49.606 Granting subcontract settlement authorization
Source: FAR 49.606 on acquisition.gov
FAR 49.606 enables contractors to settle terminated subcontracts without further government approval, but only within strict limits and oversight to protect government interests.
Overview
FAR 49.606 provides the required format and conditions for contracting officers to grant subcontract settlement authorization to prime contractors when a government contract is terminated or modified. This authorization allows the contractor to settle terminated subcontracts and purchase orders without further government approval, subject to specific limitations and conditions outlined in the regulation. The section details the scope of the authorization, monetary limits, procedures for disposing of termination inventory, and requirements for consolidating settlements. It also addresses restrictions on settlements with affiliated subcontractors and outlines the government's right to review and revoke the authorization if the contractor fails to protect government interests.
Key Rules
- Authorization Format and Scope
- Contracting officers must use the prescribed letter format and specify limits and conditions for settlement authority.
- Monetary Limits
- Settlements must not exceed the specified dollar limit per subcontractor, and proposals should be consolidated where possible.
- Inventory Disposition
- Disposition of government-furnished material or completed articles requires government approval unless under the specified limit.
- Affiliated Subcontractors
- Authorization does not apply to settlements with affiliated subcontractors.
- Government Oversight
- The government may review settlement methods and revoke authorization if interests are not protected.
Responsibilities
- Contracting Officers: Issue authorization letters, set limits, provide instructions, and review settlements.
- Contractors: Settle subcontracts within limits, consolidate proposals, comply with inventory disposition rules, and avoid settlements with affiliates.
- Agencies: Oversee contractor compliance and revoke authorization if necessary.
Practical Implications
- This section streamlines the subcontract settlement process after contract termination, reducing administrative burden but imposing strict compliance requirements. Contractors must carefully track settlement amounts, avoid prohibited transactions, and maintain documentation for potential government review. Failure to comply can result in revocation of settlement authority.
Contracting officers shall use the following format when granting subcontract settlement authorization:
Letter of Authorization
(a) Your request of ____ (date) is approved, and you are authorized, subject to the limitations of subsection 49.108-4 and those stated below, to settle, without further approval of the Government, all subcontracts and purchase orders terminated by you as a result of a Government contract being terminated or modified-
(1) For the convenience of the Government or
(2) Under any other circumstances that may require the Government to bear the cost of their settlement.
(b) This authorization does not extend to the disposition of Government-furnished material or articles completed but undelivered under the subcontract or purchase order, as these require screening and approval of disposal actions by the Government, except that allocable completed articles may be disposed of without Government approval or screening if the total amount (at subcontract price) when added to the amount of settlement (as computed below) does not exceed $_____ [insert limit of authorization being granted].
(c) This authorization is subject to the following conditions and requirements:
(1) The amount of the subcontract termination settlement does not exceed $____ [insert limit of authorization being granted], computed as follows:
(i) Do not deduct advance or partial payments or credits for retention or other disposal of termination inventory allocated to the settlement proposal.
(ii) Deduct amounts payable for completed articles or work at the contract price or for the settlement of termination proposals of subcontractors (except those settlements that have not been approved by the Government).
(2) Any termination inventory involved has been disposed of under subsection 49.108-4, except that screening and Government approval of scrap and salvage determinations are not required.
(3) The Contracting Officer may incorporate into each Notice of Termination specific instructions about the disposition of specific items of termination inventory, or the Contracting Officer may, at any time before final settlement, issue specific instructions. These instructions will not affect any disposal action taken by you or your subcontractors before their receipt.
(4) The settlements made by you with your subcontractors and suppliers under this authorization, including sales, retention, or other dispositions of property involved in making these settlements, are reimbursable under part 49 and the Termination clause of the contract, and do not require approval of the Contracting Officer.
(5) Any number of separate settlements of $_____ [insert limit of authorization granted] or less may be made with a single subcontractor. Settlement proposals that would normally be included in a single proposal; e.g., those based on a series of separate orders for the same item under one contract, should be consolidated whenever possible and shall not be divided to bring them within the authorization.
(6) This authorization does not apply if a subcontractor or supplier is affiliated with you. For this purpose, you should consider a contractor to be affiliated with you if you are under common control or if there is any common interest between you by reason of stock ownership, or otherwise, that is sufficient to create a reasonable doubt that the bargaining between you is completely at arm’s length.
(7) A representative of this office will, from time to time, review the methods used in negotiating settlements with your subcontractors and will make a selective examination of the settlements made by you. If the review indicates that you are not adequately protecting the Government’s interest, this delegation will be revoked.
(End of letter)