Overview
FAR 49.204 mandates that the Termination Contracting Officer (TCO) subtract specific costs and values from a contractor's final settlement amount to ensure the Government only pays for the net loss incurred.
Key Rules
- Retained Inventory: The TCO must deduct the agreed-upon price for any termination inventory the contractor decides to keep or purchase for its own use.
- Sale Proceeds: Any funds received by the contractor from selling materials to third parties that have not yet been credited to the Government must be deducted.
- Lost or Damaged Goods: The fair value of inventory that is lost or damaged beyond use before the Government takes title must be deducted, except in cases of normal spoilage or where the Government expressly assumed the risk of loss.
- Discretionary Credits: The TCO has the authority to deduct any other amounts deemed appropriate based on the specific circumstances of the termination case.
Practical Implications
- Contractors must maintain rigorous property control and disposal records, as any unaccounted-for or damaged inventory will directly reduce their final settlement payout.
- This section prevents "double recovery" by ensuring contractors do not receive both the cost reimbursement for producing an item and the value of retaining or selling that same item.