FAR 49.106—Fraud or other criminal conduct.
Plain-English Summary
FAR 49.106 addresses what the Termination Contracting Officer (TCO) must do when fraud or other criminal conduct is suspected in connection with settling a terminated contract. Its purpose is to stop the normal settlement process from continuing in a situation that may involve false claims, falsified records, collusion, bribery, theft, or other unlawful conduct, and to ensure the matter is handled through the agency’s established reporting channels rather than through ordinary negotiation. In practice, this section means the TCO does not try to resolve or negotiate the settlement further once a credible suspicion arises; instead, the TCO must halt the discussion and elevate the issue under agency procedures. The section is narrow but important because termination settlements often involve cost data, inventory, subcontractor claims, and other sensitive information where misconduct can affect the government’s financial recovery and legal exposure. It protects the integrity of the termination process, preserves evidence, and helps ensure that potential criminal matters are referred promptly to the proper officials.
Key Rules
Stop negotiations immediately
If the TCO suspects fraud or other criminal conduct related to the settlement of a terminated contract, the TCO must discontinue settlement negotiations. The TCO should not continue bargaining, finalize a settlement, or take actions that could compromise the suspected matter.
Report under agency procedures
The TCO must report the facts in accordance with the agency’s internal procedures. This means the matter is handled through the agency’s fraud-reporting, legal, investigative, or security channels rather than by informal handling at the contracting level.
Suspicion is enough to trigger action
The rule is triggered by suspicion, not proof. The TCO does not need to establish fraud or criminal conduct before stopping negotiations; a reasonable concern based on the facts is sufficient to require discontinuance and reporting.
Applies to settlement of terminated contracts
This section applies specifically to fraud or criminal conduct connected to the settlement of a terminated contract. It is aimed at misconduct arising in the termination settlement process, not every possible issue under the contract.
Responsibilities
Termination Contracting Officer (TCO)
Monitor the settlement process for signs of fraud or other criminal conduct, stop negotiations immediately when suspicion arises, and report the facts through the agency’s required procedures.
Agency
Maintain and follow procedures for receiving, evaluating, and routing suspected fraud or criminal conduct reports, including coordination with legal, investigative, and other appropriate officials.
Contractor
Although not assigned a duty in this section, the contractor may be affected by the suspension of negotiations and may be subject to further inquiry or investigation if misconduct is suspected.
Practical Implications
A TCO should not try to ‘work through’ suspected misconduct during settlement talks; once suspicion arises, the proper move is to stop and report.
The rule helps preserve evidence and avoid contaminating a potential investigation, so records, communications, and supporting data should be protected.
Contractors should expect that unusual discrepancies, altered documents, or inconsistent cost claims can trigger a halt in negotiations and possible referral.
Agency procedures matter because the FAR does not prescribe the exact reporting chain; TCOs must know their agency’s fraud-reporting and legal referral process.
A common pitfall is treating suspicion as a minor contract administration issue instead of a potential criminal matter requiring immediate escalation.
Official Regulatory Text
If the TCO suspects fraud or other criminal conduct related to the settlement of a terminated contract, the TCO shall discontinue negotiations and report the facts under agency procedures.