49.406
Liquidation of liability
Retained and unpaid progress payments are used first to cover contractor and surety liability after a default termination, with further recovery actions if those funds are insufficient.
Overview
FAR 49.406 addresses the process for liquidating the liability of a contractor and their surety to the Government following a contract termination for default. When a contract is terminated for default, both the contractor and the surety are responsible for any damages incurred by the Government. The contracting officer is required to use all retained percentages from previous progress payments, as well as any progress payments due for completed work, to offset the contractor’s and surety’s liability. If these funds are not sufficient to cover the damages, the contracting officer must pursue additional recovery from the contractor and the surety.
Key Rules
- Liability for Damages
- Both the contractor and surety are liable for damages resulting from contract termination for default.
- Use of Retained and Unpaid Progress Payments
- The contracting officer must use all retained and unpaid progress payments to liquidate the liability.
- Recovery of Additional Sums
- If retained and unpaid amounts are insufficient, the contracting officer must take further action to recover the remaining liability from the contractor and surety.
Responsibilities
- Contracting Officers: Must apply retained and unpaid progress payments to cover damages, and pursue further recovery if necessary.
- Contractors: Are liable for damages and must be prepared for the liquidation of retained and unpaid funds.
- Sureties: Share liability with the contractor and may be pursued for additional recovery.
Practical Implications
- This section ensures the Government can recover damages efficiently after a default termination.
- Contractors and sureties should be aware that retained and unpaid progress payments will be used to offset liabilities.
- Failure to cover damages with retained funds can lead to further legal or financial actions against the contractor and surety.