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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.

Contract completion

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.

Amending contracts

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.

Terminating contracts

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.