FAR 49.103—Methods of settlement.
Plain-English Summary
FAR 49.103 explains the basic methods the Government may use to settle termination claims for terminated cost-reimbursement contracts and fixed-price contracts terminated for convenience. It identifies four settlement approaches: negotiated agreement, determination by the Termination Contracting Officer (TCO), costing-out through vouchers using SF 1034 for cost-reimbursement contracts under subpart 49.3, or a combination of these methods. The section also establishes a strong preference for negotiated settlements, directing the TCO to seek a fair and prompt agreement with the contractor whenever possible. Only when the settlement proposal cannot be resolved by agreement may the TCO settle it by determination. In practice, this section matters because it sets the framework for how termination costs are resolved, how quickly the parties can close out the terminated work, and when the Government may unilaterally decide the amount due.
Key Rules
Four settlement methods
Termination settlements may be accomplished by negotiated agreement, TCO determination, costing-out under SF 1034 vouchers for cost-reimbursement contracts, or a combination of these methods. The method used depends on the contract type and the circumstances of the termination.
Negotiation is preferred
When possible, the TCO should negotiate a fair and prompt settlement with the contractor. The regulation favors agreement because it usually resolves the matter faster and with less dispute than a unilateral determination.
Determination is a fallback
The TCO may settle a settlement proposal by determination only when it cannot be settled by agreement. This means unilateral action is not the first choice and should be used only after negotiation fails.
Cost-reimbursement voucher method
For cost-reimbursement contracts, settlement may be effected by costing-out under vouchers using SF 1034, as prescribed in subpart 49.3. This method ties settlement to the applicable voucher-based procedures for allowable costs and termination-related charges.
Combination of methods allowed
The regulation permits using more than one method in the same settlement if appropriate. This gives the TCO flexibility to resolve different parts of the termination settlement in the most practical way.
Responsibilities
Termination Contracting Officer (TCO)
Choose an appropriate settlement method, attempt to negotiate a fair and prompt settlement whenever possible, use determination only when agreement cannot be reached, and apply the voucher-based method for cost-reimbursement contracts when required by subpart 49.3.
Contractor
Submit or support the settlement proposal, participate in negotiations, provide cost and supporting data needed for voucher-based settlement or determination, and work toward an agreed settlement when possible.
Agency
Provide the contracting structure and administrative support needed for termination settlement processing, including ensuring the TCO has the authority and procedures to use the applicable settlement method.
Practical Implications
This section pushes parties toward negotiated settlements first, so contractors should be prepared to document costs and support their proposal early to speed resolution.
If negotiation stalls, the TCO can issue a determination, so incomplete records or weak cost support can lead to a less favorable unilateral result.
For cost-reimbursement terminations, voucher procedures under SF 1034 may be part of the settlement process, so accounting and billing records must be organized and current.
The ability to use a combination of methods gives flexibility, but it also means different parts of the settlement may be resolved differently, which can create confusion if the parties do not track each component carefully.
A common pitfall is treating settlement as a purely legal dispute; in practice, it is also an accounting and documentation exercise that depends on timely, credible cost data.
Official Regulatory Text
Settlement of terminated cost-reimbursement contracts and fixed-price contracts terminated for convenience may be effected by (a) negotiated agreement, (b) determination by the TCO, (c) costing-out under vouchers using SF 1034 , Public Voucher for Purchases and Services Other Than Personal, for cost-reimbursement contracts (as prescribed in subpart 49.3 ), or (d) a combination of these methods. When possible, the TCO should negotiate a fair and prompt settlement with the contractor. The TCO shall settle a settlement proposal by determination only when it cannot be settled by agreement.