FAR 49.112-1—Partial payments.
Plain-English Summary
FAR 49.112-1 explains how partial payments work after a contract termination when the contract authorizes them. It covers who may request partial payments, how subcontractor requests must flow through the prime contractor, what the Termination Contracting Officer (TCO) must consider before approving payment, how much may be paid for completed end items, subcontract settlements, termination inventory, and other allowable costs, and how assignments of claims affect payment. It also addresses the Government’s security interest in completed items or inventory, required deductions for prior progress or advance payments and property credits, the overall cap that partial payments cannot exceed the amount expected to become due under the termination, and the contractor’s repayment and interest obligations if overpaid. Finally, it prescribes the certification language for the contractor’s voucher and the TCO’s approval notation. In practice, this section is the operating rulebook for getting money out before final settlement while protecting the Government from overpayment and ensuring subcontractors, inventory, and prior financing are handled correctly.
Key Rules
Partial payments must be authorized
A prime contractor may request partial payments only if the contract authorizes them, and only after submitting interim or final settlement proposals. The Government is expected to process these requests promptly, but payment is still subject to TCO review and discretion.
Subcontractor requests flow through prime
A subcontractor cannot seek payment directly from the Government; it must submit its application through the prime contractor, which must attach its own invoice and recommendations. The Government may pay subcontractors only through the prime contractor and only after the prime has submitted its own settlement proposal.
No profit on terminated work
Partial payments generally may not include profit or fee on the terminated portion of the contract. The only exception noted is for undelivered acceptable finished products, where payment treatment may differ under the termination rules.
TCO must review and may limit payment
Before approving any partial payment, the TCO may obtain accounting, engineering, or other specialized reviews and must decide whether the requested amount is proper and reasonable. In setting the amount, the TCO considers the contractor’s diligence in settling with subcontractors and in preparing its own settlement proposal.
Payment ceilings by cost category
The TCO may authorize up to 100 percent of the adjusted contract price for acceptable completed items, 100 percent of approved subcontract settlements paid by the prime, 90 percent of direct termination inventory costs, 90 percent of other allowable termination costs, and 100 percent of partial payments made to subcontractors under this section.
Assignments of claims must be honored
If the contract has an assignment of claims, the Government generally must make partial payments to the assignee, not to someone else, unless the parties to the assignment consent in writing. This protects the rights established under the assignment agreement.
Government security must be protected
When partial payments are made for completed end items or termination inventory, the TCO must protect the Government’s interest by obtaining title, creating a paramount lien, or using another appropriate method. This prevents the contractor from being paid while the Government lacks adequate protection in the paid-for property.
Required deductions reduce payment
The TCO must deduct unliquidated progress and advance payments, including interest, that are allocable to the terminated portion, as well as credits from the purchase, retention, or sale of property whose costs are included in the payment request. These deductions ensure the contractor is not paid twice for the same value.
Total partial payments are capped
The total of all partial payments cannot exceed the amount the TCO believes will ultimately become due to the contractor because of the termination. Partial payments are therefore an advance against the expected settlement, not an open-ended entitlement.
Overpayments must be repaid with interest
If partial payments exceed the amount finally due, the contractor must repay the excess on demand with interest. Interest generally runs from the date the excess was received, with limited exceptions for inventory-related reductions and certain cost-reimbursement R&D contracts without profit or fee.
Specific certification and approval language required
The contractor must certify on the voucher or invoice that the payment is a partial payment on the settlement proposal under the contract and FAR Part 49. The TCO must approve the invoice or voucher by noting the approved dollar amount.
Responsibilities
Contracting Officer / Termination Contracting Officer (TCO)
Determine whether partial payments are authorized and appropriate, review supporting data, obtain specialized reviews when needed, set the amount within regulatory ceilings, consider the contractor’s diligence in settling subcontractor claims and preparing its proposal, protect the Government’s interest in paid-for property, apply required deductions, enforce assignment-of-claims rules, and approve the voucher with the required notation.
Prime Contractor
Submit interim or final settlement proposals before requesting partial payments, use the prescribed form, certify the voucher language, submit subcontractor applications with its own invoice and recommendations, settle with subcontractors diligently, and repay any overpayment on demand with interest.
Subcontractor
Route any application for partial payment through the prime contractor rather than directly to the Government, and support the prime’s submission as required by the termination settlement process.
Government reviewers / specialists
Provide accounting, engineering, or other specialized reviews of the contractor’s supporting data when requested by the TCO, helping determine whether the requested partial payment is proper and reasonable.
Assignee under assignment of claims
Receive partial payments when an assignment of claims is in effect, unless the parties to the assignment agree in writing to a different payee arrangement.
