Project closeout

The larger the contract, the greater the need for the contract administrator to resolve ambiguity in the contract. Sometimes, large contracts that are prepared by teams of attorneys contain an order of precedence clause. The order of precedence specifies that any inconsistency in the solicitation of the contract shall be resolved in a given order of procedure such as:

A. Specifications (first priority)

B. Other instructions (second priority)

C. Other documents, such as exhibits, attachments, appendices, SOW, contract data requirements list (CDRL), etc. (third priority)

D. Contract clauses (fourth priority)

E. The schedule (fifth priority)

Generally speaking, an ambiguous contract will be interpreted against the party who drafted the document. However, there is an offsetting rule called Patent Ambiguity. This includes the following:

• The offeror in a "bid" situation is expected to be knowledgeable about ordinary and normal industrial or construction practices pertinent to its work.

• The presumption is made that the offeror has made reasonable and complete review of the contractual documents before preparing and submitting them.

• Failure to notify of patent ambiguity works against the offeror if the claim is later submitted based on ambiguity.

Perhaps the majority of the contract administrator's time is spent handling changes. The following definitions describe the types of changes:

• Administrative change: A unilateral contractual change, in writing, that does not affect the substantive rights of the parties (i.e., a change in the paying office or the appropriation funding).

• Change order: A written order, signed by the contracting officer, directing the contractor to make a change.

• Contract modification: Any written change in the terms of the contract.

• Undefinitized contractual action: Any contractual action that authorizes the commencement of work prior to the establishment of a final definitive price.

• Supplemental agreement: A contract modification that is accompanied by the mutual action of both parties.

• Constructive change: Any effective change to the contract caused by the actions or inaction of personnel in authority, or by circumstances that cause a contractor to perform work differently than required by written contract. The contractor may file a claim for equitable adjustment in the contract.

Typical causes of constructive changes include:

• Defective specification with impossibility of performance

• Erroneous interpretation of contract

• Overinspection of work

• Failure to disclose superior knowledge

• Acceleration of performance

• Late or unsuitable owner or customer furnished property

• Failure to cooperate

• Improperly exercised options

• Misusing proprietary data

Based on the type of contract, terms, and conditions, the customer may have the right to terminate a contract for convenience at any time. However, the customer must compensate the contractor for his preparations and for any completed and accepted work relating to the terminated part of the contract.

The following are reasons for termination for convenience of the customer:

• Elimination of the requirement

• Technological advances in the state-of-the-art

• Budgetary changes

• Related requirements and/or procurements

• Anticipating profits not allowed

The following are reasons for termination for default due to contractor's actions:

• Contractor fails to make delivery on scheduled date.

• Contractor fails to make progress so as to endanger performance of the contract and its terms.

• Contractor fails to perform any other provisions of the contract.

If a contract is terminated due to default, then the contractor may not be entitled to compensation of work in progress but not yet accepted by the customer. The customer may even be entitled to repayment from the contractor of any advances or progress payments applicable to such work. Also, the contractor may be liable for any excess reprocurement costs. However, contractors can seek relief through negotiations, a Board of Contracts Appeals, or Claims Court.

The contract administrator is responsible for performance control. This includes inspection, acceptance, and breach of contract/default. If the goods/services do not comply with the contract, then the contract administrator has the right to:

• Reject the entire shipment

• Accept the entire shipment (barring latent defects)

• Accept part of the shipment

In government contracts, the government has the right to have the goods repaired with the costs charged back to the supplier or fix the goods themselves and charge the cost of repairs to the supplier. If the goods are then acceptable to the government, then the government may reduce the contract amount by an appropriate amount to reflect the reduced value of the contract.

Project managers often do financial closeout once the goods are shipped to the customer. This poses a problem if the goods must be repaired. Billing the cost of repairs against a financially closed out project is called backcharging. Most companies do not perform financial closeout until at least 90 days after delivery of goods.

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Project Management Made Easy

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