49.108-3 Settlement procedure
Source: FAR 49.108-3 on acquisition.gov
Prime contractors must settle subcontractor claims after termination in accordance with FAR policies, provide adequate documentation, and obtain TCO approval for all settlements.
Overview
FAR 49.108-3 outlines the procedures for settling subcontractor claims when a prime contract is terminated. It requires that settlements with subcontractors generally follow the same policies and principles as those for prime contracts, ensuring consistency and fairness. The section mandates that subcontractor settlement proposals must be acceptable to the prime contractor and supported by sufficient accounting data for government review. The Government will not reimburse the prime contractor for anticipatory profits or consequential damages from subcontract terminations. The Termination Contracting Officer (TCO) must ensure that all subcontractor termination inventory is properly disposed of and accounted for, and that all settlements are submitted for approval or ratification. The TCO is responsible for reviewing each settlement to confirm necessity, good faith, reasonableness, and proper allocation, and must notify the contractor of approval or disapproval in writing.
Key Rules
- Subcontractor Settlement Conformity
- Settlements must align with the policies for prime contracts and be acceptable to the next higher tier.
- Supporting Documentation
- Settlements must be backed by sufficient accounting data for government review.
- No Payment for Anticipatory Profits
- The government will not pay for lost profits or consequential damages from subcontract terminations.
- Inventory Disposal
- Subcontractor termination inventory must be handled per FAR 52.245-1(j).
- TCO Review and Approval
- All settlements must be submitted to the TCO for approval or ratification, who will review for necessity, good faith, reasonableness, and allocation.
Responsibilities
- Contracting Officers (TCOs): Review and approve/ratify subcontract settlements, ensure inventory is properly accounted for, and provide written notification of decisions.
- Contractors: Settle with subcontractors per FAR policies, provide adequate supporting data, dispose of inventory properly, and submit settlements for approval.
- Agencies: Oversee compliance and ensure settlements are reasonable and justified.
Practical Implications
- Ensures consistency and fairness in subcontractor settlements after contract termination.
- Requires thorough documentation and government oversight, reducing risk of improper payments.
- Common pitfalls include insufficient documentation, improper inventory handling, and seeking reimbursement for unallowable costs.
(a) Contractors shall settle with subcontractors in general conformity with the policies and principles relating to settlement of prime contracts in this subpart and subparts 49.2 or 49.3. However, the basis and form of the subcontractor’s settlement proposal must be acceptable to the prime contractor or the next higher tier subcontractor. Each settlement must be supported by accounting data and other information sufficient for adequate review by the Government. In no event will the Government pay the prime contractor any amount for loss of anticipatory profits or consequential damages resulting from the termination of any subcontract (but see 49.108-5).
(b) Except as provided in 49.108-4, the TCO shall require that-
(1) All subcontractor termination inventory be disposed of and accounted for in accordance with the procedures contained in paragraph (j) of the clause at 52.245-1, Government Property; and
(2) The prime contractor submit, for approval or ratification, all termination settlements with subcontractors.
(c) The TCO shall promptly examine each subcontract settlement received to determine that the subcontract termination was made necessary by the termination of the prime contract (or by issuance of a change order-see 49.002(b)). The TCO will also determine if the settlement was arrived at in good faith, is reasonable in amount, and is allocable to the terminated portion of the contract (or, if allocable only in part, that the proposed allocation is reasonable). In considering the reasonableness of any subcontract settlement, the TCO shall generally be guided by the provisions of this part relating to the settlement of prime contracts, and shall comply with any applicable requirements of 49.107 and 49.111 relating to accounting and other reviews. After the examination, the TCO shall notify the contractor in writing of-
(1) Approval or ratification, or
(2) The reasons for disapproval.