FAR 49.206-1—Submission of settlement proposals.
Plain-English Summary
FAR 49.206-1 explains how a contractor must submit a termination settlement proposal after a contract termination for convenience or other covered termination action. It covers the timing of submission, including the general one-year deadline and the possibility of extension by the Termination Contracting Officer (TCO), as well as the ability to consolidate termination charges from multiple divisions or units under one prime contract. It also addresses what the proposal must include: all cost elements, subcontractor settlements, and any claimed profit, with permission for successive or interim proposals when the TCO agrees. The section specifies the required format and support, including use of the prescribed forms in FAR 49.602, reasonable detail, and adequate accounting data, while allowing actual, standard, average, or estimated costs under certain conditions. It further provides a simplified process for small claims using SF 1438, and requires submission of SF 1439 for each termination unless SF 1438 is used, with limited exceptions for major changes. In practice, this section is important because it controls when and how a contractor preserves its right to recover termination costs and helps the government evaluate claims efficiently and consistently.
Key Rules
Prompt submission required
The contractor should submit the settlement proposal promptly to the TCO after termination. The final settlement proposal must be filed within one year from the effective date of termination unless the TCO extends the period.
Consolidation is allowed
If a single prime contract involves two or more divisions or units of the contractor, termination charges may be combined into one settlement proposal. This avoids unnecessary fragmentation of related termination costs.
All cost elements included
The proposal must cover all cost elements, including subcontractor settlements and any proposed profit. The contractor may submit successive interim proposals only with the TCO’s consent, and each interim proposal should include all costs of a particular type unless the TCO authorizes otherwise.
Use prescribed forms
Settlement proposals must be prepared on the forms prescribed in FAR 49.602 unless those forms are inadequate for the contract. The proposal must be in reasonable detail and supported by adequate accounting data.
Permitted cost bases
Actual, standard, or average costs may be used if they are determined under generally recognized accounting principles consistently followed by the contractor. If those cost bases are not reasonably available, estimated costs may be used only if the TCO approves the estimating method.
No excessive accounting burden
Contractors are not required to maintain unduly elaborate cost accounting systems merely because a contract may later be terminated. The rule balances the need for supportable claims with practical accounting limitations.
Short form for small claims
The contractor may use SF 1438 when the total proposal is less than $10,000, unless the TCO directs otherwise. Related proposals that would normally be combined should not be split up just to fall below the threshold.
SF 1439 generally required
The Schedule of Accounting Information, SF 1439, must be submitted for each termination when a settlement proposal is filed, except when SF 1438 is used. If interim proposals are filed, SF 1439 is normally submitted only once unless major changes occur later.
Responsibilities
Contractor
Submit the settlement proposal promptly and ensure the final proposal is filed within one year unless extended. Include all termination-related costs, subcontractor settlements, and any claimed profit, and support the proposal with adequate detail and accounting data. Use the required forms, choose an allowable cost basis, avoid improper splitting of claims, and submit SF 1439 unless SF 1438 applies.
Termination Contracting Officer (TCO)
Receive and review settlement proposals, decide whether to extend the one-year filing period, approve or disapprove successive interim proposals, authorize exceptions to the normal content of interim proposals, approve estimated-cost methods when needed, and determine whether prescribed forms are inadequate for a particular contract.
Subcontractors
Provide settlement information and support needed for the prime contractor to include subcontractor settlements in the overall termination proposal, as applicable.
Agency/Contracting activity
Ensure the prescribed forms and termination settlement procedures are available and used consistently, and support the TCO in evaluating whether the contractor’s submission is complete, timely, and adequately documented.
Practical Implications
Missing the one-year deadline can jeopardize recovery, so contractors should track the termination effective date immediately and plan the submission schedule early.
Contractors should not break one logical termination claim into multiple smaller claims just to use SF 1438; the government can treat that as improper fragmentation.
Good accounting support matters, but the rule does not require a special termination-ready accounting system, so contractors should rely on existing GAAP-based records where possible and document estimates carefully when necessary.
If subcontractor settlements are involved, the prime contractor should coordinate early with subs to avoid delays and incomplete cost buildup.
Interim proposals can help manage large or complex terminations, but they require TCO consent and should be organized so each submission is complete for the cost type covered.
Official Regulatory Text
(a) Subject to the provisions of the termination clause, the contractor should promptly submit to the TCO a settlement proposal for the amount claimed because of the termination. The final settlement proposal must be submitted within oneyear from the effective date of the termination, unless the period is extended by the TCO. Termination charges under a single prime contract involving two or more divisions or units of the prime contractor may be consolidated and included in a single settlement proposal. (b) The settlement proposal must cover all cost elements including settlements with subcontractors and any proposed profit. With the consent of the TCO, proposals may be filed in successive steps covering separate portions of the contractor’s costs. Such interim proposals shall include all costs of a particular type, except as the TCO may authorize otherwise. (c) Settlement proposals must be on the forms prescribed in 49.602 unless the forms are inadequate for a particular contract. Settlement proposals must be in reasonable detail supported by adequate accounting data. Actual, standard (appropriately adjusted), or average costs may be used in preparing settlement proposals if they are determined under generally recognized accounting principles consistently followed by the contractor. When actual, standard, or average costs are not reasonably available, estimated costs may be used if the method of arriving at the estimates is approved by the TCO. Contractors shall not be required to maintain unduly elaborate cost accounting systems merely because their contracts may subsequently be terminated. (d) The contractor may use the Settlement Proposal (Short Form), SF 1438 (see 49.602-1 (d) and 53.249 ), when the total proposal is less than $10,000, unless otherwise instructed by the TCO. Settlement proposals that would normally be included in a single settlement proposal; e.g., those based on a series of separate orders for the same item under one contract, should be consolidated whenever possible and not divided to bring them below $10,000. (e) The Schedule of Accounting Information, SF 1439 , must be submitted for each termination under a contract for which a settlement proposal is submitted, except when the Standard Form 1438 is used. Although several interim proposals may be submitted, SF 1439 need be submitted only once unless, subsequent to filing the original form, major changes occur in the information submitted.