FAR 49.108-4—Authorization for subcontract settlements without approval or ratification.
Plain-English Summary
FAR 49.108-4 explains when a Termination Contracting Officer (TCO) may let a prime contractor settle terminated subcontracts without prior TCO approval or ratification. It covers the dollar threshold for this delegated authority, the conditions that must be met before authorization is granted, how the authority applies across Executive agency prime contracts and lower-tier subcontract settlements, and when a contracting officer may opt out by written notice. The section also addresses disposal of termination inventory and completed end items, including when property screening and TCO review are not required, and it ties those property actions to the settlement dollar limit. In addition, it requires periodic TCO oversight, selective review, and revocation of authority if procedures are inadequate, improper settlements occur, or the authority goes unused for two years. Finally, it prohibits splitting settlements to stay under the limit, allows increases in authority for a particular prime contract, excludes intra-corporate requisitions and orders, and points to the prescribed request and authorization formats. In practice, this section is about controlled delegation: it can speed up subcontract termination settlements, but only if the contractor has sound procedures, the TCO maintains oversight, and property disposal rules are followed.
Key Rules
Authority up to $100,000
A TCO may authorize a prime contractor, in writing and on request, to settle terminated subcontracts without approval or ratification when the settlement amount is $100,000 or less. The authority is discretionary, not automatic, and depends on the TCO’s satisfaction with the contractor’s procedures.
Procedures must be adequate
Before granting authority, the TCO must be satisfied that the contractor has adequate procedures for settling proposals, including retention, sale, or other disposal of termination inventory for immediate and lower-tier subcontractors. The TCO must seek advice from the appropriate audit agency and the cognizant plant clearance officer on audit administration and property disposal capability.
Property disposal limits apply
Termination inventory included in the settlement amount must be disposed of as directed by the prime contractor, and that disposition is exempt from TCO review under 49.108-3(c) and from screening under 45.602-3. Completed end items allocable to the terminated subcontract may also be disposed of without TCO review and screening if they do not require demilitarization and the total amount stays within the authorized limit.
Authority can flow through tiers
Unless a contracting officer opts out, the authorization applies to all Executive agency prime contracts terminated or modified by change orders. The TCO must accept settlements of terminated lower-tier subcontracts made by subcontractors who themselves have been granted prime-contractor settlement authority, but direct authorization to subcontractors is not allowed.
Prime contractor acting as subcontractor
A prime contractor that has authority to approve subcontractor settlements may also use that authority when it is itself a subcontractor on another contract. In that role, it must notify the purchaser, because the authority is being exercised in a subcontractor capacity rather than as prime contractor.
Written opt-out by contracting officer
The provisions do not apply to contracts under a contracting officer’s administration if that officer gives written notice to the prime contractor. If lower-tier subcontractor authority is involved, the notice must identify the affected subcontractor(s).
No splitting to evade limits
The contractor may make multiple separate settlements with one subcontractor, but it may not divide settlement proposals solely to fit under the authorization limit. Related proposals that would normally be combined, such as multiple orders for the same item under one contract, should be consolidated whenever possible.
Periodic review and revocation
A TCO granting authority must review settlements and procedures at least annually, using selective review, and must again consult the audit agency and plant clearance officer. The TCO must revoke the authorization by written notice if procedures are inadequate, improper settlements are being made, or the authority has not been used for two years.
Authority may be increased
On written request, the TCO may increase the authorization for a particular prime contract and may limit the increase to specific subcontracts or classes of subcontracts. This is a targeted expansion, not a blanket change to all work.
Corporate-entity exclusions
The authorization does not cover settlement of requisitions or orders placed with any unit within the contractor’s corporate entity. Internal corporate transactions are excluded from this delegated settlement authority.
Use prescribed formats
The section points to recommended request and authorization formats in FAR 49.605 and 49.606. Using the prescribed formats helps document the request, the scope of authority, and the TCO’s approval conditions.
Responsibilities
Termination Contracting Officer (TCO)
Decide whether to grant written authorization, confirm the contractor’s settlement and property procedures are adequate, obtain advice from the audit agency and plant clearance officer, define any limits or scope, conduct at least annual selective reviews, and revoke the authority by written notice when required.
Prime Contractor
Submit a written request for authority, maintain adequate settlement and property disposal procedures, conclude subcontract settlements within the authorized limit, avoid splitting proposals to evade the limit, consolidate related proposals when possible, follow any disposal direction for termination inventory, and notify the purchaser when exercising authority as a subcontractor.
Appropriate Audit Agency
Advise the TCO on the adequacy of the contractor’s audit administration, including personnel, before authority is granted and during periodic review.
Cognizant Plant Clearance Officer
Advise the TCO on the adequacy of the contractor’s property disposal procedures and personnel, including handling of termination inventory and related disposal matters.
Contracting Officer administering the contract
If the officer does not want the delegation to apply, provide written notice to the prime contractor; if lower-tier subcontractor authority is implicated, identify the affected subcontractor(s).
