Deobligation after Contract Ended

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.

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.

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.

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.

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.

Voxx said:

(I have previously asked Policy to define/explain their opinion of expired - they have been avoiding me/ducking the question).

Ever heard of Hitchen's Razor?

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.]

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.

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".

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.

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?

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.

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.

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?

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.]

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.

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!

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.

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.

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.

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.

So the quantities are an estimate and you only pay for what you actually order?

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.

Joel,  I agree that there is no entitlement to payment for services not provided.

Voxx said:

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

Voxx, my prior comment was in response to your original posts and not necessarily to all the various scenarios throughout this thread.  So when you are satisfied a contract is complete and you cannot get the contractor to respond to a closeout request/modification for whatever reason, you can do an administrative modification - unilateral modification that doesn’t affect rights of the parties.  You simply are removing funding excess to contract performance.

Its not the best way to handle those actions, but it’s used when nothing else works.

Voxx said:

Many of the supply contracts contain language such as 'not to exceed' and 'the Govt will only pay for what has been ordered'.

If you will only pay for what has been ordered, why are you obligating funds for items that have not been ordered?

If the policy folks don’t agree wiith issuing an admin mod, I’d ask them how to release the funds and closeout the open contract. I’d stress to them that paragraph 52.212-4 (c) isn’t applicable because the contractor is not entitled to any more money than for the supplies ordered and delivered or for the services and hours provided*. 

I’d put the onus on them...  

* depends also on how the service requirement is written.  Example: X number of hours are required to fulfill the required service (with whatever degree of tolerance for minor absences), as clarified later by Voxx).

formerfed said:

So when you are satisfied a contract is complete and you cannot get the contractor to respond to a closeout request/modification for whatever reason, you can do an administrative modification - unilateral modification that doesn’t affect rights of the parties.

My apologies @formerfed just using your most recent post to illustrate a point.   Such action is not by the book (FAR and I will extend to the DFAR as well.)   As much as I hate to say it the "policy" folks might just have it right.   Consider FAR 42.302(b)(4) and 243.171 and its related PGI.

Carl,

I understand and agree with your comment.  But both of my posts deal with the original issue where the OP didn’t hear back from the contractor on a bilateral mod to deobligate funds.  This situation occasionally happens for a variety of reasons.  Often it’s because the agency is delinquent taking closeout actions.  The contractor may have gone out of business,  companies are acquired and get lost in a big corporation, contractor employees leave and no one remembers the contract, etc.  I mentioned earlier when the government takes steps to properly closeout and deobligate funding but can’t, the only alternative I’ve discovered is an admin mod to remove the excess money.  

I spent a lot of time researching and talking with lots of people and never found anything else.  I do know a CFO who directed his finance office to remove unliquidated obligations after a certain droid of time lapsed.  That includes travel orders, interagency agreements, training, utilities as well as contracts.  The HCA didn’t argue figuring he could blame Finance if someone criticized him.

Formerfed - you are hitting the nail on the head. IF the company responded, is no issue. It is when companies do not respond for whatever reason. HQ would like to have the money back to either spend on current year stuff (if current year funds) or to help resolve prior year shortages (versus using current year money). And then of course to eventually lead to closing out the contract. 

I am of the opinion that we try to contact the company and if there is no response within a certain period of time and several attempts, that some sort of unilateral mod can be done to remove the funds. The mod is not taking away the right of the vendor to seek compensation for something in the future but merely removes the unspent funds so the can be used. 

And yes, because of the volume of the work on our desks and the emphasis on getting awards done and not enough people, closeouts are a low priority. My organization works with hospitals so the emphasis is to get contracts awarded as they affect people/patients directly and not having things can jeopardize patient care. So we do know when things should be closed out it just doesn't always happen due to workload for new actions and mods to current actions. 

Just trying to see how other organizations have handled that situation.

Voxx said:

I am of the opinion that we try to contact the company and if there is no response within a certain period of time and several attempts, that some sort of unilateral mod can be done to remove the funds

Have you thought about issuing a decision under the Disputes clause to do this?  This creates a definite time frame within which the contractor must object.

