General
For partial terminations of cost-reimbursement contracts, settlements are generally limited to fee adjustments unless the terminated work is severable or nearly complete, in which case different procedures apply.
Overview
FAR 49.304-1 outlines the general procedures for handling settlements in the event of a partial termination of a cost-reimbursement contract. The Termination Contracting Officer (TCO) is responsible for limiting the settlement to an adjustment of the contractor's fee and, with the contracting office's concurrence, a reduction in the estimated cost. The fee adjustment should follow the guidance in FAR 49.304-2 and 49.305, unless the terminated portion is clearly severable from the rest of the contract or if contract performance is nearly complete or only minor work remains. In those exceptional cases, the procedures in FAR 49.302 and 49.303 are to be used instead. This section ensures that settlements for partial terminations are handled consistently and fairly, while providing exceptions for specific contract scenarios.
Key Rules
- Settlement Limitation
- For partial terminations, settlements are generally limited to fee adjustments and, if agreed, reductions in estimated cost.
- Fee Adjustment Procedures
- Fee adjustments must follow FAR 49.304-2 and 49.305 unless exceptions apply.
- Exceptions to Standard Procedure
- If the terminated portion is severable or performance is nearly complete/minor, use FAR 49.302 and 49.303 procedures instead.
Responsibilities
- Contracting Officers: Ensure settlements are limited as prescribed, obtain concurrence for cost reductions, and apply the correct procedures based on contract status.
- Contractors: Cooperate with settlement procedures and provide necessary documentation for fee adjustments.
- Agencies: Oversee compliance with FAR procedures and ensure fair settlements.
Practical Implications
- This section exists to standardize how partial terminations are settled, preventing overcompensation or undercompensation.
- It impacts daily contracting by clarifying when and how fee and cost adjustments should be made.
- Common pitfalls include misapplying the exceptions or failing to obtain required concurrence for cost reductions.