FAR 49.110—Settlement negotiation memorandum.
Plain-English Summary
FAR 49.110 explains what the termination contracting officer (TCO) must document after settlement negotiations for a terminated contract. It covers the settlement negotiation memorandum, its required contents, how pricing aspects must be documented under FAR 15.406-3, and how the memorandum must be distributed. It also distinguishes between settlements negotiated on an individual-item basis and those negotiated as an overall lump-sum settlement, and it requires the TCO to explain disputed or doubtful issues resolved by agreement. In practice, this section exists to create a clear administrative record showing how the settlement amount was reached, so reviewing authorities can understand and evaluate the basis for the settlement. It is important because termination settlements often involve complex cost, pricing, and factual judgments, and a well-supported memorandum helps protect the government’s interests, supports audit/review, and reduces the risk of later challenges.
Key Rules
Prepare a settlement memorandum
At the end of negotiations, the TCO must prepare a settlement negotiation memorandum for the termination case file. The memorandum is the official narrative record of the settlement and is intended for use by reviewing authorities.
Document pricing under 15.406-3
Any pricing aspects of the settlement must be documented in accordance with FAR 15.406-3. The memorandum must also be distributed in accordance with that same provision, so the TCO must follow the required format, content, and distribution rules for pricing documentation.
Explain item-by-item settlements
If the settlement is negotiated on an individual-item basis, the TCO must identify the factors considered for each item. This means the record should show how each item’s value or treatment was evaluated and why the agreed amount was reached.
Support lump-sum settlements in detail
If the settlement is negotiated as an overall lump sum, the TCO does not need to analyze each item separately, but must still support the total recommended settlement in reasonable detail. The file must show enough rationale and evidence to justify the overall amount.
Record disputed issues and resolutions
The memorandum must explain matters involving differences and doubtful questions that were settled by agreement, along with the factors considered. This ensures the record captures the key judgment calls and compromises made during negotiations.
Include helpful background
The TCO should include any other matters that will help reviewing authorities understand the basis for the settlement. This is a broad catch-all requirement that encourages a complete and readable explanation of the negotiation outcome.
Responsibilities
Termination Contracting Officer (TCO)
Prepare the settlement negotiation memorandum at the conclusion of negotiations; document pricing aspects under FAR 15.406-3; distinguish between itemized and lump-sum settlements; explain the factors considered, disputed issues, and doubtful questions resolved by agreement; and include additional information needed to support review of the settlement.
Reviewing Authorities
Use the memorandum to understand and evaluate the basis for the settlement. They rely on the TCO’s documentation to assess whether the settlement is adequately supported and properly negotiated.
Contracting/Termination File Custodian or Administrative Support (as applicable)
Ensure the memorandum is placed in the termination case file and distributed in accordance with FAR 15.406-3, so the record is complete and available to the proper recipients.
Practical Implications
This section is mainly about creating a defensible paper trail. If the settlement is later questioned, the memorandum should show not just the final number, but how the TCO got there.
A common pitfall is giving too little support for a lump-sum settlement. Even though item-by-item analysis is not required, the total amount still needs reasonable detail and a clear rationale.
Another risk is failing to capture the issues that were actually negotiated away. If differences, assumptions, or doubtful questions are not explained, reviewers may not understand why the settlement is fair.
The memorandum should be written for someone who was not at the table. If a reviewer cannot follow the logic from the file alone, the documentation is probably too thin.
Because pricing documentation must follow FAR 15.406-3, the TCO should coordinate the settlement memo with the required pricing support and distribution requirements rather than treating it as a separate, informal note.
Official Regulatory Text
(a) The TCO shall, at the conclusion of negotiations, prepare a settlement negotiation memorandum describing the principal elements of the settlement for inclusion in the termination case file and for use by reviewing authorities. Pricing aspects of the settlement shall be documented in accordance with 15.406-3 . The memorandum shall be distributed in accordance with 15.406-3 . (b) If the settlement was negotiated on the basis of individual items, the TCO shall specify the factors considered for each item. If the settlement was negotiated on an overall lump-sum basis, the TCO need not evaluate each item or group of items individually, but shall support the total amount of the recommended settlement in reasonable detail. The memorandum shall include explanations of matters involving differences and doubtful questions settled by agreement, and the factors considered. The TCO should include any other matters that will assist reviewing authorities in understanding the basis for the settlement.