Retreadfed said:

Have you thought about issuing a decision under the Disputes clause to do this?  This creates a definite time frame within which the contractor must object.

Aren't all contracting officer final decisions subject to appeal under the CDA? Am I missing something?

here_2_help said:

Aren't all contracting officer final decisions subject to appeal under the CDA? Am I missing something?

Yes, within specified time limits.  However, if the government unilaterally deobligates funds on a contract or takes other administrative action to determine the parties' rights, that decision is also subject to the contractor filing a claim if it objects or disputes the government's action.  Contractor claims can be filed at any time up to six years after the claim accrued.  Issuing a decision under the Disputes clause, limits the contractor's ability to object to government action for only one year as contrasted to the six year SOL otherwise available to file a claim.  Further, there should be no question as to the contracting officer's ability to issue a decision under the CDA.

An administrative modification that deobligates unneeded funds does not change the rights or obligations of either party, and may be done unilaterally by the contracting officer (block 13.B. of the SF-30).  As has been shared earlier, you can note on the modification that this is done for internal government purposes only and does not change the rights or obligations of the parties -- do it and stick it in the file, and proceed with your contract file closeout.

While I understand the intent of some of the folks in this thread to solve the OP’s situation with a unilateral modification as a “administrative change” (administrative modification) I disagree.  My view is different.

The facts pursuant to both the OP’s posts and the regulations -

·         Commercial Contract Firm Fixed Price – Clause 52.212.4 not tailored and in contract.

·         The government intends to de-obligate of funds under the contract as a certain amount of something which had money obligated against it by virtue of the contract has not been ordered nor delivered.  

·         Bilateral modification sent to contractor to de-obligate the money (and remove the item?)

·         The contract is not physically complete – FAR 4.804-4.

·         FAR 42.302(b)(4) while not in the contract is a regulation that requires the imperative of a supplemental agreement by either a CO if not delegated or the CAO if delegated that a supplemental agreement is required to close out the contract.

·         FAR 43.103 is explicit that a unilateral modification is not a supplemental agreement.

·         Supplemental agreement has been sent to the contractor and the contractor has not (may not, never will even when called, etc.)  signed.

·          

Conclusions –

In disagreement with the “policy people” the contract is not physically complete – the contractor has not completed all work pursuant to the contract as one item has not been ordered or delivered – therefore the contract can and must be terminated to proceed to closeout (Ref. 4.805(a)(15)).  I conclude that the policy people are in conflict with their own direction.   The policy people believe that a bilateral modification can be issued and must be signed but then turn around and say that when such a modification is not signed that a unilateral modification cannot be issued because the contract is not “expired”.  This premise on their part is not consistent with the actions they allow and then turn around and disallow and with the FAR for that matter.

The appropriate action is to convert the bilateral modification to that of a unilateral termination for convenience or cause.  If the contractor does not reply to the termination notice and request for settlement agreement the government would then proceed to a settlement by determination.

PS – I completely understand that this is an administrative nightmare and taking an easier route as has been suggested may not result in any fall out (claim from the contract at a later date for item not ordered).  However, I contend that the above is the right way to do it pursuant to the FAR and the contract as explained by the OP.

Retreadfed said:

However, if the government unilaterally deobligates funds on a contract or takes other administrative action to determine the parties' rights, that decision is also subject to the contractor filing a claim if it objects or disputes the governmentI's action.

I agree with you in general, but not fully. In a recent ASBCA case, the contractor's appeal was denied. Among the reasons cited for the denial was the contractor's failure to file the appeal within the required CDA time frame. The late filing occurred because the contractor thought it had to submit a formal claim to the contracting officer to receive a COFD that it could then appeal. The Board explained that such was not required when the contracting officer unilaterally established the contractor's final indirect cost rates.

Quote

It is well settled that a unilateral rate determination is a government claim. See FAR 52.216-7(d) (4) ('Failure by the parties to agree on a final annual indirect cost rate shall be a dispute within the meaning of the Disputes clause.'). Upon receipt of the unilateral rate determination, Parsons could either accept the determined indirect cost rate as the final rate, or appeal the unilateral rate to this Board or the Court of Federal Claims within the time permitted by the CDA.

