FAR 49.113—Cost principles.
Plain-English Summary
FAR 49.113 explains how the cost principles in FAR Part 31 apply when the government and a contractor are working out termination settlements. It covers two related situations: first, termination settlements under contracts with non-educational institutions, where the applicable Part 31 cost principles and procedures are used to assert, negotiate, or determine settlement costs; and second, settlements under experimental, developmental, or research contracts with educational institutions, where those same cost principles serve as a guide rather than a strict rule. The section also ties these settlement decisions to the general termination principles in FAR 49.201, which means settlement costs must still be fair, reasonable, and consistent with the termination framework. In practice, this provision tells contracting officers and contractors which cost standards to use when valuing terminated work, preparing settlement proposals, and resolving disputed costs. It also signals that educational institutions may be treated somewhat differently in research-type terminations, but only within the limits of FAR 31.104 and the broader termination rules.
Key Rules
Part 31 governs settlement costs
For termination settlements, the applicable cost principles and procedures in FAR Part 31 are the controlling framework for asserting, negotiating, or determining relevant costs. This means settlement costs are not based on ad hoc judgment alone; they must be evaluated against the specific cost allowability and allocation rules in Part 31.
General termination principles still apply
The Part 31 cost rules are used subject to the general principles in FAR 49.201. In practice, this means settlement negotiations must still reflect the termination policy goals of fairness, reasonableness, and compensation limited to the contractor’s actual, allowable termination-related costs.
Non-educational contracts use Part 31 directly
For contracts with other than educational institutions, the cost principles and procedures are used to assert, negotiate, or determine termination settlement costs. This is a direct application of the cost principles, not merely a reference point.
Educational research contracts use Part 31 as guidance
For experimental, developmental, or research work with educational institutions, the Part 31 cost principles are a guide for settlement negotiations rather than an absolute rule. The parties should use them to inform the settlement, while recognizing the special treatment that may apply to educational institutions.
Section 31.104 may limit application
The parenthetical reference to FAR 31.104 means there may be special rules or exceptions affecting educational institutions. Users must check that provision before assuming the standard Part 31 cost principles apply in full.
Responsibilities
Contracting Officer
Use the applicable Part 31 cost principles and procedures, together with FAR 49.201, to evaluate termination settlement costs. For educational institution research contracts, treat Part 31 as guidance and ensure any settlement is consistent with the special rules in FAR 31.104 and the termination framework.
Contractor
Prepare and support termination settlement proposals using the applicable Part 31 cost principles and procedures. The contractor must substantiate claimed costs, distinguish allowable termination costs from unallowable or unsupported amounts, and negotiate in accordance with the applicable rules.
Educational Institution
When involved in experimental, developmental, or research terminations, use Part 31 cost principles as a guide in settlement discussions and apply any special treatment required by FAR 31.104. The institution should document costs and settlement positions in a manner consistent with the research-contract context.
Agency
Ensure contracting personnel apply the correct cost principles in termination settlements and do not bypass the general termination principles in FAR 49.201. The agency should also ensure special educational-institution rules are considered where applicable.
Practical Implications
Settlement proposals should be built from the Part 31 allowability framework, not from broad estimates or convenience-based figures.
Contractors should expect to justify direct costs, indirect costs, and any settlement expenses with accounting records and supporting documentation.
For educational institution research terminations, the settlement may be more flexible, but that does not mean cost claims are unrestricted; FAR 31.104 and the termination rules still matter.
A common pitfall is treating Part 31 as optional in termination work; for most contracts, it is the primary cost standard.
Another frequent issue is overlooking the interaction between cost allowability and termination policy, which can lead to inflated claims or unsupported disallowances.
Official Regulatory Text
The cost principles and procedures in the applicable subpart of part 31 shall, subject to the general principles in 49.201 - (a) Be used in asserting, negotiating, or determining costs relevant to termination settlements under contracts with other than educational institutions, and (b) Be a guide for the negotiation of settlements under contracts for experimental, developmental, or research work with educational institutions (but see 31.104 ).