As the Financial Improvement Audit Readiness audit (FIAR) deadline draws near, many Government agencies and defense contractors ramp up their efforts to remain or get compliant. This can lead to finding a bunch of previously lost personal property (through physical inventories, program reviews, etc.) and the closing of programs or contracts previously sitting idle.
Which begs the question, why didn’t we ‘close’ these contracts and disposition the property a long time ago vs. waiting for the FIAR audit deadline?
Also, what exactly does “Government Property Contract Closeout” mean?
As it relates to Defense contracting, Government property closeout is an element in a contractor’s Government property management system (as defined by the current version of the FAR 52.245-1). This article will provide you a few tips to hopefully help your company develop a thorough and efficient Government property closeout program. So, let’s talk about what Contract Closeout is:
- FAR 52.245-1(f)(1) Contractors shall establish and implement property management plans, systems, and procedures at the contract, program, site or entity level to enable the following outcomes:
(x) Property closeout. The Contractor shall promptly perform and report to the Property Administrator contract property closeout, to include reporting, investigating and securing closure of all loss of Government property cases; physically inventorying all property upon termination or completion of this contract; and disposing of items at the time they are determined to be excess to contractual needs.
Government Property Contract Closeout is the process by which Government property is dispositioned from a contract once the property is excess to the contractual needs. In other words, the property is no longer needed for its intended purpose.
Take a look at the following contact life cycle:
Solicitation – Proposal – Award – Execution – Closeout
Are Government property closeout (as defined in FAR 52.245-1(x)) and Contract Closeout the same thing?
Lucky for us the answer has already been provided. FAR 4.804-4 says:
(a) Except as provided in paragraph (b), a contract is considered to be physically completed when–
(i) The contractor has completed the required deliveries and the USG has inspected and accepted the supplies:
(ii) The contractor has performed all services and the Government has accepted these services;
(iii) All option provisions, if any, have expired; OR
(2) The USG has given the contractor a notice of complete contract termination
Inherently, the process of Closing a contract can take YEARS. Closing a contract involves settling financial records, negotiations, and lots of back and forth between Uncle Sam and the contractor. Government property closeout means promptly screening for excess property, completing disposition actions, disposing of contractor inventory, and adjudicating property loss cases. Government property closeout can be completed promptly and continually throughout the lifecycle.
“Promptly Perform…” ??
FAR 52.245-1(f)(1)(x) states “The Contractor shall promptly perform ….. property closeout.” Unless “promptly” is tangibly defined in the contractor’s procedures, the timeframe and definition may be left up to interpretation. Similar to when boxers leave the fight on the hands of the judges.
Here’s my first “Pro Tip:” Establish and define a measurable timeframe instead of leaving it up to judgement.
Added Benefits of Continual Closeout
Reduces risk of loss, inventory and storage costs, stress of locating property and time to close contract at the end of the contract life cycle.
HOW do we close them?
- Establish a series of procedures and checklists
- Obtain notification from Contracts department or Program Office upon phase completion
- Obtain notification of Final Inspection/Acceptance/Delivery
Pro Tips and questions to consider
- Has excess property been disposed via DCMA Plant Clearance PCARSS? (as applicable)
- Did the Plant Clearance Officer send you an inventory disposal report? (IDR)
- Have all Government property loss (previously known as Lost, Damaged and Destroyed) cases been closed out?
- Request (and receive) disposition instruction for Government property losses (damages)
- Have you closed out and disposition property accountable to Quality Deficiency Reports
- Review Inspection and Acceptance forms (DD250’s) and account for all end item deliveries. Did the customer receive their items?
- DD250Z can be a trigger alerting you that a contract is shipped complete.
- Does the company have Government property on a hold status? i.e. undergoing engineering investigation, record of discrepancies, etc.
- Review inventory locations for this contract and ensure Government property has been transferred or shipped?
- Property at Subcontractor locations accounted for?
- Notify the customer (i.e. NASA) the contract has been shipped complete and the property has been returned/transferred
Wait….
… Subcontractor Closeout?
FAR 52.245-1(f)(1)(v) addresses Subcontractor control.
(A) The Contractor shall award subcontracts that clearly identify items to be provided and the extent of any restrictions or limitations on their use. The Contractor shall ensure appropriate flow down of contract terms and conditions (e.g., extent of liability for loss of Government property).
As you may have realized, Contract Closeout (paragraph (x)) is part of the flow down to subcontractors.
In instances where the Prime contractor may authorize GFP to its supplier/Subcontractor:
- Has the property become excess?
- Has the property been disposed IAW Plant Clearance Officer instructions?
- Has the company established Purchase Order completion Procedures
How do YOU ensure subcontractor is promptly closing your P.O.’s?
Here’s a few of my personal tips for Subcontractor Government Property Contract Closeout:
- Include closeout as part of your self-assessments/supplier audits
- Perform frequent and continual excess property screening; add it to your procedures
- Request purchase order closure notification from contracts/purchasing/programs
As you can see, industry leading Government property closeout involves team work, many moving parts, and lots of communication. Depending on the complexity of your property system the element of property closeout may require numerous resources (and we’re all fighting to do more with less right?)
Pro Tips:
- Show Return on Investment/Value for Continual Contract Closeouts
- Quantify the cost savings by eliminating steps, reducing losses, eliminating waste (labor, manpower, duplicate transactions) by improving process
ROI = (Time Saved) x (Instances per Year) x (Average Hourly Rate)
Return of Investment
- How can we measure cost savings, ROI?
- Consider quantifying the cost to administer at the conclusion vs. gradually
- Cost saved to inventory and store
That’s about it, thanks for reading and remember “Even the Longest Day Has Its End… so do contracts… and this article.”