Overview
This section outlines the procedures and factors used by a Termination Contracting Officer (TCO) to determine the adjusted fee payable to a contractor following the termination of a cost-reimbursement contract. It establishes that fee adjustments are primarily based on the percentage of completion, evaluating the actual work performed against the total work required.
Key Rules
- Percentage of Completion Basis: The fee is generally adjusted based on the extent and difficulty of work performed (e.g., planning, engineering, and supervision) relative to the total contract requirements.
- Cost Ratio Limitation: The ratio of costs incurred to total estimated costs is considered only one factor and is not the sole determinant of the completion percentage.
- Subcontractor Fee Exclusion: A prime contractor is prohibited from including a fee allowance for the subcontract effort that is already part of the subcontractors' own settlement proposals.
- Weighted Evaluation for Construction: For construction and professional services, the TCO must assign weighted values to specific categories of effort—such as mobilization, shop drawings, and job administration—to calculate a total completion percentage.
- Termination Work Inclusion: The TCO considers the work performed specifically to handle the termination itself, such as settling subcontracts and disposing of inventory, when determining the final fee.
Practical Implications
- Documentation is Critical: Contractors cannot rely solely on financial "burn rates" to justify their fee; they must provide evidence of qualitative progress and the technical difficulty of the work completed.
- Structured Negotiation: The weighted-factor approach for construction contracts provides a mathematical framework for negotiations, reducing subjectivity by breaking down "completion" into specific administrative and physical milestones.