Government Contract Closeout Guide: Complete Process for Federal Contractors | BidFinds
Master government contract closeout procedures. Learn about physical completion, administrative closeout, final invoicing, property disposition, and documentation requirements.
Quick Answer: What Is Contract Closeout?
Contract closeout is the formal process of verifying that all contractual obligations have been met and completing the final administrative actions to close the contract file. This includes final delivery acceptance, submitting the final invoice, settling indirect rates, disposing of government property, and obtaining the contracting officer's release of claims. Timelines vary by contract type—typically 6 months for FFP and 36 months for cost-reimbursable contracts.
What Is Contract Closeout?
Contract closeout is the final phase of the contract lifecycle. It begins when the contractor has completed all deliverables and ends when all administrative actions are completed, the final payment is made, and the contract file is officially closed.
Two Phases of Closeout
Physical Completion
All contract work is complete:
- • All deliverables submitted
- • All services performed
- • Government acceptance received
- • Period of performance ended
Administrative Closeout
All administrative actions complete:
- • Final invoice submitted/paid
- • Indirect rates settled
- • Property disposed of
- • Release of claims signed
Why Closeout Matters
- • Final Payment: Cannot receive final payment until closeout is complete
- • Past Performance: CPARS evaluations often finalized during closeout
- • Liability Release: Properly closed contracts limit future liability
- • Administrative Burden: Open contracts require ongoing maintenance
- • Audit Risk: Unresolved issues increase audit scrutiny
Closeout Timeline Requirements
FAR 4.804-1 establishes maximum closeout timeframes based on contract type. The clock starts at physical completion of contract performance.
Maximum Closeout Timeframes
| Contract Type | Timeframe | Key Factors |
|---|---|---|
| Firm Fixed Price (FFP) | 6 months | Simplest—just verify delivery and final payment |
| Small Purchase FFP (<SAT) | 6 months | Simplified procedures apply |
| Time & Materials (T&M) | 20 months | Requires rate verification |
| Labor Hour | 20 months | Similar to T&M closeout |
| Cost-Reimbursable | 36 months | Requires indirect rate settlement |
| Contracts with Options | Varies | Cannot close until all options expire or are exercised |
Important Note
These are maximum government timeframes. Contractors should submit all closeout documentation promptly to expedite the process. Delays in contractor submissions extend closeout timelines and can impact past performance ratings.
Physical Completion Steps
Physical completion marks the end of contract performance. These steps ensure all work obligations are satisfied before moving to administrative closeout.
Physical Completion Checklist
Verify All Deliverables Submitted
Confirm all CLINs are delivered and all required reports/data submitted per the CDRL
Obtain Government Acceptance
Get written acceptance from the COR/COTR for all deliverables and services
Complete All Service Performance
Ensure all labor hours are worked and all service obligations are met
Resolve Any Deficiencies
Address any quality issues, warranty claims, or corrective actions
Document Physical Completion Date
Record the date all work was completed—this starts the closeout clock
Government Acceptance Methods
Formal Acceptance
- • DD Form 250 (Material Inspection)
- • Written acceptance letter
- • Signed receiving report
- • Invoice approval
Constructive Acceptance
- • No rejection within time limit
- • Payment of invoice
- • Use of deliverable by government
- • Passage of inspection period
Administrative Closeout
Administrative closeout involves completing all administrative requirements after physical completion. This phase can take months for complex contracts.
Administrative Closeout Actions
Contractor's Release of Claims
The release of claims is a critical document where the contractor releases the government from all liabilities except for specified exceptions.
Typical Exceptions to Release
- • Pending claims specifically identified by amount
- • Unliquidated progress payments
- • Government property issues being resolved
- • Unresolved appeals before boards of contract appeals
Final Invoicing and Payment
The final invoice is often the most complex closeout action, especially for cost-reimbursable contracts where indirect rate adjustments must be calculated.
Final Invoice Components
For Fixed-Price Contracts
- • Remaining contract value not yet billed
- • Mark invoice as "FINAL"
- • Include all deliverable line items
For Cost-Reimbursable Contracts
- • Final actual costs incurred
- • Indirect rate adjustments (actual vs. provisional)
- • Release of withheld amounts (typically 15%)
- • Final fee calculation
For T&M/Labor Hour Contracts
- • Final hours at contract rates
- • Final material costs (T&M)
- • Any rate ceiling adjustments
Indirect Rate Settlement Process
For cost-reimbursable contracts, final payment depends on settling indirect rates:
Submit Incurred Cost Proposal
Due within 6 months of fiscal year end
DCAA Audit (if required)
DCAA reviews rates and issues audit report
Rate Negotiation
ACO negotiates final rates with contractor
Rate Agreement
Final rates established for billing adjustments
Property Disposition
Government-furnished property (GFP) and contractor-acquired property (CAP) must be properly disposed of before contract closeout can be completed.
