49.115 Settlement of terminated incentive contracts
Source: FAR 49.115 on acquisition.gov
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.
(a) Fixed-price incentive contracts. The TCO shall settle terminated fixed-price incentive (FPI) contracts under the provisions of paragraph (j) of the clause at 52.216-16, Incentive Price Revision-Firm Target, and 52.249-2, Termination for Convenience of the Government (Fixed-Price).
(1) Partial termination. Under a partially terminated contract, the TCO shall negotiate a settlement as provided in the termination clause of the contract, and paragraph (j) of the clause at 52.216-16, Incentive Price Revision-Firm Target, or paragraph (1) of the clause at 52.216-17, Incentive Price Revision-Successive Targets. The contracting officer shall apply the incentive price revision provisions to completed items accepted by the Government, including any for which the contractor may request reimbursement in the settlement proposal. The TCO shall reimburse the contractor at target price for completed articles included in the settlement proposal for which a final price has not been established. The TCO shall incorporate in the settlement agreement an appropriate reservation as to final price for these completed articles.
(2) Complete termination. If any items were delivered and accepted by the Government, the contracting officer shall establish prices under the incentive provisions of the contract. On the terminated portion of the contract, the provisions of the termination clause (see 52.249-2, Termination for Convenience of the Government (Fixed-Price)) shall govern and the provisions of the incentive clause shall not apply. The TCO responsible for the termination settlement will ensure, on the basis of evidence considered proper (including coordination with the contracting officer), that no portion of the costs considered in the negotiations under the incentive provisions are included in the termination settlement.
(b) Cost-plus-incentive-fee contracts. The TCO shall settle terminated cost-plus-incentive-fee contracts under the clause at 52.249-6, Termination (Cost-Reimbursement).
(1) Partial termination. Under a partial termination, the TCO shall limit the settlement to an adjustment of target fee as provided in paragraph (e) of the clause at 52.216-10, Incentive Fee. The settlement agreement shall include a reservation regarding any adjustment of target cost resulting from the partial termination. The contracting officer shall adjust the target cost, if required.
(2) Complete termination. The parties shall negotiate the settlement under the provisions of subpart 49.3 and the clause at 52.249-6, Termination (Cost Reimbursement). The fee shall be adjusted on the basis of the target fee, and the incentive provisions shall not be applied or considered.