Contract Closeout Guide Chapter 1 – Introduction
A. Purpose. This HHS Closeout Guide: Contracts and Orders (Guide) provides standard procedures for closing HHS contracts and orders (hereafter “contracts” unless the context requires use of the term “orders” placed using simplified acquisition procedures or “task orders” or “delivery orders,” as defined in Federal Acquisition Regulation (FAR)16.501-1, under indefinite delivery (ID) contracts). The procedures in this Guide may be supplemented by Operating Divisions (OPDIVs) to meet specific organizational or mission needs.
B. Importance of closeout. Contract closeout is critical to HHS’ fulfillment of its acquisition and fiscal responsibilities and requires close coordination between the contracting, program, and finance offices, as well as the cognizant audit agency and the contractor. The closeout process can be simple or complex depending on the type and dollar value of an award. OPDIVs must ensure that they close contracts in a timely and effective manner, as described in this Guide, in order to avoid any negative ramifications, financial or otherwise. These potentially include the following:
1. Expired funds or reduced availability of funds for current needs. Delayed closeout may result in an inability to recover excess funds for possible use elsewhere or require use of current year funds to pay claims that may arise under the closed contract.
2. Difficulty in closing a contract. This is typically the result of the contractor either going bankrupt or out of business. Also, with the passage of time, responsible federal acquisition, program, property, and financial staff, as well as key contractor staff, may have left their respective positions or organizations. Furthermore, on cost reimbursable contracts including Time &Materials type contracts most often delays are caused due to the Contractor failing to submit timely indirect cost data as well as the Government Auditing, resolving, and dispositioning any outstanding audit findings in order to settle final rate determinations. This can make it difficult to reconstruct key activities/issues in a contract’s life, locate required documents, and determine what closeout actions may have been previously initiated or completed.
3. Not adequately protecting the Government’s interests. If closeout is delayed, the Government may not be able to obtain a true accounting of funds.
Strategies for increasing the likelihood of timely closeout are addressed in Chapter 2. Some of the difficulties that may preclude timely closeout and actions to take in those situations are discussed in Chapter 3.
- FAR 4.804, Closeout of Contract Files
- FAR 31.201-2, Determining Allowability
- FAR 42.705, Final Indirect Cost Rates
- FAR 42.708, Quick-Closeout Procedure
- FAR 52.216-7, Allowable Cost and Payment
- FAR 52.216-8, Fixed Fee
- FAR 52.216-9, Fixed Fee – Construction
- FAR 52.216-10, Incentive Fee
- FAR 52.227-9, Refund of Royalties
- FAR 52.232-7, Payments under Time-and-Material/Labor-Hour Contracts
- Health and Human Services Acquisition Regulation (HHSAR) 304.804-70, Contract closeout audits
- HHSAR 342.7001, Contract monitoring responsibilities
- Office of Federal Procurement Policy (OFPP) Guide to Best Practices for Contract Administration, dated October 1994 (which includes a major section on contract closeout), available at https://www.acquisition.gov/sevensteps/library/OFPPguide-bp.pdf
D. Applicability. The procedures in this Guide apply to contracts of any dollar amount, including orders exceeding the micro-purchase threshold that are placed using an HHS purchase card. Closeout of purchase card orders at or below the micro-purchase threshold is governed by the HHS Purchase Card program. See the HHS Purchase Card Program Guide, available at: http://www.hhs.gov/asfr/ogapa/acquisition/purchase-card-guide-ver6-july2010.pdf, for information regarding monthly reconciliation of purchases and resolving disputed actions.
Chapter 3 of this Guide provides detailed procedures for closing contracts based on type: fixed-price (FP), cost-reimbursement (CR), time-and-materials (T&M), or labor-hour (L-H).
NOTE: For purposes of this handbook, unless otherwise specified, all references to CR contracts include T&M and L-H contracts, as well as orders below the simplified acquisition threshold awarded on a CR basis. Not all of the FAR closeout procedures apply to each contract type.