(Citations omitted.)

I'm not trying to nitpick, but I believe readers need to understand that not all contracting officer administrative actions to determine the parties' rights require a separate claim for COFD in order to appeal. In this case, the contractor's belief that it was so cost it millions of dollars.

Let me add a final comment for me.  Contracting and Procurement often has a low regard at most agencies and this discussion is a prime example.  Senior agency management looks to us to make sound business decisions for their agency.  Many comments here reflect very conservative and bureaucratic responses.  An example is the policy people haven’t come up with a solution after several weeks.

I have seen many, many similar situations get to the top levels within government, although not the identical.  Conversations might go like this:

Program office - “we need money deobligated to cover a new action”

Senior management - “why isn’t this done?”

Contracting - “we think the contract is complete but we need the contractor to sign a modification to deobligate excess money and the contractor hasn’t responded”

Senior management - “did you call, email, look at their website to see if they are in business.”

Contracting - “uh, we need official documentation like a signed bilateral modification.  Then we need to wait 60 days after sending a certified letter, and legal review before we do a termination (we haven’t decided on the type yet) and then the excess money can be deobligated by December provided the contractor hasn’t appealed to the COFC.”

Senior management - why not assume the company is out of business and just take the excess money off the contract.”

Contracting - “we are waiting on the policy people to make a decision”

A common sense and appropriate business decision is documenting actions taken showing that the contract is complete, the contractor is not responding, and there’s no further need for funds on the contract.  If the contractor responds showing that position is in error, put money back on.  All this talk about contractor claims is just far fetched.

Look - if the contract provided for the government to order up to a certain amount of supplies during a performance period and the government doesn’t order the maximum quantity, the contractor has no right to expect any more orders now nor to collect any more money. The contractor was paid for what the government ordered under the contract terms and conditions for ordering and for invoicing and payment.

If you can’t get any response or communication out of the contractor, send a unilateral mod to the contractor and close out the contract. You didn’t change any terms and conditions, thus paragraph 52.212-4 (c) isn’t applicable - no bilateral mod is necessary.

If the contractor submits a claim, so what? There is no entitlement.

Also- depending upon how the contract is written for services, if the contractor was required to provide a specific number of hours ( with a certain tolerance as you stated ) and it didn’t provide  the required number of hours and it’s too late now to make up those hours, per the commercial contract terms and conditions for invoicing and for payment, it won’t be entitled to any more payment.

If you can’t get the contractor to communicate or respond to you, send a unilateral mod to the contractor deobligating the excess funds and close out the contract.

What is the contractor going to claim? That it unilaterally changed the number of manhours for the same amount of money? What is the entitlement? The entitlement is the number of hours provided and paid for under the commercial contract terms and conditions for payment. Paragraph 52.212-4 (c) isn’t applicable. No bilateral mod is necessary. 

In either case, the government isn’t required to TERMINATE anything for ITS convenience.

Deobligate the money and CLOSE the contract for gosh sakes. You don’t have to be held hostage by the other party if it won’t even communicate with you!! Let them claim. What is their entitlement?  Nothing, if the contract is written as you say it is.

Carl is right in regard to the contractor's failure to perform -- a termination (ideally for cause or no-cost, but I hope not for convenience) is needed to make the contract physically complete, preparatory to closeout.  

Joel is right in regard to unordered or estimated quantities.

The original poster needs to stop treating these different situations in the same thread -- they are different, and cannot be discussed together.

formerfed is right that these situations make contracting people look like fools to our government colleagues.  

Others have also made good points.

If any of us knew all the facts, we could give sound advice -- which the original poster's policy office would not like, but we've already established that they are a significant part of the problem.  Even the original poster might be unwilling to take sound advice, but I hope he or she is open to learning correct principles.  

But the original poster has not fully explained the pertinent facts, and seems unwilling to enforce the contract.  Plus, he or she has a low quality policy office.  There may be little we can do except to express correct principles for different circumstances, and let the original poster govern him- or herself.

You aren’t going to prevail if there is an appeal of a TFD for services not rendered when the period of performance is over and the government, at this point, is only trying to de-obligate excess funds.

