FAR 49.109-7—Settlement by determination.
Plain-English Summary
FAR 49.109-7 explains what happens when a termination settlement cannot be resolved by agreement or when the contractor misses the deadline to submit a settlement proposal. It gives the Termination Contracting Officer (TCO) authority to make a unilateral settlement determination, requires the TCO to follow the settlement rules in FAR 49.109-1 through 49.109-6 and any applicable loss adjustment rules in FAR 49.203, and sets out the contractor’s right to notice, to submit supporting evidence, and to appeal under the Disputes clause in most cases. The section also describes how the TCO should evaluate and document the claim, including use of schedules, explanations of disallowances, conferences, audits, and other evidence, and how original records and supporting documents must be preserved and returned. It further addresses the finality and appealability of the determination, the effect of an appeal on later negotiation, and the need to implement board or court decisions through contract modification. In practice, this provision is the government’s fallback process for closing out a terminated contract when negotiation fails, while still preserving due process and a record that can support review on appeal.
Key Rules
Unilateral determination allowed
If the contractor and TCO cannot agree on a settlement, or if the contractor does not submit a proposal on time, the TCO must determine the amount due under the termination clause and any incorporated cost principles. The determination must also follow FAR 49.109-1 through 49.109-6 and, when applicable, FAR 49.203 on loss adjustment.
Advance notice required
Before issuing a determination, the TCO must give the contractor at least 15 days’ notice by certified mail, return receipt requested, asking for written evidence to support the proposed amount. The notice must set a deadline for the contractor’s submission.
Contractor bears the burden of proof
The contractor must prove the amount claimed to the TCO’s satisfaction. The contractor may use vouchers, verified accounting transcripts, affidavits, audit reports, and other supporting documents, and the TCO may demand additional data, accountings, investigations, or audits.
TCO may evaluate flexibly
The TCO may accept copies instead of originals unless authenticity is in question, and may hold conferences with the contractor, Government personnel, independent experts, or affiants. This gives the TCO broad fact-finding authority before making the determination.
Determination must be documented
The TCO must issue a written determination stating the amount due and send it by certified mail or another method proving receipt. The determination must include detailed schedules generally aligned with FAR 49.602-1 forms, plus supporting analyses and an explanation of each major disallowance.
Prior approved actions stay final
The TCO does not need to revisit other actions on the terminated portion of the contract that were already ratified or approved by the TCO or another contracting officer. This limits the scope of the settlement determination to unresolved matters.
Evidence must be preserved and returned
The TCO must keep all written evidence and other data relied on for the determination, but does not need to copy original books of account. Original books and other original papers and documents must be returned to the contractor within a reasonable time.
Appeal rights are limited in one case
The contractor may appeal a settlement by determination under the Disputes clause, except when the contractor failed both to submit the settlement proposal on time and to request an extension. Even during an appeal, the TCO may still negotiate settlement of all or part of the claim before the appeal is decided.
Court or board decisions must be implemented
If the Claims Court or a board of contract appeals decides the matter, the TCO must implement that decision through an appropriate contract modification. When appropriate, the TCO should obtain a release, and the settlement agreement forms in FAR 49.603 may be adjusted to fit this requirement.
Responsibilities
Termination Contracting Officer (TCO)
Make a settlement determination when agreement cannot be reached or the proposal is untimely; follow FAR 49.109-1 through 49.109-6 and FAR 49.203 as applicable; give the contractor 15 days’ advance notice; review and evaluate the contractor’s evidence; request additional documents, audits, or conferences as needed; issue a written determination with detailed schedules and explanations; preserve supporting evidence; send the determination with proof of receipt; continue to negotiate if appropriate; and implement appeal decisions by contract modification.
Contractor
Submit the termination settlement proposal within the required time; request an extension if more time is needed; provide written evidence and supporting documentation to prove the claimed amount; respond to the TCO’s requests for additional data or conferences; and, if dissatisfied, appeal the determination under the Disputes clause when permitted.