Agency / Government
Process applications promptly, pay only within the limits and protections established by the regulation, and ensure that partial payments do not exceed the amount expected to become due under the termination settlement.
Practical Implications
Partial payments are a cash-flow tool, not a final settlement, so contractors should expect close scrutiny and possible reductions before money is released.
The biggest mistakes are failing to submit the settlement proposal first, trying to bypass the prime for subcontractor payments, claiming profit on terminated work, or forgetting to account for prior progress/advance payments and property credits.
TCOs should document their rationale carefully, especially when limiting payment, requiring security, or relying on specialized reviews, because the regulation gives discretion but also imposes clear safeguards.
Contractors should track inventory, subcontract settlements, and financing balances early; weak records can delay payment or reduce the amount approved.
If an assignment of claims exists, payment routing must match the assignment documents, or the Government risks paying the wrong party and creating a dispute.
Official Regulatory Text
(a) General. If the contract authorizes partial payments on settlement proposals before settlement, a prime contractor may request them on the form prescribed in 49.602-4 at any time after submission of interim or final settlement proposals. The Government will process applications for partial payments promptly. A subcontractor shall submit its application through the prime contractor which shall attach its own invoice and recommendations to the subcontractor’s application. Partial payments to a subcontractor shall be made only through the prime contractor and only after the prime contractor has submitted its interim or final settlement proposal. Except for undelivered acceptable finished products, partial payments shall not be made for profit or fee claimed under the terminated portion of the contract. In exercising discretion on the extent of partial payments to be made, the TCO shall consider the diligence of the contractor in settling with subcontractors and in preparing its own settlement proposal. (b) Amount of partial payment. Before approving any partial payment, the TCO shall obtain any desired accounting, engineering, or other specialized reviews of the data submitted in support of the contractor’s settlement proposal. If the reviews and the TCO’s examination of the data indicate that the requested partial payment is proper, reasonable payments may be authorized in the discretion of the TCO up to- (1) 100 percent of the contract price, adjusted for undelivered acceptable items completed before the termination date, or later completed with the approval of the TCO (see 49.205 ); (2) 100 percent of the amount of any subcontract settlement paid by the prime contractor if the settlement was approved or ratified by the TCO under 49.108-3 (c) or was authorized under 49.108-4 ; (3) 90 percent of the direct cost of termination inventory, including costs of raw materials, purchased parts, supplies, and direct labor; (4) 90 percent of other allowable costs (including settlement expense and manufacturing and administrative indirect costs) allocable to the terminated portion of the contract and not included in paragraphs (b)(1), (2), or (3) of this section; and (5) 100 percent of partial payments made to subcontractors under this section. (c) Recognition of assignments. When an assignment of claims has been made under the contract, the Government shall not make partial payments to other than the assignee unless the parties to the assignment consent in writing (see 32.805 (e)). (d) Security for partial payments. If any partial payment is made for completed end items or for costs of termination inventory, the TCO shall protect the Government’s interest. This shall be done by obtaining title to the completed end items or termination inventory, or by the creation of a lien in favor of the Government, paramount to all other liens, on the completed end items or termination inventory, or by other appropriate means. (e) Deductions in computing amount of partial payments . The TCO shall deduct from the gross amount of any partial payment otherwise payable under 49.112-1 (b)- (1) All unliquidated balances of progress and advance payments (including interest) made to the contractor, which are allocable to the terminated portion of the contract; and (2) The amounts of all credits arising from the purchase, retention, or sale of property, the costs of which are included in the application for payment. (f) Limitation on total amount. The total amount of all partial payments shall not exceed the amount that will, in the opinion of the TCO, become due to the contractor because of the termination. (g) Effect of overpayment. If the total of partial payments exceeds the amount finally determined due on the settlement proposal, the contractor shall repay the excess to the Government on demand, together with interest. The interest shall be computed at the rate established by the Secretary of the Treasury under 50 U.S.C. App.1215(b)(2) from the date the excess payment was received by the contractor to the date of repayment. However, interest will not be charged for any- (1) Excess payment attributable to a reduction in the settlement proposal because of retention or other disposition of termination inventory, until 10 days after the date of the retention or disposition, or a later date determined by the TCO, or (2) Overpayment under cost-reimbursement research and development contracts without profit or fee if the overpayments are repaid to the Government within 30 days after demand. (h) Certification and approval of partial payments. (1) The contractor shall place the following certification on vouchers or invoices for partial payments: The payment covered by this voucher is a partial payment on the Contractor’s settlement proposal under contract No. _______________ under part 49 of the Federal Acquisition Regulation. (2) The TCO shall approve the invoice or voucher by noting on it the following: Payment of $ ____________ is approved.