49.204
Deductions
TCOs must deduct the value of retained, sold, or lost inventory and other appropriate amounts from contractor settlements after a termination for convenience.
Overview
FAR 49.204 outlines the deductions that the Termination Contracting Officer (TCO) must make from the amount payable to a contractor during the settlement of a fixed-price contract terminated for convenience. The regulation ensures that the government does not pay for inventory or materials that the contractor retains, sells, or loses (except under specific circumstances). It also allows for other appropriate deductions as determined by the TCO, ensuring settlements are fair and prevent overpayment to contractors.
Key Rules
- Deduction for Retained or Sold Inventory
- The TCO must deduct the agreed price for any termination inventory the contractor keeps or sells, including proceeds from sales not yet credited to the government.
- Deduction for Lost or Damaged Inventory
- The TCO must deduct the fair value of any inventory lost or damaged (excluding normal spoilage or inventory where the government assumed risk) before title transfer.
- Other Appropriate Deductions
- The TCO may deduct any other amounts deemed appropriate for the specific case.
Responsibilities
- Contracting Officers: Must identify and deduct applicable amounts from settlements as specified.
- Contractors: Must accurately report inventory status, sales, and losses, and cooperate with TCO determinations.
- Agencies: Oversee proper application of deductions and ensure compliance with settlement procedures.
Practical Implications
- This section prevents contractors from being overcompensated for inventory or materials not delivered to the government.
- Accurate inventory tracking and reporting are essential for compliance.
- Disputes may arise over fair value assessments or what constitutes "normal spoilage."