Procurement – Contract Closure
This process consists of finishing all the loose ends of the contract. Be prepared for up to six questions about this topic. Contract closure is part of the close project process described in Integration. Make sure you reread that part of the Integration chapter as you read this section.
Contract closure is done:
- When a contract ends
- When a contract is terminated before the work is completed
All contracts must be closed out no matter the circumstances under which they stop, are terminated or completed. Closure provides value to the performing organization and the customer and should not be eliminated under any circumstances. You will see situational questions on the exam asking if the project is closed. The exam also asks for the difference between administrative closure and contract closure.
Depending on what choices the exam gives you, the answer could be:
- Contract closure occurs first. All contracts must be closed out before the project is closed out. Therefore, at the end of the contract, the project manager performs a procurement audit for each contract, administratively closes out the contract, and then administratively closes out the project when the whole project is completed.
- Administrative closure may be done at the end of each project phase and at the end of the project as a whole. Contract closure is done only once, at the end of the contract.
- Administrative closure uses the term “lessons learned” and contract closure uses the term “procurement audit.”
Contract closure requires more recordkeeping and must be done more formally than is generally required for administrative closure, in order to make sure to protect the legal interests of both parties. Remember these for the exam!
Exercise Describe what work must be done during contract closure.
Answer Such closure will include:
- Product Verification Checking to see if all the work was completed correctly and satisfactorily. Was the product of the contract the same as what was requested? Did the product of the contract meet the needs of the customer?
- Financial Closure Making final payments and completing cost records.
- Update Records in the Records Management System
- Final Contract Performance Reporting Analyzing and documenting the success and effectiveness of the contract.
- Contract File (Project archives in administrative closure) Putting records of the contract into an organized file. This file will be stored for use as historical records and help protect the project in case of arguments or legal action regarding what was done and not done on the contract.
The file should include
- Changes (approved and rejected)
- Submittals from the seller
- Seller performance reports
- Financial information
- Inspection results
- Lessons learned
- Procurement Audit A structured review of the procurement process. Do not think of this as an audit of costs, rather think of it as a lessons learned of the procurement process that can help improve other procurements. The seller may be involved in procurement audits and/or lessons learned activities.
- Lessons Learned Lessons learned are created with the seller relating to the contract work and become part of the lessons learned for the project.
- Other There could also be additional activities in contract closure such as:
- Arranging for storage of contract records and drawings
- Creating and delivering legal documents such as release of lien documents and formal acceptance letters
- Return of property used on the contract to its owner
- Formal Acceptance and Closure Once closure is completed and formal sign-off that the products of the contract are acceptable is received from the buyer, the contract is closed. Expect many questions on the exam that provide you with situations and require you to determine if the contract is closed. In gaining formal acceptance the seller is also working to measure customer satisfaction. Often a formal customer satisfaction survey may be included in contract closure.
The contract should have provisions for stopping work before completion. Termination can be for cause or for convenience. The buyer may terminate a contract for cause if the seller breaches the contract (e.g., does not perform). The buyer can also terminate the contract because they no longer want the work done (termination for convenience). It is rare to allow the seller to terminate a contract, but it could be appropriate on some projects.
Termination automatically puts the project into the closing process group.
The Procurement Process Exercise
Now that you know so much about procurement, test your knowledge by completing the following chart. Notice the word “ACTIONS.” You need to know for the exam, among other things, what needs to be done during each step and what are the outputs.
Exercise 1 Re-create the procurement management process, including the outputs, on the form below. Check your answers to the contents of this lesson when you are done. Even with one reading of this course, you should get most of the actions and outputs correct. The second and third times you read the lesson, you should be almost 100 percent accurate. This exercise is about remembering key parts of procurement management, not memorization. Create the chart three times and you should know it well enough for the exam.
Here is a trick for understanding the process without memorizing the whole thing—know only the outputs! If a question describes some activity and that activity is after the proposal is created and before the contract is signed, then it must be taking place as part of select sellers. If is taking place after the contract is signed, but before the work is substantially done, it must be occurring during contract administration.
Exercise 2 Here is another exercise. You must understand the project manager’s role in contracts in order to pass the exam. After reading this lesson, how would you describe the project manager’s role?
- Know the procurement process
- Understand contract terms and conditions
- Make sure the contract contains all the project management requirements such as attendance at meetings, reports, actions and communications deemed necessary
- Identify risks and incorporate mitigation and allocation of risks into the contract
- Help tailor the contract to the unique needs of the project
- Fit the schedule for completion of the procurement process into the schedule for the project
- Be involved during contract negotiation to protect the relationship with the seller
- Protect the integrity of the project and the ability to get the work done
- Uphold the entire contract, not just the contract statement of work
- Work with the contract manager to manage changes to the contract