49.603-1 Fixed price contracts-complete termination
Source: FAR 49.603-1 on acquisition.gov
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.
[Insert the following in Block 14 of https://www.gsa.gov/forms-library/amendment-solicitationmodification-contract" target="_blank">SF 30 for settlements of fixed-price contracts completely terminated.]
(a) This supplemental agreement settles the settlement proposal resulting from the Notice of Termination dated ___________.
(b) The parties agree to the following:
(1) The Contractor certifies that all contract termination inventory (including scrap) has been retained or acquired by the contractor, sold to third parties, returned to suppliers, delivered to or stored for the Government, or otherwise properly accounted for, and that all proceeds and retention credits have been used in arriving at this agreement.
(2) The Contractor certifies that each immediate subcontractor, whose settlement proposal is included in the proposal settled by this agreement, has furnished the contractor a certificate stating-
(i) That all subcontract termination inventory (including scrap) has been retained or acquired by the subcontractor, sold to third parties, returned to suppliers, delivered to or stored for the government, or otherwise properly accounted for, and that all proceeds and retention credits were used in arriving at the settlement of the subcontract, and
(ii) That the subcontractor has received a similar certificate from each immediate subcontractor whose proposal was included in its proposal.
(3) The contractor certifies that all items of termination inventory, the costs of which were used in arriving at the amount of this settlement or the settlement of any subcontract settlement proposal included in this settlement, (i) are properly allocable to the terminated portion of the contract, (ii)do not exceed the reasonable quantitative requirements of the terminated portion of the contract, and (iii)do not include any items reasonably usable without loss to the Contractor on its other work. The Contractor further certifies that the Contracting Officer has been informed of any substantial change in the status of the items between the dates of the termination inventory schedules and the date of this agreement.
(4) The Contractor transfers, conveys, and assigns to the Government all the right, title, and interest, if any, that the Contractor has received, or is entitled to receive, in and to subcontract termination inventory not otherwise properly accounted for.
(5) The Contractor shall, within 10 days after receipt of the payment specified in this agreement, pay to each of its immediate subcontractors (or their respective assignees) the amounts to which they are entitled, after deducting any prior payments and, if the Contractor so elects, any amounts due and payable to the Contractor by those subcontractors.
(6)(i) The Contractor has received $________ for work and services performed, or items delivered, under the completed portion of the contract. The Government confirms the right of the Contractor, subject to paragraph (7) of this section, to retain this sum and agrees that it constitutes a portion of the total amount to which the Contractor is entitled in complete and final settlement of the contract.
(ii) Further, the Government agrees to pay to the Contractor or its assignee, upon presentation of a proper invoice or voucher, the sum of $________ [insert net amount of settlement], arrived at by deducting from the sum of $________ [for proposals on an inventory basis insert gross amount of settlement; for proposals on a total cost basis, insert gross amount of settlement less amount shown in subdivision(6)(i) of this sub-section]-
(A) The amount of $________ for all unliquidated partial or progress payments previously made to the Contractor or its assignee and all unliquidated advance payments (with any interest),
(B) The amount of $_______ for all applicable property disposal credits [insert if appropriate, "and (C) the amount of $____ for all other amounts due the Government under this contract, except as provided in paragraph (7) of this section."]
(iii) The net settlement of $____ in subdivision(ii)of this section, together with sums previously paid, constitutes payment in full and complete settlement of the amount due the Contractor for the complete termination of the contract and all other demands and liabilities of the Contractor and the Government under the contract, except as provided in paragraph (b)(7) of this section.
(7) Regardless of any other provision of this agreement, the following rights and liabilities of the parties under the contract are reserved: [The following list of reserved or excepted rights and liabilities is intended to cover those that should most frequently be reserved and that should be scrutinized at the time a settlement agreement is negotiated (see 49.109-2). The suggested language of the excepted items on the list may be varied at the discretion of the contracting officer. If accuracy or completeness can be achieved by referencing the number of a contract clause or provision covering the matter in question, then follow that method of enumerating reserved rights and liabilities. Omit any of the following that are not applicable and add any additional exceptions or reservations required.]
(i) All rights and liabilities, if any, of the parties, as to matters covered by any renegotiation authority.
(ii) All rights of the Government to take the benefit of agreements or judgments affecting royalties paid or payable in connection with the performance of the contract.
(iii) All rights and liabilities, if any, of the parties under those clauses inserted in the contract because of the requirements of Acts of Congress and Executive orders, including, without limitation, any applicable clauses relating to: labor law, contingent fees, domestic articles, and employment of aliens. [If the contract contains clauses of this character inserted for reasons other than requirements of Acts of Congress or Executive orders, the suggested language should be appropriately modified.]
(iv) All rights and liabilities of the parties arising under the contract and relating to reproduction rights, patent infringements, inventions, or applications for patents, including rights to assignments, invention reports, licenses, covenants of indemnity against patent risks, and bonds for patent indemnity obligations, together with all rights and liabilities under the bonds.
(v) All rights and liabilities of the parties, arising under the contract or otherwise, and concerning defects, guarantees, or warranties relating to any articles or component parts furnished to the Government by the Contractor under the contract or this agreement.
(vi) All rights and liabilities of the parties under the contract relating to any contract termination inventory stored for the Government.
(vii) All rights and liabilities of the parties under agreements relating to the future care and disposition by the Contractor of Government-owned property remaining in the Contractor’s custody.
(viii) All rights and liabilities of the parties relating to Government property furnished to the Contractor for the performance of this contract.
(ix) All rights and liabilities of the parties under the contract relating to options (except options to continue or increase the work under the contract), covenants not to compete, and covenants of indemnity.
(x) All rights and liabilities, if any, of the parties under those clauses of the contract relating to price reductions for defective certified cost or pricing data.
(End of agreement)