Each business project consists of multiple phases such as project initiation, planning, execution and closure (Westland, 2007). Throughout all of these stages, the cooperating sides are to be in ongoing communication with each other, and these interactions and steps are referred to as the life-cycle of the project (Kerzner, 2013). Project initiation includes the definition of the project, determination of the goals of the buyers and seller, the first offer, negotiations, discussion of terms and conditions. Project planning includes multiple details and schemes designed to coordinate the operations within the project during its implementation. That is done to achieve the highest level of productivity and quality.
The stage of execution is accompanied by constant monitoring and control over the result of the interaction of the parties, and the fulfillment of their obligations and duties outlined in the contract terms (Westland, 2007). Finally, the project closure also referred to as close-out is the post-implementation stage that serves to review the performance of both sides, make and conclusion, and prepare the contract to the completed and archived. This phase occurs before the final payment and signifies that the work under a particular contract has been completed. Contract close-out is the responsibility of both of the sides (the buyer and the seller) to ensure that all the terms outlined in the contract were followed, and all the deliverables are exchanged by the parties. As a result, the stage of contract close-out has multiple aspects and obligations for the contracting sides.
The Tasks Associated with the Close-out of Procurement Contracts
First of all, the contractor is to make sure that all the documents related to the contract are gathered and turned over to the procurement officials. That is necessary to be done in time, so the close-out phase begins without any delays. The documents serve to notify the agency of the contractor that all the work they had to do within the terms of the contract is completed. Secondly, the contractor is to make sure that the documents concerning process monitoring issues are arranged and turned in. That includes all the safety management papers and conclusions. Thirdly, the deliverables mentioned in the contract need to be documented based on the information denoting whether or not they were provided, reviewed and received. Finally, one more task necessary to fulfill during the contract close-out is a property closeout. This task signifies that the contractor has submitted a final property report. This document is to mention the ownership rights – private or government-owned.
When it comes to the funding, the contractor is to turn in the papers concerning final payment invoices and payments that include all the costs, performances, and commodities that were disallowed or discontinued, in addition to all the refunds and excessive costs. Besides, the contractor is to compile a report about all the payments received under the contract. Moreover, to complete the set of documents required for the contract close-out, the contractor needs a vendor’s performance report and a contract completion statement. The latter is typical issues after the final payment has been received. The contract completion statement notes that all the documents and papers for the contract have been prepared and processed and the contract may be closed and appropriately archived. Developing a contract close-out plan one is to remember that each contract is different which means that the procedure of close-out and the tasks included in it need to be customized based on the unique features and aspects of each particular contract.
Termination of Contractual Relationships and Settlement of Seller Claims
Termination of a contract can be defined as the annulment of the contracting terms and obligations of both parties after at least one of them has already performed some of their duties (Callahan, 2009). Contract termination is viewed as a remedy, and it provides the sides with the opportunities to determine the conditions for termination on their own. Contracts can be terminated for a wide range of reasons.
For instance, a termination may happen based on the mutual agreement of the sides. This form of termination has a sub-category such as abandonment of the contract which signifies that neither of the parties is interested in continuing the cooperation, and it is clear from their conduct that the contract is to be terminated (Chapple, 2010). The abandonment of a contract occurs when after a long period none of the parties showed attempts to perform their duties.
Another type of contract termination may be caused by the breach of one of the necessary conditions by one of the sides. In the case of termination upon breach, the cooperating sides are to identify the term that was violated and then to establish the level of its importance. The violation of terms defined as essential leads to an immediate breach of a contract.
Moreover, one more type of contract termination occurs due to repudiation. In other words, termination happens when one of the parties refuses to perform their duties and follow the terms and obligations because of their unwillingness or inability to continue the cooperation (Chapple, 2009). Repudiation also occurs when one of the sides states that they would only agree to perform their duties based on the conditions that are incompatible with the terms and requirements of the contract. Breach upon repudiation will be followed through only in case if the innocent side is willing to accept the repudiation.
Besides, the innocent side is considered innocent only if they are determined to continue with the contract. Repudiatory conduct in relevance to a contract should not be taken lightly as it is an extremely serious matter. It can be worked around in a contract but only after the innocent side accepts the repudiation. Also, unwillingness or inability to perform the duties by one of the sides can be a single act or a complex of several decisions. Moreover, repudiation may happen due to the initial miscommunication between the cooperating parties or the misapprehension of the terms and conditions of a contract by one of the parties.
One of the most common causes of contract termination is the default. For example, in construction and design contracts, there are often lists of possible defaults which outline the contractor’s inability to complete the contract and provide the necessary results within a particular period. Besides, some of the default termination permits focus on the systematic breach of the contractual terms and regular failure to follow through with the requirements and obligations (Callahan, 2009).
Also, the right of termination may be lost by one of the parties under particular circumstances. For instance, the right to terminate a contract is lost when one of the sides induced a certain expectation on the other side knowing that this expectation would be assumed but not fulfilled later (Chapple, 2010).
How to Determine If All Requirements of a Procurement Contract Have Been Fulfilled by the Buyer and the Seller
Contract close-out is not a very complex procedure, but it includes many steps since it is a detailed administrative process. The main objective of the contract close-out is to establish that both of the sides have fulfilled their duties and followed their obligations, and all the payments are made, and all the deliverables are received. Besides, the contract close-out serves to determine the level of success of a contract. As a result, this procedure includes multiple reports, signatures, documents concerning the costs and funding, properties, materials, and equipment, performances and obligations of both sides, time frames, and the levels of satisfaction of the parties with the final results. For the convenience of the parties, the close-out procedure may be based on a checklist that reflects all the aspects that need to be covered and verified. Checklists can be specifically designed for each particular contract based on its type and the kind of performance and deliverables it outlines (Knauer, 2007).
