FAR 49.108-8—Assignment of rights under subcontracts.
Plain-English Summary
FAR 49.108-8 explains what happens to subcontract rights and subcontractor settlement proposals when a prime contract is terminated for convenience. It covers two related but distinct topics: first, the assignment of the prime contractor’s rights, title, and interest in terminated subcontracts to the Government; and second, the Government’s discretionary authority to settle and pay subcontract termination settlement proposals directly. The rule applies to the standard termination for convenience clauses in FAR 52.249, but not the short-form clauses. In practice, this section is about protecting the Government’s interests, preserving control over terminated subcontract assets and claims, and deciding when direct Government involvement is justified. It also makes clear that direct settlement with subcontractors is the exception, not the norm, because the prime contractor is generally responsible for settling and paying subcontractor claims.
Key Rules
Assignment of subcontract rights
When a prime contract is terminated for convenience, the standard termination clauses require the prime contractor to assign to the Government, as directed by the Termination Contracting Officer (TCO), all rights, title, and interest under any subcontract terminated because of the prime termination. This assignment is not automatic in every case; the TCO may require it only when doing so is in the Government’s interest.
Applies to standard clauses only
This rule applies to the termination for convenience clauses in FAR 52.249, except the short-form clauses. The short-form termination clauses do not carry the same assignment and direct-settlement framework described in this section.
Government may settle subcontract claims
The standard termination clauses also give the Government the discretionary right to settle and pay subcontractor settlement proposals arising from the termination of subcontracts. This is a right, not a duty, so the Government is authorized to act but is not required to do so.
Prime contractor remains primary payer
As a general rule, the prime contractor is responsible for settling and paying subcontractor termination settlement proposals. Government direct settlement is an exception used only when the TCO determines it is in the Government’s interest.
TCO must notify before direct settlement
If the TCO decides to settle a subcontractor’s proposal directly, the TCO must notify the prime contractor first and then use the procedures applicable to settlement of prime contracts. This preserves notice and procedural fairness even when the Government steps into the settlement role.
Direct settlements are discouraged
The regulation expressly states that direct settlements with subcontractors are not encouraged. An example of a situation where direct settlement may be appropriate is when a subcontractor is sole source and delay by the prime contractor could jeopardize the subcontractor’s financial stability.
Responsibilities
Termination Contracting Officer (TCO)
Determine whether assignment of subcontract rights is in the Government’s interest before directing the prime contractor to assign them. Decide whether direct settlement of a subcontractor’s termination proposal is warranted, notify the prime contractor before doing so, and use the prime-contract settlement procedures when the Government takes over the settlement.
Prime Contractor
Generally settle and pay subcontractor termination settlement proposals arising from the terminated prime contract. If directed by the TCO, assign to the Government all rights, title, and interest under terminated subcontracts. Cooperate with any Government-directed assignment or settlement process.
Subcontractor
Prepare and submit termination settlement proposals through the normal subcontract/prime contractor channel unless the Government has elected to settle directly. Provide supporting information needed to substantiate the proposal and respond to the settlement process as required.
Government
Use its discretionary authority to settle and pay subcontractor proposals only when doing so serves the Government’s interest. Avoid direct settlements unless there is a compelling reason, such as protecting a sole-source subcontractor from financial harm caused by delay.
Practical Implications
Prime contractors should not assume the Government will step in to pay subcontractor claims; the default expectation is that the prime handles settlement and payment.
Contracting officers and TCOs should document why assignment or direct settlement is in the Government’s interest, because the regulation makes those actions discretionary and exceptional.
Subcontractors should understand that their claims usually flow through the prime contractor, so delays or disputes with the prime can affect timing and recovery.
Direct Government settlement can create administrative complexity, so it should be reserved for unusual cases where the Government has a clear interest in intervening.
Because the short-form termination clauses are excluded, parties must check which FAR 52.249 clause is actually in the contract before assuming these rights and procedures apply.
Official Regulatory Text
(a) The termination for convenience clauses in 52.249 , except the short-form clauses, obligate the prime contractor to assign to the Government, as directed by the TCO, all rights, titles, and interest under any subcontract terminated because of termination of the prime contract. The TCO shall not require the assignment unless it is in the Government’s interest. (b) The termination for convenience clauses (except the short-form clauses) also provide the Government the right, in its discretion, to settle and pay any settlement proposal arising out of the termination of subcontracts. This right does not obligate the Government to settle and pay settlement proposals of subcontractors. As a general rule, the prime contractor is obligated to settle and pay these proposals. However, when the TCO determines that it is in the Government’s interest, the TCO shall, after notifying the contractor, settle the subcontractor’s proposal using the procedures for settlement of prime contracts. An example in which the Government’s interest would be served is when a subcontractor is a sole source and it appears that a delay by the prime contractor in settlement or payment of the subcontractor’s proposal will jeopardize the financial position of the subcontractor. Direct settlements with subcontractors are not encouraged.