FAR 49.109-4—No-cost settlement.
Plain-English Summary
FAR 49.109-4 addresses when a termination settlement can be resolved without any payment changing hands by using a no-cost settlement agreement. It applies in the termination-for-convenience context and tells the Termination Contracting Officer (TCO) to execute the agreement when the contractor has not incurred costs for the terminated portion of the contract, when the contractor is willing to waive costs already incurred, and when no amounts are due the Government under the contract. The section also points the reader to the prescribed agreement forms in FAR 49.603-6 or 49.603-7, depending on the situation. In practice, this provision is a streamlined closeout tool: it avoids unnecessary settlement negotiations, reduces administrative burden, and lets both sides formally end the terminated portion of the contract without a monetary settlement. It is especially useful where performance never really started on the terminated work, or where the contractor agrees that any incurred costs will not be claimed. The rule matters because it gives the Government a clean legal record that the termination is fully resolved and that neither side owes the other anything on the terminated portion.
Key Rules
TCO must execute agreement
The Termination Contracting Officer is required to execute a no-cost settlement agreement when the conditions in the rule are met. This is not discretionary once the facts support a no-cost resolution.
No costs incurred
A no-cost settlement is appropriate if the contractor has not incurred costs for the terminated portion of the contract. This typically means the terminated work did not generate recoverable performance costs.
Contractor may waive costs
Even if costs were incurred, the agreement may still be used if the contractor is willing to waive those costs. The waiver must be voluntary and clear enough to support closing the matter without payment.
No money owed to Government
The agreement may be used only if no amounts are due the Government under the contract. If the contractor owes the Government anything, a no-cost settlement is not appropriate until that issue is resolved.
Use prescribed forms
The settlement agreement must be prepared using the applicable form in FAR 49.603-6 or 49.603-7. The form selected depends on the circumstances of the termination and the type of agreement being documented.
Responsibilities
Termination Contracting Officer (TCO)
Determine whether the conditions for a no-cost settlement are satisfied, select the applicable prescribed agreement form, and execute the settlement agreement when the rule applies.
Contractor
Confirm whether any costs were incurred for the terminated portion, decide whether to waive any incurred costs, and sign the no-cost settlement agreement if it agrees to close out the termination without payment.
Government/Agency
Ensure the contract file supports the no-cost resolution and that no amounts remain due to the Government before the settlement is finalized.
Practical Implications
This provision can significantly speed up termination closeout when the terminated work produced little or no cost exposure.
Contractors should verify that waiving costs is truly in their interest, because signing a no-cost settlement generally ends any claim for those costs.
The TCO should confirm there are no outstanding Government claims, offsets, or other amounts due before using this shortcut.
A common pitfall is treating a no-cost settlement as appropriate even though some recoverable costs or Government receivables still exist.
Using the correct prescribed form matters because the settlement agreement must be documented in the FAR-required format to support a clean contract file and avoid later disputes.
Official Regulatory Text
The TCO shall execute a no-cost settlement agreement (see 49.603-6 or 49.603-7 , as applicable) if- (a) The contractor has not incurred costs for the terminated portion of the contract or (b) The contractor is willing to waive the costs incurred and (c) No amounts are due the Government under the contract.