52.241-10
Termination Liability
FAR 52.241-10 ensures utility contractors are compensated for unrecovered facility costs if the government terminates service before the agreed recovery period ends.
Overview
FAR 52.241-10, Termination Liability, establishes the terms under which the government must compensate a utility contractor if the government discontinues utility service before the contractor has recovered the costs of new facilities installed for the contract. The clause outlines how to calculate termination charges based on the unrecovered portion of the contractor's capital investment, factoring in the negotiated cost recovery period, net facility cost, and monthly recovery rate. This ensures contractors are not left with unrecovered costs if the government ends the contract early.
Key Rules
- Facility Cost Recovery Period
- The contract must specify a negotiated period (in months) during which the contractor recovers the net cost of the new facility.
- Net Facility Cost
- The net facility cost is the cost of the new facility minus its agreed salvage value, and must be stated in the contract.
- Monthly Recovery Rate
- The monthly recovery rate is calculated by dividing the net facility cost by the recovery period and must be included in the contract.
- Termination Charges Calculation
- If the government terminates service early, termination charges are calculated by multiplying the remaining months in the recovery period by the monthly recovery rate.
- No Charge if Fully Recovered
- If the contractor has already recovered its capital costs at termination, no termination liability charge applies.
Responsibilities
- Contracting Officers: Must negotiate and insert the recovery period, net facility cost, and monthly recovery rate into the contract; ensure proper calculation of termination charges.
- Contractors: Must provide accurate facility cost and salvage value information; ensure calculations are correct and documented.
- Agencies: Must oversee compliance with the clause and ensure fair compensation if early termination occurs.
Practical Implications
- This clause protects contractors from financial loss due to early contract termination by the government.
- It requires careful negotiation and documentation of facility costs and recovery periods.
- Common pitfalls include incorrect calculations or failure to update contract values if costs change.