49.206-2
Bases for settlement proposals
Contractors must use the inventory basis for settlement proposals after contract termination unless the total cost basis is approved, ensuring all costs and deductions are properly itemized and justified.
Overview
FAR 49.206-2 outlines the acceptable bases for contractors to use when preparing settlement proposals following the termination of a government contract. The regulation establishes the inventory basis as the preferred method, requiring detailed itemization of costs directly allocable to the terminated portion of the contract. It also provides for the use of the total cost basis under specific circumstances, such as when inventory accounting is impractical or would cause undue delay, and details the requirements for each method. The section further stipulates that any other basis for settlement proposals requires prior approval from the chief of the contracting or contract administration office.
Key Rules
- Inventory Basis (Preferred Method)
- Contractors must itemize costs such as materials, work in process, administrative costs, subcontractor settlements, and other proper charges. Profit or loss adjustments and deductions for payments and credits are required.
- Total Cost Basis (Alternative Method)
- Used when inventory basis is impractical, with prior TCO approval. Contractors must itemize all incurred costs, settlements, and expenses, and deduct delivered items, payments, and credits. Special rules apply for construction and lump-sum professional services contracts.
- Other Bases
- Any other basis for settlement proposals requires prior approval from the chief of the contracting or contract administration office.
Responsibilities
- Contracting Officers: Approve use of total cost or other bases, ensure compliance with itemization and deduction requirements.
- Contractors: Prepare settlement proposals using the correct basis, itemize costs, apply required deductions, and obtain necessary approvals for alternative methods.
- Agencies: Oversee and review settlement proposals for compliance with FAR requirements.
Practical Implications
- This section ensures consistency and transparency in settlement proposals after contract termination, reducing disputes and facilitating timely settlements. Contractors must carefully document and justify all costs and deductions, and failure to follow the prescribed bases or obtain necessary approvals can delay or jeopardize settlement payments.