Close out

What type of price arrangement is this in reference to and what is the prime and/or subcontract for ( services, supplies, construction, etc.)?

joel hoffman said:

What type of price arrangement is this in reference to and what is the prime and/or subcontract for ( services, supplies, construction, etc.)?

Thank you for your response. T&M and for services

Contractor500 said:

What steps do I need to take in order to close out a contract we have with a Prime contractor? What does Program Management at our company also need to do to close out? Also, in the case that we are a Prime contractor, what to do to close out with the Gov't. Thank you kindly!

Let's start with closing out a prime contract awarded to your company by the government. You need to help your contracting officer with the close out. To see what the contracting officer needs, read FAR 4.804-5. Also read your contract to confirm that the clauses that require those certifications are in your contract. Submit the required certifications plus a final invoice. The final invoice may a credit (returning money) or a request for a new payment, perhaps based on having negotiated final billing rates for the period(s) of performance. If you are still awaiting final rates, you can still close out the contract if you and the contracting officer agree on the indirect rates to use for the final invoice.

To close out your subcontract with a prime contractor, review your subcontract to see what certifications are required. Provide them plus a final invoice. If you don't have final rates, you can still close out the subcontract if you and the prime contractor agree on the indirect rates to use on the final invoice.

What about on the flip side of this topic.  How can the ACO motivate contractors to close-out contracts (assuming final indirect rates are settled and work is complete)?

LuketheNuke said:

What about on the flip side of this topic.  How can the ACO motivate contractors to close-out contracts (assuming final indirect rates are settled and work is complete)?

Contracts whose final price is determined based on final billing rates must contain the clause 52.216-7. That clause discusses finalization of rates at (d).

The clause states, in pertinent part:

Quote

(5) Within 120 days (or longer period if approved in writing by the Contracting Officer) after settlement of the final annual indirect cost rates for all years of a physically complete contract, the Contractor shall submit a completion invoice or voucher to reflect the settled amounts and rates. The completion invoice or voucher shall include settled subcontract amounts and rates. The prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request.

(6) (i) If the Contractor fails to submit a completion invoice or voucher within the time specified in paragraph (d)(5) of this clause, the Contracting Officer may-

                     (A) Determine the amounts due to the Contractor under the contract; and

                     (B) Record this determination in a unilateral modification to the contract.

                (ii) This determination constitutes the final decision of the Contracting Officer in accordance with the Disputes clause.

LuketheNuke said:

What about on the flip side of this topic.  How can the ACO motivate contractors to close-out contracts (assuming final indirect rates are settled and work is complete)?

Well, maybe take action under FAR 52.232-7 Payments Under Time and Material and Labor Hour Contracts at paragraph (g) if the clause is in the prime contract.   Seeking the Release might be the kick from the ACO to motivate the contractor to complete closeout of the contract.

On 6/22/2021 at 3:45 PM, here_2_help said:

If you don't have final rates, you can still close out the subcontract if you and the prime contractor agree on the indirect rates to use on the final invoice.

I assume this was meant for cost type subcontracts. If such a prime contractor closes the subcontract applying such non-final indirect rates, it may risk not being reimbursed in the event the government approves lower final indirect rates for the subcontract.

For fixed price subcontracts, final rates are not relevant to closeout of the subcontract.

Yes, lets assume the contracts are flexibly priced type, and there are settled indirect rates, the bottleneck is in the steps listed in FAR 4.805-5, contractor is not getting through all the internal sign-offs to meet steps 1 thru 15.  Ktr may have already billed for all of the work, and thinks there isn't any more $ to collect so why bother submitting the close-out package.  Are there pre-emptive steps the  ACO can take like a with-hold or a rate decrement that brings the Ktr back to the table?

For DOD, see https://dodprocurementtoolbox.com/cms/sites/default/files/resources/2019-11/Contract Closeout Guidebook_20191025_Final.pdf_._

In particular, perhaps page 22 as follows:

•Refer the matter to higher authority
• Other non-contractual remedies such as inclusion of comments in Preaward Surveys or the Contractor Performance Reporting System (CPARS)
• Suspend interim financing payments on other contracts
• Disallow or recoup previously paid costs

• Decrement bidding/billing rates
• Initiate appropriate systems reviews
• Maintain fee withholds
• Notify the DCAA office that the contractor represents a risk for overbilling and recommend closer monitoring of interim vouchers for payment and that sampling
parameters of interim vouchers be increased.

