FAR 49.108-7—Government assistance in settling subcontracts.
Plain-English Summary
FAR 49.108-7 addresses a narrow but important exception in termination settlement practice: when the Termination Contracting Officer (TCO) decides, in unusual cases and with the prime contractor’s consent, that Government assistance is in the Government’s interest, the Government may help the prime contractor settle a particular subcontract. The section covers when that assistance may be used, the need for an agreement among the Government, the prime contractor, and the subcontractor, the possibility that one agreement may cover more than one subcontract, and the payment method for the subcontractor. Its purpose is to speed and stabilize settlement of difficult subcontract issues after termination by allowing the Government to participate directly rather than leaving the prime contractor to resolve the matter alone. In practice, this provision is used sparingly and only when the TCO concludes that direct Government involvement will improve the settlement outcome, reduce delay, or protect the Government’s interests. It also preserves the prime contractor’s central role by requiring consent and by routing payment to the subcontractor through the prime contractor as part of the overall prime settlement.
Key Rules
Unusual cases only
Government assistance is not routine. The TCO may use this approach only in unusual cases, which means the situation must present special circumstances that justify direct Government involvement in a subcontract settlement.
TCO determines Government interest
The TCO must decide that assisting the prime contractor in settling the subcontract is in the Government’s interest. This is a discretionary judgment tied to the needs of the termination settlement and the Government’s overall position.
Prime contractor consent required
The Government cannot impose this arrangement on the prime contractor. The prime contractor must agree before the Government, prime, and subcontractor can enter into a settlement agreement.
Tripartite settlement agreement
The Government, prime contractor, and subcontractor may enter into an agreement covering the settlement of one or more subcontracts. The agreement is the mechanism that formalizes the settlement terms and the parties’ roles.
Payment flows through prime contractor
The subcontractor must be paid through the prime contractor as part of the overall settlement with the prime contractor. The Government does not pay the subcontractor directly under this provision.
May cover multiple subcontracts
A single agreement may address one or more subcontracts, allowing the parties to resolve related subcontract settlement issues together when that is practical and efficient.
Responsibilities
Termination Contracting Officer (TCO)
Determine whether the case is unusual and whether Government assistance is in the Government’s interest; obtain the prime contractor’s consent before proceeding; and oversee or approve the tripartite settlement arrangement as part of the termination settlement process.
Prime Contractor
Consent to Government assistance if it is to be used; participate in the settlement agreement with the Government and subcontractor; and pass payment to the subcontractor through the overall settlement with the Government.
Subcontractor
Participate in the settlement agreement when included; agree to the settlement terms applicable to its subcontract(s); and accept payment through the prime contractor rather than directly from the Government.
Government
Provide assistance only when the TCO determines it is in the Government’s interest; enter into the settlement agreement with the prime contractor and subcontractor; and structure the settlement so the subcontractor is paid through the prime contractor.
Practical Implications
This provision is a limited exception, so parties should not assume the Government will help settle subcontract claims after termination. The TCO must make an affirmative judgment, and the prime contractor must agree.
The main operational effect is that the Government can help resolve difficult subcontract issues faster, especially where subcontract settlement affects the prime termination settlement or where coordination is otherwise difficult.
A common pitfall is treating this as authority for direct payment to subcontractors; FAR 49.108-7 requires payment through the prime contractor as part of the overall settlement.
Another risk is failing to document the tripartite agreement clearly, especially if multiple subcontracts are included. Ambiguity about scope, amounts, and release terms can create later disputes.
Contractors should watch for the fact that this arrangement does not eliminate the prime contractor’s responsibility in the settlement chain. The prime remains the payment conduit and a central party to the agreement.
Official Regulatory Text
In unusual cases the TCO may determine, with the consent of the prime contractor, that it is in the Government’s interest to provide assistance to the prime contractor in the settlement of a particular subcontract. In these situations, the Government, the prime contractor, and a subcontractor may enter into an agreement covering the settlement of one or more subcontracts. In these settlements, the subcontractor shall be paid through the prime contractor as part of the overall settlement with the prime contractor.