JOINT BASE SAN ANTONIO-FORT SAM HOUSTON, Texas -- As contracting activities across the federal government battle a systemic crisis of closing out hundreds of thousands of overaged contracts, a dedicated plan of attack by contracting officials at Fort Drum, N.Y., has all but eliminated what once seemed an insurmountable backlog.
In 2008 contracting officials at Fort Drum developed a plan to have each contract specialist close out 10 contracts per day, but by early 2009 little or no progress was being made to tackle the dilemma that was years in the making.
John Honey, the MICC-Fort Drum director, was a contracting officer at the time tasked with finding a solution. His approach: start with simple actions before moving on to complex issues.
"At the time we had a Standard Procurement System report that showed well over 10,000 actions. After carefully reviewing the report, the actual number was reduced to around 5,200 actions," he said.
He began by refining the report to eliminate modifications that close automatically with the contract and blanket purchase agreements that have no closeout function in the Standard Procurement System.
"Based on the previous experience, I realized the task of closing out these contracts needed focus and a game plan," Honey said. "The bottom line game plan was to target the easy, clean closeouts first, and then work to resolve those with issues."
Honey and former MICC Contracting Specialist Rebecca Ruff pulled payment data by fiscal year and dug in. If they ran into an issue, the contract action was set aside. This approach allowed the two to accomplish the vast majority of contract closeout actions.
"After we picked the low hanging fruit in large numbers, reducing the backlog from 5,000-plus to just hundreds, we deployed other contract specialists and administrators to assist in cleaning up contracts with issues of delivery, payment and vendor failure to invoice," Honey said.
The combined efforts allowed the February 2009 backlog of more than 5,200 closeout actions to shrink dramatically. By February 2010 that number was 150, and a year later was whittled down to a mere 37 actions. After holding steady at zero overaged contracts over five weeks from December 2012 to January 2013, the office now has a little more than a dozen new actions to close out.
"The goal of zero overaged closeouts is obtainable, but nearly impossible to maintain all the time because of the many forces that work against you when executing closeouts based on the target closeout times established in the FAR," Honey said.
Federal requirements
The Federal Acquisition Regulation governs the timelines for closing out contracts. For most simplified acquisitions, contracts are considered closed after receipt of property and final payment. Fixed-priced contracts should be closed within six months after completion, and cost-type contracts should be closed within 36 months of the month in which the contracting officer receives evidence of physical completion.
Cyp LaPorte, the plans and programs division chief for MICC Strategic Operations, explained that funding provided to the Army is closed out on a five-year cycle, thus all fiscal 2008 funding must be closed out by the Defense Finance and Accounting Service prior to the end of this fiscal year.
"When contract services or supplies have been completed, the action of closing out a contract allows for the deobligation of any excess funding back to the obligation organization," LaPorte said. "This allows the use of any excess funding to fill funding shortfalls generated utilizing the same fiscal year and type of funding."
The timely deobligation of millions of dollars in funding becomes even more critical in today's environment of budget uncertainty for the armed forces. Should customers not have access to any surplus funding for previous fiscal year requirements, it must use current fiscal year funding to pay any obligations.
"There are many side benefits in having closeouts under control," Honey insisted. "Two of them are a low level of unliquidated obligations and workload management."
He explained that while many contracting offices had to divert manpower last year to cleaning up fiscal 2007 unliquidated obligations, his office had no closeout actions for 2007 through 2010 and only a few for fiscal 2011.
"You can better manage and balance your contract administration workload because your active contract workload data is much more accurate," Honey said.
Changing the culture
A closer look at what brought on this lapse of contract administration sheds light on a variety of sources. Beginning with the five-year funding cycle, LaPorte believes an understaffed workforce has contributed to contract management setting aside closeout tasks to concentrate efforts on current and future customer contract needs, creating a culture in which the backlog accelerated at an unprecedented pace.
"Contracts eligible for closeout have been accruing at an excessive rate over the last several years," LaPorte said, "because contracting offices have been focused on the criticality of pre-award contracting requirements while dealing with an increased operations tempo, hiring freezes and training needs of an inexperienced workforce."
LaPorte points to an increased workload level for pre-award contract actions that forced contracting offices to reduce the level of support to contract administration.
"As a result, the timeliness of contracts ready for closeout does not become critical in most instances until the fifth year from the year funding was provided," he said. "This allows the majority of the completed contracting actions to accrue for a five-year period."
Moving forward
Contract action closeout is one of the MICC commanding general's priorities in fiscal 2013 as the command postures for auditibility in 2014. But the emphasis on contract administration and oversight dates to 2007 with the creation of the Gansler Commission by the Secretary of the Army to assess the rapid expansion of contracting. Among its recommendations was the addition of 1,400 personnel to the service's contracting workforce.
"The Gansler Commission Report recognized the inadequate personnel resources on staff to properly perform contracting administration," LaPorte said. "Consequently, the Army approved a concept plan to hire additional personnel to perform contract administration and began a phased hiring of personnel beginning in fiscal 2012 and continuing through fiscal 2014."
The command is making progress in tackling the closeout of thousands of overaged contracts.
As of Feb. 1, 2013, MICC contracting offices had in excess of 105,000 closeout-eligible actions of which 95,000 are overaged," according to Derek Dansby, a procurement analyst with the MICC Knowledge Management Branch.
"Many offices are making great progress as we had increased the average monthly closeouts from 2,400 a month in fiscal 2012 to 4,800 a month in fiscal 2013," Dansby said. "Our greatest month was January 2013 as the command closed in excess of 6,500 contracts."
He added that some contracting offices are ahead of others in the push to close out their overaged contract actions, but that it will take a concerted effort by all for the command to outpace gains of between 2,000 to 3,000 additional actions a month.
To meet this challenge, Honey firmly believes contract closeout has to be instilled as a routine part of contract administration.
"It takes time but can be achieved," the Fort Drum contracting director said. "Closing out the contract is the primary mission of every contract administrator, and the act of obtaining delivery and performance, ensuring quality and contractor payment is the path you take to be able to execute the closeout."
The MICC is responsible for providing contracting support for the warfighter throughout Army commands, installations and activities located throughout the continental United States and Puerto Rico. In fiscal 2012, the command executed more than 58,000 contract actions worth more than $6.3 billion across the Army, including more than $2.6 billion to small businesses. The command also managed more than 1.2 million Government Purchase Card Program transactions valued at an additional $1.3 billion.
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