FAR 49.109—Settlement agreements.

General.

FAR 49.109-1 explains how a negotiated termination settlement is finalized after the parties have reached agreement and all required internal reviews are complete. It requires the contractor and the Termination Contracting Officer (TCO) to execute a settlement agreement on Standard Form 30, using the form prescribed in FAR 49.603. The section also defines what the settlement agreement must cover: any Government setoffs that may be applied against the terminated contract, and all subcontractor settlement proposals unless a proposal is specifically excluded and reserved for separate settlement. In practice, this provision turns a negotiated termination settlement into a formal, enforceable contract modification and ensures that the Government’s financial claims and subcontractor-related amounts are addressed in one integrated document unless expressly carved out. It matters because it reduces later disputes, clarifies the final amount due, and establishes the administrative record for closing out the termination settlement.

Reservations.

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.

Government property.

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.

No-cost settlement.

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.

Partial settlements.

FAR 49.109-5 addresses partial settlements in termination for convenience negotiations. It explains the general rule that the Termination Contracting Officer (TCO) should try to resolve all rights and liabilities under the terminated contract in one final agreement, except for matters tied to any continued portion of the contract. It also states that the TCO generally should not break the settlement proposal into piecemeal agreements on individual items. A partial settlement is allowed only when the TCO cannot promptly complete the full settlement and the agreed issues are clearly severable from the unresolved issues. Even then, the partial settlement must not prejudice either the Government’s or the contractor’s interests in resolving the remaining proposal. In practice, this section is about efficiency and fairness: it permits interim resolution when needed, but only if doing so will not complicate or distort the final settlement.

Joint settlement of two or more settlement proposals.

FAR 49.109-6 addresses how the Government may handle the settlement of multiple termination settlement proposals submitted by the same contractor when those proposals arise under different contracts. It allows the Termination Contracting Officer (TCO), with the contractor’s consent, to negotiate two or more proposals jointly even if the contracts are administered by different contracting offices or agencies. The section also requires accounting work to be consolidated as much as practical, which is intended to reduce duplication and improve consistency in the settlement process. It explains that the final result may be documented either in one settlement agreement covering all affected contracts or in separate agreements for each contract. When one agreement covers multiple contracts, the rule requires clear identification of each contract, assignment of a modification number to each, a reasonable apportionment of the total settlement amount among the contracts, attachment or incorporation of an apportionment schedule, and distribution of the agreement with each contract file in the same manner as other contract modifications. In practice, this section exists to make multi-contract termination settlements more efficient while preserving auditability, contract-by-contract traceability, and proper administrative recordkeeping.

Settlement by determination.

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.