The contractor can’t make up the missing hours now or take any other corrective action. 

Send a unilateral mod and close out the doggone contract. Deal with a claim if and when the missing in action contractor disagrees.

Let us quit dwelling on paragraph (c) and fruitless terminations. Waste of time and effort. 

Next time, administer the contract in accordance with the terms and conditions.

@joel hoffman and @formerfed just want to remind you that my response is based on the facts as I provided in my post based on my full read of the thread.  You both want to skew the facts to meet your own responses.  The OP has specifically stated what I posted highlighted by "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."  Likewise it is not stated in the thread that “top level” wants the money the “End user” does.

Bottom line the contract CALLED FOR DELIVERY OF 10 EA AND THE CONTRACTOR ONLY DELIVERED 9.  You all can do an administrative modification if you want but the hygiene of the contract and its administration requires the imperative for the deletion of that one item from the contract.   If you want to advocate removal can be done without the contractors concurrence because upper management is going to be upset or because it is too much bureaucratic BS then have at it.   I mean after all government contracting has a whole bunch of BS that goes against the grain of common sense so please advocate reducing all contracts that order a specific quantity from here on out with administrative modifications.

Now if you want to play the game of estimated quantities, estimated services, and how the full contract terms and conditions can provide for same then I am all in but I am not all in based on the facts and FAR references I have provided.

On 6/10/2020 at 10:01 AM, Voxx said:

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.

Carl, I was responding based upon Voxx’s expanded, added details and examples.

I qualified my responses to parallel those reasons for funds remaining on the contract “after the delivery or period of performance has ended and the vendor has not responded after a deob mod has been sent to them.”

The Government is only interested in de-obligating the funds - although that action should (generally in my opinion)  be taken in conjunction with closing out orders or contracts where the contractor is missing in action, unless something else prevents prompt closeout..

C Culham said:

@joel hoffman and @Retreadfed just want to remind you that my response is based on the facts as I provided in my post based on my full read of the thread.  You both want to skew the facts to meet your own responses.  The OP has specifically stated what I posted highlighted by "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."  Likewise it is not stated in the thread that “top level” wants the money the “End user” does.

Bottom line the contract CALLED FOR DELIVERY OF 10 EA AND THE CONTRACTOR ONLY DELIVERED 9.  You all can do an administrative modification if you want but the hygiene of the contract and its administration requires the imperative for the deletion of that one item from the contract.   If you want to advocate removal can be done without the contractors concurrence because upper management is going to be upset or because it is too much bureaucratic BS then have at it.   I mean after all government contracting has a whole bunch of BS that goes against the grain of common sense so please advocate reducing all contracts that order a specific quantity from here on out with administrative modifications.

Now if you want to play the game of estimated quantities, estimated services, and how the full contract terms and conditions can provide for same then I am all in but I am not all in based on the facts and FAR references I have provided.

Carl, for the example that you cited, I don’t disagree. However, that was based upon choices that ji provided.

The OP must have sensed that the thread was going down a rabbit trail, like when my dog Rockne gets onto the scent of squirrel trails in our yard. 😁

Voxx later clarified what he/she was referring to, as I quoted above. The clarification was quite different than the original post and Voxx’s selection from ji’s three possibilities.

C Culham said:

Likewise it is not stated in the thread that “top level” wants the money the “End user” does.

Carl, in my experience, it is the end users’ funds that are funding the still open contract. They are the clients and customers. It is obvious to me and hopefully to others that the customer wants the excess funds available ASAP for other needs.

On 6/9/2020 at 11:52 AM, Voxx said:

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

Hopefully, Voxx now understands that “why there is” DOES matter and that it and providing as much information as possible in initial and follow up posts makes ALL the difference.

C Culham said:

@Retreadfed just want to remind you that my response is based on the facts as I provided in my post based on my full read of the thread.  You both want to skew the facts to meet your own responses.

Carl, what facts have I tried to skew?  I don't know what you are talking about.

formerfed said:

All this talk about contractor claims is just far fetched.

