49.115
Settlement of terminated incentive contracts
FAR 49.115 ensures that settlements for terminated incentive contracts are handled according to specific contract clauses, preventing double-counting of costs and clarifying the treatment of completed and terminated portions.
Overview
FAR 49.115 provides detailed procedures for settling terminated incentive contracts, specifically addressing both fixed-price incentive (FPI) and cost-plus-incentive-fee (CPIF) contracts. It outlines the responsibilities of the Termination Contracting Officer (TCO) and contracting officer in handling both partial and complete terminations, ensuring that settlements are consistent with the applicable contract clauses and incentive provisions. The section emphasizes the need to properly apply incentive price revision clauses to completed items, avoid double-counting costs, and make appropriate reservations in settlement agreements regarding final pricing or fee adjustments.
Key Rules
- Fixed-Price Incentive Contracts (FPI)
- Settlements must follow the relevant incentive price revision and termination clauses (52.216-16, 52.249-2).
- For partial terminations, settlements are negotiated per the contract's termination and incentive clauses, with completed items reimbursed at target price and reservations made for final pricing.
- For complete terminations, incentive provisions apply only to delivered and accepted items; the termination clause governs the rest, and costs must not be double-counted.
- Cost-Plus-Incentive-Fee Contracts (CPIF)
- Settlements are governed by the termination clause at 52.249-6.
- For partial terminations, only the target fee is adjusted, with reservations for any target cost adjustments.
- For complete terminations, settlements are negotiated per subpart 49.3 and the termination clause, with the fee based on the target fee and incentive provisions excluded.
Responsibilities
- Contracting Officers: Ensure correct application of incentive and termination clauses, coordinate with TCO, and adjust target costs/fees as required.
- Contractors: Submit settlement proposals, ensure costs are not double-counted, and comply with contract clause requirements.
- Agencies: Oversee proper settlement procedures and prevent improper cost inclusion.
Practical Implications
- This section ensures fair and consistent settlements for terminated incentive contracts, protecting both government and contractor interests.
- It clarifies how to handle completed items, partial vs. complete terminations, and prevents cost duplication.
- Common pitfalls include failing to reserve for final pricing, misapplying incentive provisions, or including costs in both incentive and termination settlements.