FAR 49.109-3—Government property.
Plain-English Summary
FAR 49.109-3 addresses how the Termination Contracting Officer (TCO) must handle Government property when settling a terminated contract. It requires the TCO, before signing a settlement agreement, to verify the accuracy of the Government property account for the terminated contract and to resolve any property discrepancies found in audit. If the audit shows Government property that the contractor cannot account for, the TCO must either reserve the Government’s rights in the settlement agreement or reduce the amount otherwise payable to the contractor. In practical terms, this section protects the Government from paying for property losses or unresolved accountability issues during termination settlement. It also ensures that property records, audit findings, and settlement terms are aligned before final payment is made, which helps prevent later disputes, overpayments, or waived claims.
Key Rules
Verify property account first
Before executing a settlement agreement, the TCO must determine whether the Government property account for the terminated contract is accurate. This means the property records tied to the contract must be reviewed and reconciled before the settlement is finalized.
Audit unresolved property issues
If an audit reveals Government property that the contractor cannot account for, the issue cannot simply be ignored in the settlement. The TCO must address the discrepancy as part of the settlement process.
Reserve Government rights
One option is to expressly reserve the Government’s rights in the settlement agreement regarding the unaccounted-for property. This preserves the Government’s ability to pursue recovery or other remedies later.
Make an appropriate deduction
Alternatively, the TCO may reduce the amount otherwise due to the contractor to reflect the value or impact of the missing or unaccounted-for property. The deduction must be appropriate to the circumstances and supported by the audit findings.
Responsibilities
Termination Contracting Officer (TCO)
Review and verify the accuracy of the Government property account before executing the settlement agreement. If an audit shows property the contractor cannot account for, either reserve the Government’s rights in the settlement agreement or make an appropriate deduction from the amount due.
Contractor
Maintain accurate accountability for Government property associated with the terminated contract and be prepared to explain, support, or reconcile property records during the settlement process.
Auditor
Examine the Government property account and identify any property discrepancies or items the contractor cannot account for, so the TCO can resolve them before settlement.
Practical Implications
The TCO should not treat property reconciliation as a formality; it is a required step before settlement execution.
Contractors should expect that missing, damaged, or unsupported Government property will affect settlement value or trigger a rights reservation.
Poor property records can delay termination settlement and create disputes over deductions or retained Government claims.
The settlement agreement should be drafted carefully so any unresolved property issue is clearly preserved if the Government is not fully compensated at settlement.
This section helps prevent the Government from inadvertently waiving claims related to unaccounted-for property when closing out a terminated contract.
Official Regulatory Text
Before execution of a settlement agreement, the TCO shall determine the accuracy of the Government property account for the terminated contract. If an audit discloses property for which the contractor cannot account, the TCO shall reserve in the settlement agreement the rights of the Government regarding that property or make an appropriate deduction from the amount otherwise due the contractor.