Redstone-How to Optimize your Government Contract Closeout Experience.jpg

It has been years since the contract period of performance has ended, DCAA has finally concluded their audit or review of your incurred cost proposal, and you have received the final indirect rate letter from DCAA. Now what? By design, the contract closeout process begins in earnest.   Typically, the Administrative Contracting Officer (ACO) is responsible for initiating administrative closeout of the contract after receiving evidence of its physical completion.

What is Physical Completion?

Physically complete is defined in FAR 4.804-4 when:

  • Contractor has completed the required deliveries and the Government inspected and accepted the supplies; and
  • Contractor has performed all services and the Government has accepted these services; and
  • All option provisions, if any, have expired.


  • The Government has given the contractor a notice of complete contract termination.

The contract closeout is not considered complete merely because delivery has been made, or even after acceptance and final payment. The contract closeout is complete when all administrative actions of both the Contractor and the Government are complete.

Close Out Process

To optimize the contract closeout process, planning and organization are keys to success. Before the ACO notification that contracts are ready for administrative close out, it is in the contractor’s best interest to begin the closeout process. Documentation of contract from all mods to all invoices paid are vital information required for contract closeout. Effective June 30, 2011, FAR 52.216-7, Allowable Cost and Payment clause added the requirement for contractors to update the Schedule I, Cumulative Direct and Indirect Costs claimed and billed, to reflect settled rates and cumulative costs within 60 days of rate settlement (FAR 52.216-7(d)(2)(v)). The objective was to streamline the contract closeout process.

Team Effort

It is in the ACO and Contractor’s best interest for a timely contract closeout. This will minimize contract administration costs, identify the need for additional funds, and/or allow for final de-obligation of excess funds. The ACO and Contractor must collaborate to determine all work has been completed to the satisfaction of the customer. In addition, both parties must agree on disbursements that have been made and recorded. For cost type contracts, the true up of costs is essential to the contract closeout process to ensure that contractors have received all monies due, including the contract withholds (typically a portion of the fee). The audit of final incurred cost proposal (or low risk memo) determines the actual allowable direct and indirect costs for cost type contracts incurred for the contractor’s fiscal year. Contracts marked as physically complete on Schedule I and again on Schedule O of the incurred cost proposal indicate to the ACO which contracts are ready for the closeout process. Disbursements that have been made and recorded are then compared to actual costs incurred to determine final payment, if any. Contractors should be aware of the timeline for cost type contracts (i.e. Cost type, Time and Material, and Labor Hour contracts). After settlement of final indirect rates, the contractor has 60 days to update the Cumulative Cost Schedule “I” and 120 days to submit the final voucher. A separate final voucher will be submitted for each individual project or task/delivery order and all completion/final vouchers are approved by the ACO.

Completion Procedures

When a contract is complete, FAR 4.804-5(a) states the administrative closeout procedures must ensure:

  • Disposition of classified material in completed
  • Final patent and final royalty report is cleared
  • There is no outstanding value engineering change proposal
  • Plant clearance report and property clearance is received
  • All interim or disallowed costs are settled
  • Price revisions are completed
  • Subcontracts are settled by the prime contractor
  • Prior year indirect cost rates are settled and final invoice has been submitted
  • Termination docket is completed
  • Contract audit and Contractor’s closing statement is completed
  • Contract funds review is completed and excess funds de-obligated.

The contract is administratively complete when the above administrative actions are accomplished, all releases executed, and final payment has been made. Contractors will be required to provide to the ACO an updated “Contractor’s Release of Claims” and “Contractor’s Assignment of Refunds, Rebates, and Credits” certifying that there is no further obligation for either party. Contractor’s need to recognize that release of claims, means just that, if a contractor understated amounts due to it on the final voucher, those monies are gone forever. And remember, the job isn’t finished until the paperwork is done.

Whitepaper: Government Contracting and Uncompensated Overtime Download Now

Written by Kimberly Basden

Kimberly Basden Kimberly is a Managing Consultant with Redstone Government Consulting, Inc. based in our Huntsville, Alabama office. Her areas of expertise include working with government contract accounting and contracting issues and audit. Kimberly specializes in assisting government contractors in the unique accounting, pricing, proposal preparation, and compliance requirements of the U.S. Government. Professional Experience Kimberly’s experience includes preparation of complex incurred cost submissions, compliant accounting infrastructure, preparation and evaluation of policies and procedures, contract closeout process, developing provisional indirect rate budgets, monitoring actual indirect rates, and providing audit support to government contractors. Her primary focus is working pro-actively in preparing small contractors for government contract challenges as well as resolving DCAA issues. Kimberly has almost ten years of experience assisting clients with Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS) best practices and compliance. She works with government contractors to comply with critical Federal Acquisition Regulations (FAR) requirements related to cost accounting and proposals. Her sundry experience with various government contract issues and successful resolutions provides insight that benefits our clients. Prior to joining Redstone Government Consulting, Inc., Kimberly specialized in assurance and advisory services with a regional firm (Jackson Thornton), working as a staff accountant conducting compilations and reviews, auditing financial statements and assisting with litigations. Education Kimberly earned a Bachelor of Science degree in Commerce and Business Administration from The University of Alabama in 2007. Affiliations National Contract Management Association Women in Defense

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Contracts Administration, DFARS Business Systems