After the Contracting Officer determines the reason for non-submission of final vouchers, several alternate methods exist that will enable the contracts to be closed. They include:

• Unilateral Determination
• Accelerated Final Voucher Preparation and Review Process

That Contract Closeout Guidebook is going to be very helpful! thanks

Neil Roberts said:

I assume this was meant for cost type subcontracts. If such a prime contractor closes the subcontract applying such non-final indirect rates, it may risk not being reimbursed in the event the government approves lower final indirect rates for the subcontract.

No, you're wrong.

here_2_help said:

No, you're wrong.

Perhaps you can elaborate how there is no risk?

Neil Roberts said:

Perhaps you can elaborate how there is no risk?

Neil, I could have asked you to elaborate on why you thought there was risk.

But I'll indulge you.

When the subcontract is closed-out between the prime and the subK, and the final invoice is paid, then the subcontract is dropped from the prime's audit universe. It is literally no longer subject to price adjustment.

h2h, I agree that unless there is a re-opener clause for final rates, a subcontract change notice that reflects it is the final allowable cost, is most likely not subject to later unilateral adjustment of allowable cost by the prime contractor. But, that is the risk I intended to point out...closing out a subcontract with finality ahead of government final approved rates applicable to the subcontract work, may be risky. What is the risk? The government may decide to review the subcontract during the prime contract closeout and wind up questioning the basis for such a closeout, especially if the final approved rates are available at that time. I am not aware that during the prime contract closeout process, the government is prohibited from audit or review of subcontracts that were closed by the prime ahead of government final applicable approved rates for the subcontractor. Are you saying that or something different? Perhaps the prime contractors you are familiar with "just lucked out" or were "flying below the radar" or pre-coordinated the closeout rates basis with the government determination per FAR 42.708 Quick closeout criteria.

For the others people who may be reading this thread, I quote from the Allowable Cost & Payment clause (52.216-7) at (d):

Quote

(5) Within 120 days (or longer period if approved in writing by the Contracting Officer) after settlement of the final annual indirect cost rates for all years of a physically complete contract, the Contractor shall submit a completion invoice or voucher to reflect the settled amounts and rates. The completion invoice or voucher shall include settled subcontract amounts and rates. The prime contractor is responsible for settling subcontractor amounts and rates included in the completion invoice or voucher and providing status of subcontractor audits to the contracting officer upon request.

Emphasis added.

The prime contractor -- and not the government -- is responsible for settling its subcontractors' costs, including establishing final billing rates to be used in calculating the final invoice under the subcontract.

h2h, the prime contractor is responsible for settling subcontracts subject to approval of the government closeout of the prime, which includes closeout of subcontracts. The way you understand it, the government has no final say so with respect to subcontracts. That is incorrect.

Neil Roberts said:

h2h, the prime contractor is responsible for settling subcontracts subject to approval of the government closeout of the prime, which includes closeout of subcontracts. The way you understand it, the government has no final say so with respect to subcontracts. That is incorrect.

@Neil RobertsPlease clarify. Are you saying that the government has "final say" over settlements between a prime and its subs? If that's what you say, then what do you mean? What kind of "final say"? To what effect?

On 6/22/2021 at 1:52 PM, Contractor500 said:

Thank you for your response. T&M and for services

Don't forget handling govt furnished property if there is any.

The conversation is veering away from my original line of inquiry, which is focused only on the PRIME.   I get it that FAR states it is the PRIMES' not the Gov't job to get the ball rolling, "the Contractor shall submit a completion invoice or voucher to reflect the settled amounts and rates".  But what if the PRIME isn't moving forward to meet this  responsibility.  Have others taken the aforementioned actions :

:Suspend interim financing payments on other contracts
• Disallow or recoup previously paid costs

• Decrement bidding/billing rates

Ideally the ACO would only do this just once to send the message to the KTR.

LuketheNuke said:

The conversation is veering away from my original line of inquiry, which is focused only on the PRIME.   I get it that FAR states it is the PRIMES' not the Gov't job to get the ball rolling, "the Contractor shall submit a completion invoice or voucher to reflect the settled amounts and rates".  But what if the PRIME isn't moving forward to meet this  responsibility.  Have others taken the aforementioned actions :

:Suspend interim financing payments on other contracts
• Disallow or recoup previously paid costs

• Decrement bidding/billing rates

Ideally the ACO would only do this just once to send the message to the KTR.

In the past I have seen a Level 3 CAR issued against the prime's Accounting System for failure to comply with 52.216-7. A drastic step, to be sure. But guaranteed to get the contractor's attention, I promise.

That's a good idea. I will check the DFARS Business System criteria for both the Accounting System and Purchasing.