Really?  We don't know what all the facts are here.  All we have is a partial recitation of one side of the story.  However, I have been able to help contractors recover on claims when the government has deobligated funds from a contract even when the contractor gave the government a release concerning the deobligation.  From a contractor's perspective, never underestimate the capacity of the government to screw something up.

Joel, we don't know that there is no entitlement to additional payment by the contractor until we have all the facts and some action that the government has taken.  If there is an entitlement, it will be based on the facts and what the government did or did not do.

Retreadfed said:

Really?  We don't know what all the facts are here.  All we have is a partial recitation of one side of the story.  However, I have been able to help contractors recover on claims when the government has deobligated funds from a contract even when the contractor gave the government a release concerning the deobligation.  From a contractor's perspective, never underestimate the capacity of the government to screw something up.

Joel, we don't know that there is no entitlement to additional payment by the contractor until we have all the facts and some action that the government has taken.  If there is an entitlement, it will be based on the facts and what the government did or did not do.

Agreed. And it depends upon the all the actual facts. I have my suspicions but based my opinion on the generalized information that Voxx provided as it “matured” through the thread.

Retreadfed said:

Carl, what facts have I tried to skew?  I don't know what you are talking about.

I apologize I meant formerfed.  I have edited my mistake.  Sorry!

joel hoffman said:

Agreed. And it depends upon the all the actual facts

Exactly.  I found this statement in the original post very interesting "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.)."  Facts are what change the answers to procurement questions from "it depends" to a "yes" or "no".

joel hoffman said:

Hopefully, Voxx now understands that “why there is” DOES matter and that it and providing as much information as possible in initial and follow up posts makes ALL the difference.

Retreadfed said:

Exactly.  I found this statement in the original post very interesting "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.)."  Facts are what change the answers to procurement questions from "it depends" to a "yes" or "no".

Agreed.

On 6/12/2020 at 2:05 PM, Voxx said:

Formerfed - you are hitting the nail on the head. IF the company responded, is no issue. It is when companies do not respond for whatever reason. HQ would like to have the money back to either spend on current year stuff (if current year funds) or to help resolve prior year shortages (versus using current year money). And then of course to eventually lead to closing out the contract.

Several negative comments on my posts.  I responded to the basic issue and question about what happens if a contractor hasn’t responded to a close out mod.  Since a mod was sent, that assumes the contractor did everything expected.  Headquarters wants to use the excess money.

The discussion went to receiving nine units of something instead of ten or not all labor on the contract provided.  Again those are moot if a bilateral modification was prepared assuming the contractor requirements are satisfied.

As Joel said, if those are real issues, better contract administration needs performed.  

All sorts of scenarios arose.  But it seems OPs situation involves simply how does unused funding get removed from a contract when the contractor is no longer responding?

formerfed said:

Several negative comments on my posts.  I responded to the basic issue and question about what happens if a contractor hasn’t responded to a close out mod.  Since a mod was sent, that assumes the contractor did everything expected.  Headquarters wants to use the excess money.

The discussion went to receiving nine units of something instead of ten or not all labor on the contract provided.  Again those are moot if a bilateral modification was prepared assuming the contractor requirements are satisfied.

As Joel said, if those are real issues, better contract administration needs performed.  

All sorts of scenarios arose.  But it seems OPs situation involves simply how does unused funding get removed from a contract when the contractor is no longer responding?

I think that, if one is going to modify a contract to release funds, one must first determine why the funds are excess and whether or not the contractor would have a contractual right to some or all of the remaining funds under the terms of the contract.  

If not (I.e., no changes to the contract’s terms and conditions for ordering, invoicing or being paid) , then no bilateral mod should be necessary.

The scenarios described in Voxx’s later clarifications would appear to support such a conclusion. Depends of course upon the specific contract language.   

Then Mod the contract with a description why it is being modified to deobligate the funds.

Do not cite 52.212-4 (c)  Instead, cite/describe the applicable paragraph or paragraphs, and/or any specific language in the statement of work, etc. as described hereinbefore.

You could state a period for the contractor to object if it disagrees before proceeding to closeout the contract. That might not block a subsequent claim but puts contractor on notice that you will close out the contract.

