Overview
FAR 49.201 establishes the guiding principles for settling fixed-price contracts terminated for the government's convenience, emphasizing the delivery of fair compensation to the contractor through negotiation and the application of business judgment.
Key Rules
- Fair Compensation: The settlement must fairly compensate the contractor for work performed and preparations made, including a reasonable allowance for profit.
- Judgment over Accounting: While accounting data serves as a guide, "business judgment" is prioritized over strict adherence to accounting principles to determine fair value.
- Negotiated Settlements: The primary goal is to reach a settlement by mutual agreement; parties may agree on a total "bottom-line" amount without breaking down individual cost elements or profit.
- Flexibility in Evidence: Costs may be estimated, and differences can be compromised using various types of data or standards beyond formal accounting records.
- Efficiency: The regulation mandates that recordkeeping and reporting requirements be kept to the minimum necessary to protect the public interest.
Practical Implications
- Contracting Officers and contractors have significant latitude to settle claims based on "fairness" rather than getting stalled by rigid audit disputes over specific line items.
- Contractors can effectively use estimates and non-traditional data to justify their settlement proposals, provided the result represents a reasonable "bottom-line" agreement for the work completed.