Contract Closeout: Completing Government Contracts Properly

Contract closeout is the formal process of completing all contractual obligations, settling all administrative matters, and formally closing the contract file. It's not finished until the government says it's finished.

When closeout begins:

• All deliverables have been accepted
• All services have been performed
• Period of performance has ended
• All options have been exercised or declined

Why closeout matters:

• Final payment — Retained funds aren't released until closeout
• CPARS — Final performance evaluation impacts future bids
• Liability — Some obligations continue until formally closed
• Records — Retention requirements depend on closeout date

Closeout timeframes (FAR 4.804-1):

• FFP contracts — 6 months after completion
• Cost-reimbursement — 36 months after completion
• T&M/Labor Hour — 36 months after completion
• Other — 20 months after completion

These are government targets, not guarantees. Closeout often takes longer — especially for cost-type contracts requiring audit.

1. Verify all work is complete:

• All deliverables submitted and accepted
• All services performed
• Documentation complete
• Outstanding issues resolved

2. Settle subcontracts:

• Close out all subcontracts first
• Obtain releases from subcontractors
• Resolve any outstanding claims

3. Final property accounting:

• Inventory government property
• Dispose of property per contract terms
• Obtain clearance from property administrator

4. Final patent/royalty reporting:

• Report any inventions made under contract
• Submit final patent report
• Resolve any IP issues

5. Final invoice:

• Submit final invoice marked "FINAL"
• Include all remaining costs
• Reconcile with funding

6. Release of claims:

• Sign release of claims/contractor release
• Releases government from further obligations
• Except for specified reservations

7. Final CPARS:

Government completes final performance evaluation. You have 30 days to comment.

Administrative closeout checklist:

• Final invoice (marked "FINAL")
• Release of claims
• Final patent report
• Final royalty report
• Government property clearance
• Small business subcontracting report (if applicable)
• Final CPARS acknowledgment

For cost-type contracts, add:

• Incurred cost submissions (for all contract years)
• Final indirect rate settlement
• DCAA audit completion (or quick closeout)
• Final cost reconciliation

What the final invoice must include:

• Statement that it's the final invoice
• All remaining costs/fees claimed
• Reconciliation with prior billings
• Supporting documentation

Release of claims:

Standard form requires you to release the government from further claims EXCEPT:

• Specified claims you reserve
• Claims already pending
• Government property issues not yet resolved

If you have unresolved issues:

Don't sign away your rights. Reserve specific claims in the release, or resolve them before signing.

Cost-reimbursement contracts have additional closeout complexity due to audit requirements.

Incurred cost submission:

• Submit for each fiscal year of performance
• Due 6 months after fiscal year end
• Required before final settlement

Final rate settlement:

• DCAA audits your incurred costs
• Final indirect rates determined
• Difference between provisional and final rates settled

Quick closeout procedure (FAR 42.708):

For contracts meeting criteria, you can close without full audit:

• Contract performed satisfactorily
• Indirect costs are final (or will be soon)
• Unsettled direct costs are insignificant
• Government determines audit isn't cost-effective

Quick closeout expedites final payment and releases you from extended audit exposure.

Settlement negotiation:

If audited costs are questioned:

• Negotiate with contracting officer
• Provide additional documentation
• May result in disallowed costs
• Final settlement documented in modification

Types of government property:

• GFE — Government-furnished equipment (provided by government)
• GFM — Government-furnished material
• CAP — Contractor-acquired property (purchased for government)

Before closeout:

• Inventory all government property
• Reconcile with property records
• Report any discrepancies

Disposition options:

• Return to government — Ship to specified location
• Transfer to another contract — If authorized
• Abandon in place — For items with no residual value
• Donate — To educational institutions or nonprofits
• Sell — With government authorization
• Purchase — Buy at fair market value

Property clearance:

You need written clearance from the property administrator before closeout. Without clearance, contract can't close.

Lost or damaged property:

• Report to property administrator
• May require investigation
• Contractor may be liable for loss
• Document circumstances carefully

Withheld funds:

During performance, the government may withhold:

• Retainage — Percentage held until completion
• Fee withholds — Portion of fee pending completion
• Provisional rate reserves — For final rate settlement

Releasing withholds:

Withheld funds are released when:

• All work is complete and accepted
• Documentation is satisfactory
• Final costs are settled
• No claims are outstanding

Final invoice processing:

• Submit marked "FINAL"
• Reconcile all prior payments
• Account for withholds being released
• Allow for audit adjustments if applicable

Interest on late payment:

If government delays payment beyond Prompt Payment Act deadlines, interest accrues. Track final payment timing.

Cash flow impact:

Delayed closeout = delayed final payment. Push for timely closeout, especially on contracts with significant retainage or fee withholds.

1. Missing documentation:

• Can't locate records from years ago
• Personnel who knew details have left
• Subcontractor records incomplete

Prevention: Maintain organized contract files throughout performance.

2. Unresolved subcontract issues:

• Subcontractor disputes delaying closeout
• Missing subcontractor releases
• Subcontractor went out of business

Prevention: Close subcontracts promptly as work completes.

3. Government property discrepancies:

• Property can't be located
• Records don't match physical inventory
• Unclear disposition instructions

Prevention: Maintain accurate property records continuously.

4. Cost audit findings:

• DCAA questions significant costs
• Documentation doesn't support charges
• Indirect rates not finalized

Prevention: Maintain audit-ready records, submit incurred cost timely.

5. Pending claims or disputes:

• Unresolved change orders
• Pending equitable adjustments
• Disputes in Claims process

Prevention: Resolve issues during performance, not at closeout.

During performance:

• Maintain organized contract files
• Track government property meticulously
• Resolve issues promptly
• Submit incurred costs on time
• Close subcontracts as work completes

As performance ends:

• Create closeout checklist early
• Assign closeout responsibility
• Inventory all government property
• Notify subcontractors of closeout
• Gather all required documentation

During closeout:

• Communicate proactively with CO/ACO
• Respond promptly to requests
• Push for timely government action
• Track status and follow up

Closeout checklist items:

Item	Status
All deliverables accepted	☐
Final invoice submitted	☐
Subcontracts closed	☐
Property disposition complete	☐
Release of claims signed	☐
Final CPARS reviewed	☐