Be sure to coordinate with  your legal support on this approach. 

Send it to the unresponsive contractor. 

Proceed to closeout the contract.

If the contractor suddenly or later responds in disagreement, one can deal with it then.

P.S.: I suspect that any mod deobligating funding would require a corresponding adjustment to the contract price. I doubt that any automated contracting system would allow funding and final contract amount to not be the same. Am I correct?

On ‎6‎/‎11‎/‎2020 at 10:03 AM, Retreadfed said:

If you will only pay for what has been ordered, why are you obligating funds for items that have not been ordered?

Earlier, I asked this question which has not been answered.  If Voxx is obligating funds for items that have not been ordered and for which the government has no obligation to pay the contractor, is there a valid obligation of funds?  If not, why would you need something in the contract to correct this error?  Why can this not be done unilaterally?

Retreadfed said:

Earlier, I asked this question which has not been answered.  If Voxx is obligating funds for items that have not been ordered and for which the government has no obligation to pay the contractor, is there a valid obligation of funds?  If not, why would you need something in the contract to correct this error?  Why can this not be done unilaterally?

No, and you do, either a termination clause or the implied in fact ability to do a supplemental agreement.  One could conclude if there is no obligation to pay Voxx's agency is in violation of the recording statute by obligating money in the first place.

The contract  is a promise for something for a promise to  pay the contractor then the obligation is rightful.  Stupid view many of you will argue but the contractor owns that obligation just a much as the government.  As such the promise needs to be modified or changed.  Continuing from my previous post that kept this thread going this is the reason that the FAR provides that to close out a contract file funds "must" be determined for deobligation (FAR 4.8054-5) and such deobligation "shall" be accomplished by a supplemental agreement (FAR 42.302(b)(4).

You all want to read that an administrative change that allows for a change in appropriation data is defined as one as the same as "deobligation".   I believe such a view and the premises you have made to support it are not consistent.  Likewise specific to the OP's comments this ain't a one time deal it happens all the time by my read.   Makes me wonder if what they are doing has another answer as I already tried to suggest like using variation in quantity, estimated quantities or services that they need to explore.  

For overall reference how about Volume 2, Chapter 7 of the GAO Redbook.

C Culham said:

The contract  is a promise for something for a promise to  pay the contractor then the obligation is rightful.

Carl, I'm not sure we are reading what Voxx has written the same way.  Voxx says the contract says that the government is only obligated to pay the contractor for items that are ordered (I assume that this obligation to pay is also conditioned on the contractor delivering a satisfactory product within the required delivery date).  I'm still not sure what type of contract is involved, but lets assume the following hypothetical:

The contract permits the government to order the delivery of 100 widgets at a price of $1,000 each.  The government is under no obligation to place any orders and the contract states that the government will only be required to pay the contractor for items that are ordered.  At the time the contract is awarded, the government "obligates" the total possible contract amount of $10,000.  What is the consideration necessary to form a valid contract in this situation?  Also, what is the liability of the government that allows for the recording of an obligation?

The latest version of the DCMA closeout manual has some useful information

https://www.dcma.mil/Portals/31/Documents/Policy/DCMA-MAN-2501-07.pdf?ver=2019-01-15-105034-927

I mentioned use of an administrative modification annotated with “For Internal Distribution Only” to allow excess funds to be used by the OPs headquarters for other purposes.  DCMA refers to this as “Q-final” and they just take the money and returns to the procuring agency.  It’s covered on page 31.  Page 28 says Q-final is used when all required performance is complete and paid for.  I assume this is what Voxx is asking about but we don’t know for sure.  DCMA also says a deobligation modification is used when the contract calls for delivery of 10 widgets but the contractor only delivers 8.  That modification explains why 2 weren’t delivered and why.

On 6/16/2020 at 12:42 PM, Retreadfed said:

Earlier, I asked this question which has not been answered.  If Voxx is obligating funds for items that have not been ordered and for which the government has no obligation to pay the contractor, is there a valid obligation of funds?  If not, why would you need something in the contract to correct this error?  Why can this not be done unilaterally?

Exactly where I was going when I asked Voxx my question.