49.207
Limitation on settlements
Settlement amounts for terminated fixed-price contracts cannot exceed the contract price minus payments already made or to be made, ensuring contractors do not receive more than the original contract value.
Overview
FAR 49.207 establishes a strict limitation on the total amount a contractor can receive in a settlement following the termination of a fixed-price contract for convenience. Specifically, the regulation states that the settlement amount, before deducting any credits (such as for disposal of property) and excluding settlement costs, cannot exceed the original contract price minus any payments already made or to be made under the contract. This ensures that contractors do not receive more than the agreed contract value, maintaining fiscal responsibility and compliance with federal procurement standards.
Key Rules
- Settlement Cap
- The total settlement amount must not exceed the contract price, less any payments already made or to be made.
- Exclusion of Credits and Settlement Costs
- The cap is calculated before deducting disposal or other credits and does not include settlement costs.
Responsibilities
- Contracting Officers: Must ensure that settlement agreements do not exceed the allowable cap and verify all calculations.
- Contractors: Must submit settlement proposals that comply with the cap and provide accurate records of payments received.
- Agencies: Must oversee and audit settlements to ensure compliance with this limitation.
Practical Implications
- This rule prevents overpayment to contractors in the event of contract termination for convenience.
- Contractors must carefully track all payments and credits to avoid exceeding the cap.
- Common pitfalls include miscalculating the cap or failing to account for all prior payments, which can delay settlement approval.