Agency / Contracting activity
Ensure the determination is distributed like other contract modifications and that the record supports the final settlement action. The agency must also support implementation of any board or court decision through the required contract modification process.
Board of Contract Appeals / Claims Court
Decide appeals from settlement determinations when properly brought, and issue decisions that the TCO must implement through an appropriate contract modification.
Practical Implications
This section is the government’s backstop when termination settlement negotiations stall, so both sides should treat the proposal deadline and supporting documentation requirements as critical.
Contractors risk losing appeal rights if they miss the proposal deadline and do not request an extension, so calendar control and timely communication with the TCO are essential.
The TCO’s determination must be well documented; weak schedules or unexplained disallowances can make the decision vulnerable on appeal.
Because the TCO may rely on copies, audits, and conferences, contractors should keep organized records and be ready to substantiate costs quickly.
Even after a determination is issued, negotiation can continue before an appeal is decided, so parties should not assume the written determination ends all settlement discussions.
Official Regulatory Text
(a) General. If the contractor and TCO cannot agree on a termination settlement, or if a settlement proposal is not submitted within the period required by the termination clause, the TCO shall issue a determination of the amount due consistent with the termination clause, including any cost principles incorporated by reference. The TCO shall comply with 49.109-1 through 49.109-6 in making a settlement by determination and with 49.203 in making an adjustment for loss, if any. Copies of determinations shall receive the same distribution as other contract modifications. (b) Notice to contractor. Before issuing a determination of the amount due the contractor, the TCO shall give the contractor at least 15 days notice by certified mail (return receipt requested) to submit written evidence, so as to reach the TCO on or before a stated date, substantiating the amount previously proposed. (c) Justification of settlement proposal. (1) The contractor has the burden of establishing, by proof satisfactory to the TCO, the amount proposed. (2) The contractor may submit vouchers, verified transcripts of books of account, affidavits, audit reports, and other documents as desired. The TCO may request the contractor to submit additional documents and data, and may request appropriate accountings, investigations, and audits. (3) The TCO may accept copies of documents and records without requiring original documents unless there is a question of authenticity. (4) The TCO may hold any conferences considered appropriate- (i) To confer with the contractor, (ii) To obtain additional information from Government personnel or from independent experts, or (iii) To consult persons who have submitted affidavits or reports. (d) Determinations. After reviewing the information available, the TCO shall determine the amount due and shall transmit a copy of the determination to the contractor by certified mail (return receipt requested), or by any other method that provides evidence of receipt. The transmittal letter shall advise the contractor that the determination is a final decision from which the contractor may appeal under the Disputes clause, except as shown in paragraph (f) of this section. The determination shall specify the amount due the contractor and will be supported by detailed schedules conforming generally to the forms for settlement proposals prescribed in 49.602-1 and by additional information, schedules, and analyses as appropriate. The TCO shall explain each major item of disallowance. The TCO need not reconsider any other action relating to the terminated portion of the contract that was ratified or approved by the TCO or another contracting officer. (e) Preservation of evidence. The TCO shall retain all written evidence and other data relied upon in making a determination, except that copies of original books of account need not be made. The TCO shall return books of account, together with other original papers and documents, to the contractor within a reasonable time. (f) Appeals. The contractor may appeal, under the Disputes clause, any settlement by determination, except when the contractor has failed to submit the settlement proposal within the time provided in the contract and failed to request an extension of time. The pendency of an appeal shall not affect the authority of the TCO to settle the settlement proposal or any part by negotiation with the contractor at any time before the appeal is decided. (g) Decision on the contractor’s appeal. The TCO shall give effect to a decision of the Claims Court or a board of contract appeals, when necessary, by an appropriate modification to the contract. When appropriate, the TCO should obtain a release from the contractor. TCO’s are authorized to modify the formats of settlement agreements in 49.603 to agree with this provision.