Contract close-out procedure is to include all of the stages of the contract and deal with all obligations, performances, and expenditures. During this process, it is important to reveal all the deficiencies (if any) that could have happened while the contract was implemented. To determine if all the requirements have been fulfilled by the buyer and the seller the parties need to answer a series of questions such as “were the objectives outlined in the terms of the contract achieved?”, “were all the deliverables received and accepted in time?”, “did the performed result match the expected budget and time frame?”, “was the buyer satisfied with the quality of the final result or product?” (Westland, 2007).
Flowchart Showing How to Properly Close-out a Contract
The flowchart above presents various aspects of the project closure and the activities that need to be accomplished at these stages. Not all of these stages would apply to any type of contract. For example, particular projects do not include any new technologies and patents, so that part can be skipped. Overall, the close-out of a project consists of only two main phases which are the performance of the project closure and the following review of the completion of the project (Westland, 2007; PO Closeout, n. d.).
How Invoices That Have Not Been Submitted by Vendors or That Have Been Submitted by Vendors but Not Yet Paid Should Be Handled
Payment is one of the most vital aspects of any business project. There are different ways to handle the invoices during the business cooperation of the two contracting sides. The parties are to establish the conditions under which the payments will be submitted and received in different situations at the stage of contract planning and preparation. That needs to be done to avoid further misunderstandings between the participants or potential conflicts. The dates of payments may be assigned and put into a schedule; such an approach obliges both the seller and the buyer to deliver their duties strictly on time. This way of invoicing is rather restrictive, but it enforces very clear discipline and minimizes the chances of delays within the process of the contract execution. Besides, the payments may be submitted separately for each portion of the work or series of goods delivered by the vendor. For that, the parties would have to divide their working process into several parts.
As a result, each portion of work and the following payment may be treated as separate plans, and this makes it easier to coordinate the tasks and operations of the delivery side. Moreover, the invoices may be submitted based on the acquisition of the deliverables. In other words, each time the buyer receives the products – they are to submit payment for them. This approach allows the contracting sides to coordinate their financial reports easier and avoid misunderstandings concerning the payments. Finally, one more way to handle the invoices is for the buyer to pay for the final result beforehand. In this case, the expected sum of money is acquired entirely by the vendor before they start the execution of the contract.
This kind of payment is practiced quite rarely due to its risky and impractical nature since the contract may be breached, its terms and conditions may be violated, or a delay may occur. All of these incidents are likely to impact the financial side of the contract and cause confusion. From the perspective of the optimization of the working process, it is easier for both the buyer and the seller to submit and receive the payments multiple times during the process of the contract implementation and document all the payments along the way for the final report. Also, there is a chance that the parties may clash because of the invoices that are disputable. If such a situation happens, the part of the invoices that do not cause any doubts should be submitted, and the remaining payments need to be reviewed by the project team and the officials separately (Westland, 2007).
Three Questions Listed in the “Procurement Management Conformance” Checklist
Were formal supplier performance reviews regularly undertaken?
This question is crucial to ask when completing a project and closing a procurement contract. The role of performance reports and reviews is to determine the level of success at each stage of the project execution. Regularly undertaken performance reviews allow both sides to monitor their performance and the performance of their partners. With the help of the regular performance reviews, the sides will be able to determine the possible weaknesses of their work, resolve causes of all the possible future conflicts and dissatisfactions, identify the problematic areas, and address them before the issues become too serious. The failure to undertake performance reviews regularly and after each significant stage of performance may lead to unmet expectations, delays, and cause tension between the sides of the contract.
Did any supplier issues remain unresolved throughout the project?
This question is necessary to ask for the parties to evaluate the thoroughness of their performances. Project and contract execution is a multilayered process that includes a variety of tasks for both the buyer and the seller. As a result, the sides may clash, develop misunderstandings, and have arguments. Ideally, all the issues, no matter how minor, are to be addressed, analyzed, discussed, and resolved during the stage of the contract implementation. Besides, when the issue has to do with the performance of the supplier, the buyer should clarify all the problems so that they can be avoided before a new contract is signed as the relationships between the buyers and the suppliers often have a lengthy character. Establishing fair and respectable interaction with the supplier, a buyer invests in their future creating profitable connections.
Did any supplier issues lower the quality of deliverables?
The quality of the products is the main concern of the buyer. That is why it needs to be carefully monitored and analyzed. In the case of the buyer finds out that the quality of the deliverables was caused by the issues with the supplier, the situation needs to be addressed and discussed. The kind of issues of the supplier and their causes determine the future of the cooperation between them and the buyer who ended up getting the products of lower quality. The buyer needs to make sure whether or not such issues with this or any other supplier may occur again and find the ways to address or avoid them for the sake of the product quality and stable cooperation with the partners.
Conclusion
Procurement contract close-out is not a complex but a multidimensional process that involves a variety of necessary administrative moments. The stage of project closure requires a documented verification of the completion of the project and all of its aspects (properties, deliverables, duties, and obligations, payments, unplanned problems, violations of conditions, terminations of plans, legal issues, to name a few). The purpose of the final stage of the project is to review and evaluate the execution of the contract and the level of performance of each of the sides.
Reference List
Callahan, M. (2009). Termination of construction and design contracts. Austin, TX: Wolters Kluwer Law & Business.
Chapple, S. (2010). Termination of Contract: A practical guide on when and how to terminate a contract and common mistakes. Web.
Kerzner, H. (2009) Project management: A systems approach to planning, scheduling, and controlling (10th ed.). New York, NY: Wiley.
Knauer, R. (2007). Contract Closeout Guidebook. Web.
PO Closeout. (n. d.). Web.
Westland, J. (2006). The project management life cycle. London, UK: Kogan Page.