Fixed price contracts-complete termination
FAR 49.603-1 mandates strict certification, inventory accountability, and prompt subcontractor payment in fixed-price contract terminations, ensuring a clear and final settlement while reserving key government rights.
Overview
FAR 49.603-1 provides the required language and structure for settlement agreements in the case of complete termination of fixed-price contracts. This section outlines the certifications, financial settlements, inventory handling, and reservation of rights that must be included in Block 14 of Standard Form 30 (SF 30) when finalizing a termination for convenience. The regulation ensures that all contract termination inventory is properly accounted for, subcontractor settlements are certified, and all financial obligations between the contractor and government are clearly resolved. It also specifies the reservation of certain rights and liabilities that survive the settlement, such as those related to patents, warranties, and government property.
Key Rules
- Inventory Certification and Disposition
- Contractors must certify that all termination inventory is properly accounted for and that proceeds and credits are included in the settlement.
- Subcontractor Certification
- Contractors must obtain and certify similar inventory and settlement certifications from immediate subcontractors and ensure the chain of certification down the subcontracting tiers.
- Allocability and Reasonableness of Costs
- Contractors must certify that inventory costs included in the settlement are allocable, reasonable, and not usable elsewhere without loss.
- Transfer of Inventory Rights
- Any rights to subcontractor inventory not otherwise accounted for are transferred to the government.
- Subcontractor Payments
- Contractors must pay immediate subcontractors their entitled amounts within 10 days of receiving settlement payment.
- Settlement Amounts and Finality
- The agreement specifies the amounts paid and confirms that, except for reserved rights, the settlement is final.
- Reservation of Rights
- Certain rights and liabilities (e.g., patents, warranties, government property) are expressly reserved and survive the settlement.
Responsibilities
- Contracting Officers: Ensure the proper completion of SF 30, verify certifications, and confirm all required reservations are included.
- Contractors: Certify inventory and costs, obtain and retain subcontractor certifications, pay subcontractors promptly, and transfer inventory rights as required.
- Agencies: Oversee compliance, review settlements, and enforce reserved rights and obligations post-settlement.
Practical Implications
- This section ensures transparency and accountability in the settlement of terminated fixed-price contracts, protecting both government and contractor interests. Failure to properly certify inventory or pay subcontractors can result in disputes or penalties. Contractors must maintain thorough records and clear communication with subcontractors to ensure compliance and avoid delays in final settlement.