FAR 49.109-2—Reservations.
Plain-English Summary
FAR 49.109-2 addresses how a termination contracting officer (TCO) handles reservations in a settlement agreement when the parties do not resolve every issue at the same time. It covers five related topics: reserving excepted rights or demands, avoiding language that creates new rights, marking the settlement agreement to show a reservation exists, retaining enough funds to pay the reserved items, and later preparing a separate settlement agreement for those reserved items. The section exists to let the parties close out the settled portion of a termination while preserving unresolved matters without accidentally expanding either party’s legal position. In practice, it helps prevent disputes over what was or was not waived, ensures the government keeps enough money available for the unresolved items, and creates a clear administrative trail until the reservation is fully resolved. The reference to FAR 49.603-9 gives contracting personnel a recommended format for documenting the reservation settlement.
Key Rules
Reserve excepted rights
The TCO must expressly reserve in the settlement agreement any rights or demands that the parties have excepted from the settlement. This makes clear that those items are not being released or resolved by the current agreement.
No new rights created
The reservation language must not give either party rights beyond what existed before the settlement agreement was signed. The reservation is only a preservation of existing claims or demands, not a vehicle for expanding them.
Mark and retain file
Each applicable settlement agreement must be marked with the statement that it contains a reservation, and the contract file must be retained until the reservation is removed. This ensures the file remains open and traceable while unresolved items remain outstanding.
Protect sufficient funds
The TCO must ensure enough funds are retained to cover complete settlement of the reserved items. This prevents the government from deobligating or using funds needed later to pay the unresolved portion.
Settle reserved items separately
When the time is appropriate, the TCO must prepare a separate settlement of the reserved items and place it in a separate settlement agreement. The reserved matters are handled as a distinct closing action rather than being folded informally into the original settlement.
Use recommended format
FAR 49.603-9 provides a recommended format for documenting settlement of reservations. While the section does not make that format mandatory by itself, it gives contracting personnel a standard template to support consistent documentation.
Responsibilities
Termination Contracting Officer (TCO)
Identify any rights or demands excepted from the settlement and expressly reserve them in the agreement; draft reservation language that preserves existing positions without creating new rights; mark the settlement agreement as containing a reservation; keep the contract file open until the reservation is removed; ensure sufficient funds remain available for the reserved items; and later prepare a separate settlement agreement for the reserved items.
Government/Agency
Maintain funding availability for the reserved items and support the TCO in preserving the administrative record until all reserved matters are resolved. The agency must avoid actions that would prematurely close out or underfund the unresolved portion.
Contractor
Review the reservation language carefully to confirm that only the intended items are excepted and that the wording does not unintentionally waive or expand claims. The contractor should also track the reserved items separately and participate in the later settlement of those matters.
Practical Implications
A reservation lets the parties close the settled portion now while leaving specific issues for later, so the wording matters a great deal. Poorly drafted reservation language can unintentionally waive a claim or create an argument that new rights were granted.
The TCO must keep enough funds available for the reserved items; if funds are deobligated too early, the government may have trouble paying the later settlement.
Marking the agreement as containing a reservation and retaining the file are important administrative controls. If the file is closed too soon, the unresolved items can be lost or become harder to document.
Reserved items should be tracked separately from the settled items so they can be resolved in a later, distinct settlement agreement. Mixing them together can create confusion about what has already been paid or released.
Contractors should compare the reservation language against the original dispute or claim history. The key pitfall is assuming the reservation is harmless boilerplate when it may materially affect rights, funding, and final closeout timing.
Official Regulatory Text
(a) The TCO shall- (1) Reserve in the settlement agreement any rights or demands of the parties that are excepted from the settlement; (2) Ensure that the wording of the reservation does not create any rights for the parties beyond those in existence before execution of the settlement agreement; (3) Mark each applicable settlement agreement with "This settlement agreement contains a reservation" and retain the contract file until the reservation is removed; (4) Ensure that sufficient funds are retained to cover complete settlement of the reserved items; and (5) At the appropriate time, prepare a separate settlement of reserved items and include it in a separate settlement agreement. (b) A recommended format for settlement of reservations appears in 49.603-9 .