Phase 3 of 3: Contract management and closeout
Learn about how to manage a contract, including when a contract is considered complete or incomplete, amending or terminating existing contracts, and closing out completed contracts.
Manage the contract
Contract administration is an important part of contract management. This includes activities performed after a contract award to ensure files are properly maintained and that the contractor meets the requirements of the contract.
A contract is considered to be fully completed when:
- firm price purchase orders or contracts are clearly set out and priced
- all of the required deliverable items have been received as laid out in the contract
- the customer has received and accepted the goods and/or services
- the customer has been invoiced and paid the agreed upon price
- there are no outstanding work deficiencies, changes, payments, or claims requiring further action
A contract is not fully completed if:
- there are outstanding deliverables
- intellectual property issues are present
- it is audited and requires verification for possible adjustment of costs or profits before a final contract amendment can be issued
The contracting officer is responsible for ensuring that all contractual action is done before considering the contract fully completed.
Amend or terminate a contract
Once a contract has been created there are certain situations where you can terminate it or make changes. The following information will give you guidance on what you can do.
Contract amendments are used to change the original contract. You may need an amendment because of:
- more negotiations
- changes in the original requirement
- unforeseen complications
Amendments are subject to agreement by both parties to the contract.
Contracts may be terminated for the reasons listed below. If for any reason you must terminate a contract, always consult with your legal services first.
Termination for convenience
Cancelling a contract for convenience means that something has happened to make the product or service unnecessary. A notice or letter of termination should be sent to the contractor.
Termination for default
This applies when the contractor breaches the contract through non-performance or delayed delivery.
Termination by mutual consent
Termination by mutual consent can be used when:
- both the contractor and your client agree to termination without claims or penalties
- your client has requested full or partial termination of a contract
- the contractor has incurred minimal or no expenses and is willing to forego a claim
- the matter may be settled at no cost to the government
Termination by mutual consent cannot be used when:
- it is in the best interest of the government to declare a default termination
- additional costs are claimed by the contractor following the reduction or cancellation of all or a portion of the contract
Request for termination by the contractor
When a contractor requests a termination because of anticipated losses in performing the contract, consent will not be granted. A contractor requesting termination should be told that all contractual obligations must be fulfilled.
The contractor can request an "extra payment" for additional costs incurred or losses suffered if the loss or additional cost is the fault of government.
If the contractor refuses to carry out the contractual obligations, termination for default should be instituted.
Financial security issues
If a contract is secured by a security deposit it should not be terminated without consulting your legal services. If a contract is secured by surety bonds, it should not be terminated because the existing contractual relationship with the bonding company will also be terminated.
Pay the contractor
No payment, other than a progress payment, may be made to a contractor under a contract unless you have certification that:
- the work has been performed
- the goods and/or services were supplied or rendered
- the price charged is according to the contract or is reasonable if not otherwise specified
Payments made before the completion of the work or the delivery of goods and/or services must be made according to the contract.
If a payment is late the interest is calculated using the Treasury Board Directive on Payment Requisition and Cheque Control, and the Receiver General Payment on Due Date Interest Rate.
Contract close out
Closing out the contract involves the following activities:
- client verification that the final product or work is satisfactory
- confirmation that the contractor has been paid
- verification of the cost
- making final amendments to the contract
- closing the project
For more information
If you need additional help with understanding the bid solicitation process, refer to the following sections of the Supply Manual:
- Chapter 8.25 Contract Payments
- Chapter 8.45 Interest
- Chapter 8.70.5 Amending contracts
- Chapter 8.135.5 Termination for convenience of Canada
- Chapter 8.135.15 Termination for default
- Chapter 8.135.20 Termination by mutual consent
- Chapter 8.135.25 Request for termination by the contractor
- Chapter 8.135.30 Financial security issues related to terminations
- Chapter 8.175 Contract end and contract close out
- Annex 8.1 Guidelines on procurement file organization and composition