Subcontractor granted prime-contractor authority
If it has been granted authority as a prime contractor, it may settle its own terminated subcontracts within the limit, but it cannot receive direct authorization from the TCO as a subcontractor.
Practical Implications
This section can significantly speed up termination closeout by letting experienced contractors settle smaller subcontract terminations without waiting for TCO approval, but only when the contractor’s controls are strong enough to justify the delegation.
The biggest compliance risk is treating the $100,000 limit as a target to work around. Splitting one settlement into multiple pieces to stay under the cap is prohibited, and related proposals should be consolidated when possible.
Property handling is part of the settlement authority, not a separate afterthought. If termination inventory or completed end items are involved, the contractor must stay within the disposal conditions and watch for demilitarization issues and screening requirements.
TCOs should not grant or keep this authority on autopilot. Annual review, consultation with audit and plant clearance officials, and revocation for inactivity or poor performance are built into the rule.
Contractors acting in multiple roles need to track which hat they are wearing. A firm may have authority as a prime contractor and also as a subcontractor, but it must notify the purchaser when using the authority in the subcontractor role and must respect any written opt-out by the administering contracting officer.
Official Regulatory Text
(a) (1) The TCO may, upon written request, give written authorization to the prime contractor to conclude settlements of subcontracts terminated in whole or in part without approval or ratification when the amount of settlement (see 49.002 (d)) is $100,000 or less, if- (i) The TCO is satisfied with the adequacy of the procedures used by the contractor in settling settlement proposals, including proposals for retention, sale, or other disposal of termination inventory of the immediate and lower tier subcontractors (the TCO shall obtain the advice and recommendations of- (A) The appropriate audit agency relating to the adequacy of the contractor’s audit administration, including personnel, and (B) The cognizant plant clearance officer relating to the adequacy of the contractor’s procedures and personnel for the administration of property disposal matters); (ii) Any termination inventory included in determining the amount of the settlement will be disposed of as directed by the prime contractor, except that the disposition of the inventory shall not be subject to- (A) Review by the TCO under 49.108-3 (c); or (B) The screening requirements in 45.602-3 ; and (iii) A certificate similar to the certificate in the settlement proposal form in 49.602-1 (a) will accompany the settlement. (2) Except as provided in paragraph (a)(4) of this section, authority granted to a prime contractor under paragraph (a)(1) of this section by any TCO shall apply to all Executive agencies’ prime contracts that are terminated, or modified by change orders. (3) Except as provided in paragraph (a)(4) of this section, the TCO shall accept, as part of the prime contractor’s settlement proposal, settlements of terminated lower tier subcontracts concluded by any of the prime contractor’s immediate or lower tier subcontractors who have been granted authority as prime contractors to settle subcontracts; provided, that the settlement is within the limit of the authority. Authorization to settle proposals of lower tier subcontractors shall not be granted directly to subcontractors. However, a prime contractor authorized to approve subcontractor settlements may also exercise this authority in its capacity as a subcontractor, with respect to its terminated subcontracts and orders. When exercising this authority as a subcontractor, the contractor shall notify the purchaser. (4) The provisions of paragraphs (a)(1), (2), and (3) of this section shall not apply to contracts under the administration of any contracting officer if the contracting officer so notifies the prime contractor concerned. This notice shall (i) Be in writing, and (ii) If paragraph (a)(3) of this section is involved, specify any subcontractor affected. (b) Section 45.602 shall apply to disposal of completed end items allocable to the terminated subcontract. However, these items may be disposed of without review by the TCO under 49.108-3 and without screening under 45.602-3 , if the items do not require demilitarization and the total amount (at the subcontract price) when added to the amount of the settlement does not exceed the amount authorized under this subsection. (c) A TCO granting the authorization in paragraph (a)(1) of this section shall periodically (at least annually) make a selective review of settlements and settlement procedures to determine if the contractor is making adequate reviews and fair settlements, and whether the authorization should remain in effect. The TCO shall obtain the advice and recommendations of the appropriate audit agency and the cognizant plant clearance officer. When it is determined that the contractor’s procedures are not adequate, or that improper settlements are being made, or when the authority has not been used in the preceding 2 years, the TCO shall revoke the authorization by written notice to the contractor, effective on the date of receipt. (d) The contractor may make any number of separate settlements with a single subcontractor but shall not divide settlement proposals solely to bring them under an authorization limit. Separate settlement proposals that would normally be included in a single proposal, such as those based on a series of separate orders for the same item under one contract, shall be consolidated whenever possible. (e) Upon written request of the contractor, the TCO may increase an authorization granted under paragraph (a)(1) of this subsection to authorize the contractor to conclude settlements under a particular prime contract. The TCO may limit the increased authorization to specific subcontracts or classes of subcontracts. (f) Authorizations granted under this 49.108-4 shall not authorize the settlement of requisitions or orders placed with any unit within the contractor’s corporate entity. (g) Recommended formats for a request to settle subcontractor settlement proposals and the TCO’s letter of authorization to the contractor are in 49.605 and 49.606 , respectively.