Overview
This section establishes a mandatory ceiling on termination settlement payments to ensure that the total amount paid to a contractor does not exceed the original contract value.
Key Rules
- The Ceiling: The settlement amount cannot exceed the total contract price minus any payments already made or still due under the contract.
- Exclusion of Settlement Costs: The cost of preparing and negotiating the settlement (e.g., legal, accounting, and clerical expenses) is excluded from this specific limitation.
- Credit Adjustments: The limit is calculated before deducting disposal credits (money from selling surplus materials) or other applicable credits.
- Prevention of Windfalls: The rule ensures a contractor does not receive more money through a termination than they would have received by completing the contract.
Practical Implications
- Loss Contracts: If a contractor is performing at a loss, this regulation ensures the government does not "bail them out" by paying more than the original agreed-upon price during the termination process.
- Accounting Accuracy: Contractors must meticulously separate their settlement preparation costs from their performance costs, as the former are not subject to this specific price cap and can be recovered even if the performance costs hit the ceiling.