FAR 49.108-6—Delay in settling subcontractor settlement proposals.
Plain-English Summary
FAR 49.108-6 addresses what happens when a prime contractor cannot reach agreement with a subcontractor on a settlement proposal, and that delay is holding up settlement of the prime contract. The section gives the Termination Contracting Officer (TCO) authority to go ahead and settle with the prime contractor instead of waiting indefinitely for the subcontract issue to be resolved. It also requires the TCO to carve out, or except, the subcontractor settlement proposal from the prime settlement—either in whole or in part—so the subcontract matter remains open. The purpose is to prevent a subcontract dispute from blocking timely closeout of the terminated prime contract while preserving the Government’s and prime contractor’s rights regarding the unresolved subcontract claim. In practice, this section is about balancing speed in prime contract settlement with protection of downstream rights and avoiding premature waiver or release of subcontract-related issues.
Key Rules
TCO may proceed with prime settlement
If the prime contractor’s inability to settle with a subcontractor is delaying settlement of the prime contract, the TCO is permitted to settle with the prime contractor anyway. The Government does not have to wait for the subcontract dispute to be resolved before closing out the prime settlement.
Subcontract proposal must be excepted
The TCO must exclude the subcontractor settlement proposal from the prime settlement, either entirely or in part. This keeps the unresolved subcontract matter outside the scope of the prime settlement agreement.
Rights must be reserved
The TCO must reserve the rights of both the Government and the prime contractor concerning the subcontractor proposal. This prevents the prime settlement from being interpreted as a final resolution of the subcontract issue.
Applies only when subcontract delay blocks prime settlement
This rule is triggered by a specific condition: the prime contractor’s inability to settle with the subcontractor must be the reason the prime contract settlement is delayed. It is not a general authority to ignore subcontract issues in every termination settlement.
Responsibilities
Termination Contracting Officer (TCO)
Determine whether the subcontract dispute is delaying settlement of the prime contract, decide whether to settle with the prime contractor without waiting, and expressly except the subcontractor settlement proposal from the settlement in whole or in part while reserving the relevant rights.
Prime Contractor
Continue working toward resolution with the subcontractor, provide the information needed for the prime settlement, and understand that the prime settlement may proceed even if the subcontract issue remains unresolved.
Government
Protect its interests by ensuring the prime settlement does not inadvertently release or resolve subcontract-related claims, and preserve its rights to address the subcontract proposal later if necessary.
Subcontractor
Pursue its settlement proposal through the prime contractor and remain aware that its proposal may be excluded from the prime settlement until separately resolved.
Practical Implications
This provision prevents a subcontract dispute from freezing the entire prime termination settlement process, which helps the Government close out terminated contracts more efficiently.
The biggest pitfall is failing to clearly except the subcontract proposal in the settlement documentation; if the exclusion is vague, parties may later argue that the subcontract issue was implicitly settled or released.
TCOs should be precise about whether the exception is partial or complete, because only the unresolved portion should remain open if part of the subcontract proposal can be settled.
Prime contractors should not assume that unresolved subcontract negotiations give them leverage to delay the Government’s settlement; the TCO can move forward without them.
All parties should preserve records showing what was settled and what was reserved, since later disputes often turn on the exact wording of the settlement and the scope of the reservation of rights.
Official Regulatory Text
When a prime contractor’s inability to settle with a subcontractor delays the settlement of the prime contract, the TCO may settle with the prime contractor. The TCO shall except the subcontractor settlement proposal from the settlement in whole or part and reserve the rights of the Government and the prime contractor with respect to the subcontractor proposal.