goods that have not been delivered, but the payments should not be counted up to that time when the check has been sent (Capizzi, Wilck & Li, 2012). In the accrual method, in any case, the goods are delivered before the invoice, the expense is not counted. The fact that the items are in possession of the buyer does not in any way affect the counting method. The expense should only be entered the moment the invoice actually arrives.

The Questions Listed

1. Were all supplier issues recorded in an issue register?
   2. Did any supplier issues result in a new project risk?
   3. Did any supplier issues lower the quality of deliverables?

It would be of great importance to ask the above-listed questions during a contract close out because of various reasons, but the most important one is to help improve the status of the future contacts. Enquiring whether all the supplier issues were entered into the issues register, for example, would help in capturing and maintaining information on the issues raised by the suppliers in the project to help avert future problems resulting from such issues. Knowing whether there was a supplier issue that resulted in a new project risk would help design ways to contain risks of a similar kind in the future contracts. And finally the question on the whether there was a supplier issue that lowered the quality of deliverables will help the contractor to prepare for such issues and be ready with solutions for them in the contracts that would come after that.