FAR 49.105—Duties of termination contracting officer after issuance of notice of termination.
Plain-English Summary
FAR 49.105 explains what the termination contracting officer (TCO) must do after a notice of termination has been issued, and how the TCO should manage the settlement process from start to finish. It covers the TCO’s core duties to direct the prime contractor’s required actions, review the contractor’s settlement proposal and any relevant subcontractor proposals, negotiate and document a settlement agreement, and issue a determination for any items that cannot be resolved by negotiation. It also addresses the TCO’s authority to bring in specially qualified personnel to help with legal, accounting, inventory, and disposition issues, including verification and screening of termination inventory under FAR part 45. The section further requires the TCO to promptly hold a settlement conference with the contractor, and when appropriate, invite principal subcontractors, to establish a definite settlement program and document key topics such as the scope of termination, subcontract termination, inventory protection, accounting practices, settlement proposal formats, interim financing, schedules, employee impact mitigation, and cost or pricing data obligations. In practice, this section is about organizing the post-termination process so the Government can settle fairly, efficiently, and with adequate documentation while minimizing delay, disputes, and avoidable costs.
Key Rules
TCO directs settlement actions
The TCO must direct the prime contractor’s required actions after termination, consistent with the termination clause and the notice of termination. This makes the TCO the central Government official responsible for controlling the settlement process.
Review prime and subcontractor proposals
The TCO must examine the prime contractor’s settlement proposal and, when appropriate, subcontractor settlement proposals. This ensures the Government evaluates the full cost and scope of termination-related claims before paying a settlement.
Negotiate or determine unresolved items
The TCO must promptly negotiate a settlement and enter into a settlement agreement when possible. If a complete agreement cannot be reached, the TCO must promptly settle the unresolved elements by determination.
Use qualified support personnel
To speed settlement, the TCO may request specially qualified personnel for legal, contractual, accounting, and termination inventory support. This authority helps the TCO handle technical issues that require specialized expertise.
Inventory support may include disposition tasks
Specially qualified personnel may verify termination inventory, determine allocability, assess serviceability, recommend screening and redistribution, and assist with other disposition actions. These tasks tie directly to the treatment of property under FAR subpart 45.6.
Prompt settlement conference required
The TCO should promptly hold a conference with the contractor to develop a definite settlement program. The conference is the main planning event for organizing submissions, responsibilities, and timelines.
Principal subcontractors may attend
When the TCO thinks it appropriate, and after consulting with the contractor, principal subcontractors should be invited to the conference. This helps coordinate subcontract termination issues and avoid inconsistent settlement handling.
Conference topics must be documented
The TCO should discuss and document a broad set of topics, including termination scope, work stoppage point, continuing work, subcontract termination obligations, inventory protection, accounting practices, SF 1439, settlement proposal format, accounting review, interim financing, schedules, employee impact mitigation, and cost or pricing data certification when required. Documentation creates a roadmap for settlement and reduces later disputes.
Responsibilities
Termination Contracting Officer (TCO)
Direct the contractor’s post-termination actions; review the prime contractor’s settlement proposal and relevant subcontractor proposals; negotiate a complete settlement when possible; issue determinations for unresolved elements; request specialized support personnel as needed; promptly convene and document a settlement conference; and manage the overall settlement schedule and process.
Prime Contractor
Follow the TCO’s directions after termination; prepare and submit a settlement proposal and required accounting and inventory information; terminate applicable subcontracts; protect, preserve, and dispose of termination inventory properly; participate in the settlement conference; and provide accurate, complete, and current cost or pricing data when certification is required.
Subcontractors
When their proposals are relevant, prepare termination settlement proposals and supporting information; cooperate in the settlement process; and participate in the conference if requested and appropriate.
Specially Qualified Personnel
Assist the TCO with legal, contractual, accounting, and inventory matters; verify inventory; assess allocability and serviceability; recommend screening, redistribution, and disposition actions; and help expedite settlement.
