Overview
FAR 49.115 establishes specific procedures for settling terminated fixed-price and cost-reimbursement incentive contracts, detailing how to reconcile incentive price revision and fee provisions with standard termination clauses for both partial and complete terminations.
Key Rules
- Fixed-Price Incentive (FPI) Contracts:
- Partial Termination: The TCO applies incentive price revision provisions (FAR 52.216-16 or 52.216-17) to completed and accepted items. Completed items included in the settlement proposal are reimbursed at target price, with a "reservation" included in the settlement for final price adjustments.
- Complete Termination: Items already delivered and accepted are priced under the contract’s incentive provisions. The terminated portion is governed strictly by the standard Fixed-Price Termination clause (52.249-2), and incentive provisions do not apply to that portion.
- Anti-Duplication: The TCO must coordinate with the Contracting Officer to ensure costs settled under incentive provisions are not duplicated within the termination settlement.
- Cost-Plus-Incentive-Fee (CPIF) Contracts:
- Partial Termination: Settlement is limited to an adjustment of the target fee per FAR 52.216-10. The agreement must include a reservation regarding the adjustment of target costs, which the Contracting Officer handles separately.
- Complete Termination: The settlement follows standard cost-reimbursement termination procedures (Subpart 49.3). The fee is adjusted based on the target fee, and incentive sharing provisions are completely disregarded.
Practical Implications
- Bifurcation of Effort: TCOs and contractors must carefully segregate costs and efforts between completed deliverables (which retain incentive structures) and terminated work (where incentives are usually abandoned in favor of standard settlement formulas).
- Administrative Diligence: Because final prices for completed items are often established after the termination settlement, the mandatory use of "reservations" in settlement agreements is critical to protecting both the Government's and the contractor's rights to final price adjustments.