Termination of cost-reimbursement contracts for default
A 10-day notice is required before terminating a cost-reimbursement contract for default, and settlement rules differ from convenience terminations regarding allowable costs and fee reductions.
Overview
FAR 49.403 outlines the procedures and requirements for terminating cost-reimbursement contracts for default. It references the Termination for Default or for Convenience of the Government clause (52.249-6), which mandates a 10-day advance notice to the contractor before termination. The settlement process for such terminations follows the same principles as terminations for convenience (per subparts 49.1 and 49.3), with two key exceptions: costs for preparing the contractor’s settlement proposal are not allowable, and the contractor is only reimbursed for allowable costs with a potential reduction in the total fee. The contracting officer should use the procedures in 49.402 as appropriate, but cost-reimbursement contracts do not allow for recovery of excess repurchase costs after default termination, except in cases involving defective supplies as specified in 52.246-3.
Key Rules
- 10-Day Notice Requirement
- Contractors must receive a 10-day notice before termination for default.
- Settlement Principles
- Settlement follows the same rules as convenience terminations, except proposal preparation costs are unallowable and fee reductions may apply.
- No Excess Repurchase Cost Recovery
- Cost-reimbursement contracts do not allow the government to recover excess repurchase costs after default, except for defective supplies.
Responsibilities
- Contracting Officers: Must provide 10-day notice, follow appropriate settlement and termination procedures, and ensure compliance with allowable cost and fee reduction rules.
- Contractors: Must comply with notice requirements, submit settlement proposals (excluding preparation costs), and accept allowable cost reimbursement and fee reductions.
- Agencies: Oversee proper application of termination procedures and ensure settlements adhere to FAR requirements.
Practical Implications
This section ensures fairness and clarity in terminating cost-reimbursement contracts for default, protecting both government and contractor interests. Contractors should be aware of the unallowable costs and potential fee reductions, and contracting officers must strictly follow notice and settlement procedures to avoid disputes or improper settlements.