Property Disposition Options
Return to Government
- • Ship to designated location
- • Obtain receipt documentation
- • Government pays shipping
Transfer to Another Contract
- • If needed on follow-on work
- • Requires CO approval
- • Update property records
Purchase by Contractor
- • At fair market value
- • Credit to contract
- • Requires CO approval
Disposal/Scrap
- • For obsolete items
- • Follow GSA procedures
- • Document disposition
Property Record Requirements
Maintain detailed property records throughout contract performance. You'll need to provide a final property inventory and certification that all property has been properly accounted for and disposed of.
Required Documentation
Proper documentation ensures smooth closeout and provides protection in case of future audits or disputes.
Closeout Documentation Checklist
Contract Administration
- Original contract and all modifications
- Correspondence file
- Delivery/acceptance documentation
- All invoices and payment records
- Performance evaluations
Financial/Cost Records
- Cost incurred by CLIN
- Indirect rate calculations
- Subcontract files
- Timekeeping records
- Final invoice and settlement
Record Retention Requirements
Per FAR 4.703, retain records for:
- • 3 years after final payment for most records
- • 6 years 3 months for indirect cost records (cost contracts)
- • Longer if audit, litigation, or claim is pending
Quick Closeout Procedures
FAR 42.708 provides for quick closeout of contracts when detailed review isn't cost-effective. This can significantly speed up the closeout process for smaller contracts.
Quick Closeout Eligibility
Requirements
- • Contract is physically complete
- • Contract amount is relatively small
- • Contractor has acceptable accounting system
- • No major issues or disputes pending
- • Cost of audit would exceed potential savings
Benefits
- • Faster final payment
- • Reduced administrative burden
- • No DCAA audit required
- • Negotiated settlement of indirect rates
Requesting Quick Closeout
To request quick closeout:
- 1. Submit written request to the ACO
- 2. Provide complete cost summary by fiscal year
- 3. Propose final indirect rates
- 4. Certify all costs are accurate and complete
- 5. Submit contractor release of claims
Common Closeout Issues
Unresolved Indirect Rates
The most common cause of delayed closeout. Submit incurred cost proposals on time and respond promptly to DCAA inquiries. Consider quick closeout for smaller contracts.
Outstanding Subcontracts
Prime contract cannot close until all subcontracts are closed. Manage subcontractor closeouts actively and include closeout requirements in subcontract terms.
Missing Documentation
Lost delivery receipts, missing invoices, or incomplete records delay closeout. Maintain organized contract files throughout performance and conduct periodic reviews.
Property Accountability Issues
Missing or unaccounted government property creates closeout delays and potential liability. Conduct regular property inventories and report discrepancies immediately.
Contract Modifications Pending
Unsigned modifications, REAs, or undefinitized contract actions prevent closeout. Finalize all contractual matters before requesting closeout.
Frequently Asked Questions
What happens if I don't initiate closeout?
The government may administratively close the contract, potentially forfeiting any remaining amounts due to you. Additionally, open contracts require ongoing compliance with reporting requirements and can impact your past performance record.
Can I get paid before closeout is complete?
Yes, you receive progress payments or vouchers throughout performance. However, final payment (including withheld amounts and fee) requires closeout completion. For cost contracts, 15% is typically withheld pending rate settlement.
What if I discover additional costs after submitting the final invoice?
Once you sign the release of claims, you generally cannot recover additional costs unless you specifically excepted them. Before signing, carefully review all costs and reserve any pending amounts. If you discover costs afterward, consult with the CO about options.
How long does the government have to audit my costs?
The statute of limitations is generally 6 years from final payment. However, if you submit fraudulent claims, there is no limitation. DCAA prioritizes audits based on risk; lower-risk contractors may receive limited or no audit.
What if the government delays closeout?
You can request status updates from the CO or ACO. If significant delays impact your business (e.g., withheld funds), document the impact and consider requesting expedited review. Government closeout backlogs are common; persistence and proper documentation help.
Next Steps
Proper contract closeout protects your interests and ensures you receive all funds owed. Start planning for closeout early in contract performance.
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