49.603-2
Fixed-price contracts-partial termination
FAR 49.603-2 mandates a detailed, certified settlement agreement for partial terminations of fixed-price contracts, ensuring proper inventory disposition, subcontractor compliance, and clear payment terms.
Overview
FAR 49.603-2 provides the required format and content for supplemental agreements used to settle fixed-price contracts that have been partially terminated for convenience. This section outlines the specific language and certifications that must be included in Block 14 of Standard Form 30 (SF 30) to ensure a clear, comprehensive, and legally compliant settlement between the government and the contractor. The agreement details the terminated portion of the contract, inventory disposition, subcontractor certifications, payment calculations, and the reservation of certain rights and liabilities.
Key Rules
- Specification of Terminated Portion
- The agreement must clearly identify the terminated portion of the contract, including line items, descriptions, quantities, unit prices, and total prices.
- Inventory and Subcontractor Certifications
- Contractors must certify proper disposition of termination inventory and obtain similar certifications from immediate subcontractors.
- Settlement Payment Calculation
- The agreement must specify the net settlement amount, accounting for prior payments and property disposal credits, and outline payment obligations to subcontractors.
- Transfer of Inventory Rights
- Contractors must transfer any rights to unaccounted-for termination inventory to the government.
- Reservation of Rights and Liabilities
- Certain rights and liabilities (e.g., patent rights, warranties, labor law compliance) are reserved and must be explicitly listed in the agreement.
Responsibilities
- Contracting Officers: Ensure the agreement includes all required elements, verify certifications, and scrutinize reserved rights and liabilities.
- Contractors: Provide accurate certifications, properly account for inventory, pay subcontractors, and comply with all settlement terms.
- Agencies: Oversee compliance, review settlement documentation, and ensure proper execution of the agreement.
Practical Implications
- This section ensures that partial terminations are settled transparently and equitably, protecting both government and contractor interests. Failure to follow these requirements can result in disputes, payment delays, or audit findings. Contractors must pay close attention to inventory accounting, subcontractor flow-downs, and the reservation of rights to avoid compliance pitfalls.