Contracting Agency / Government Support Staff
Provide or coordinate access to specialized personnel and support the TCO in resolving legal, accounting, property, and administrative issues associated with termination settlement.
Practical Implications
The settlement conference is not just a courtesy meeting; it is the main planning tool for the entire termination closeout process, so missing it or failing to document it can slow settlement and create disputes.
Contractors should expect to provide detailed accounting, inventory, subcontract, and schedule information early. Incomplete or inconsistent submissions often lead to delays, additional audits, or unilateral determinations by the TCO.
Subcontract termination issues can become a major source of delay if the prime contractor has not promptly notified subs and organized their claims. The TCO may want principal subcontractors involved early to keep the process aligned.
Inventory handling matters immediately after termination. Poor preservation, weak screening, or unsupported disposition decisions can reduce recoverable costs and create avoidable property issues under FAR part 45.
If the settlement amount plus the estimated cost to complete the continued portion of the contract exceeds the applicable threshold, the contractor may need to furnish current, accurate cost or pricing data and certify it. Contractors should identify this issue early to avoid compliance problems at the end of negotiations.
Official Regulatory Text
(a) Consistent with the termination clause and the notice of termination, the TCO shall- (1) Direct the action required of the prime contractor; (2) Examine the settlement proposal of the prime contractor and, when appropriate, the settlement proposals of sub-contractors; (3) Promptly negotiate settlement with the contractor and enter into a settlement agreement; and (4) Promptly settle the contractor’s settlement proposal by determination for the elements that cannot be agreed on, if unable to negotiate a complete settlement. (b) To expedite settlement, the TCO may request specially qualified personnel to- (1) Assist in dealings with the contractor; (2) Advise on legal and contractual matters; (3) Conduct accounting reviews and advise and assist on accounting matters; and (4) Perform the following functions regarding termination inventory (see subpart 45.6 ): (i) Verify its existence. (ii) Determine qualitative and quantitative allocability. (iii) Make recommendations concerning serviceability. (iv) Undertake necessary screening and redistribution. (v) Assist the contractor in accomplishing other disposition. (c) The TCO should promptly hold a conference with the contractor to develop a definite program for effecting the settlement. When appropriate in the judgment of the TCO, after consulting with the contractor, principal subcontractors should be requested to attend. Topics that should be discussed at the conference and documented include- (1) General principles relating to the settlement of any settlement proposal, including obligations of the contractor under the termination clause of the contract; (2) Extent of the termination, point at which work is stopped, and status of any plans, drawings, and information that would have been delivered had the contract been completed; (3) Status of any continuing work; (4) Obligation of the contractor to terminate subcontracts and general principles to be followed in settling subcontractor settlement proposals; (5) Names of subcontractors involved and the dates termination notices were issued to them; (6) Contractor personnel handling review and settlement of subcontractor settlement proposals and the methods being used; (7) Arrangements for transfer of title and delivery to the Government of any material required by the Government; (8) General principles and procedures to be followed in the protection, preservation, and disposition of the contractor’s and subcontractors’ termination inventories, including the preparation of termination inventory schedules; (9) Contractor accounting practices and preparation of SF 1439 (Schedule of Accounting Information ( 49.602-3 )); (10) Form in which to submit settlement proposals; (11) Accounting review of settlement proposals; (12) Any requirement for interim financing in the nature of partial payments; (13) Tentative time schedule for negotiation of the settlement, including submission by the contractor and subcontractors of settlement proposals, termination inventory schedules, and accounting information schedules (see 49.206-3 and 49.303-2 ); (14) Actions taken by the contractor to minimize impact upon employees affected adversely by the termination (see paragraph (g) of the letter notice in 49.601-2 ); and (15) Obligation of the contractor to furnish accurate, complete, and current cost or pricing data, and to certify to that effect in accordance with 15.403-4 (a)(1) when the amount of a termination settlement agreement, or a partial termination settlement agreement plus the estimate to complete the continued portion of the contract exceeds the threshold in 15.403-4 .