Overview
This section prescribes the administrative procedures for the partial termination of cost-reimbursement contracts, specifically focusing on the adjustment of the fixed fee and the reduction of the contract's estimated cost. It establishes a streamlined process where the settlement is generally limited to fee negotiation while the cost-reimbursement mechanism remains active for the continued portion of the work.
Key Rules
- Scope of Settlement: The Termination Contracting Officer (TCO) must limit the settlement to an adjustment of the fee and, with contracting office concurrence, a reduction in the estimated cost.
- Exceptions to Fee-Only Settlements: Standard termination procedures (49.302 and 49.303) apply instead if the terminated portion is clearly severable or if the remaining performance is deemed insubstantial (e.g., only spare parts or subsidiary items).
- Proposal Submission: The contractor must submit a settlement proposal for the fee reduction within one year of the effective date of termination, unless extended by the TCO.
- Certification and Substantiation: Proposals can be submitted via standard forms (49.602-1) or by certified letter, and the contractor is required to substantiate the amount of fee claimed based on the work performed.
- Continued Cost Reimbursement: For the non-terminated portion, the contractor continues to submit SF 1034 vouchers for cost reimbursement.
- Subcontractor Costs: Costs resulting from settlements with subcontractors are not reimbursable unless they have received the required government approvals or ratifications.
Practical Implications
- Administrative Efficiency: By focusing on fee adjustment rather than a complete cost audit of the entire contract, the government reduces the administrative burden associated with partial terminations.
- Strict Timelines: Contractors must be vigilant regarding the one-year submission deadline for fee proposals to ensure they do not forfeit their right to claim a portion of the fixed fee associated with the terminated work.