FAR 49.206—Settlement proposals.

Submission of settlement proposals.

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.

Bases for settlement proposals.

FAR 49.206-2 explains the approved bases for preparing termination settlement proposals and when each basis may be used. It covers the preferred inventory basis, the total-cost basis, the special situations where the inventory basis is still appropriate, the circumstances requiring advance approval to use the total-cost basis, and the rule that no other settlement basis may be used without higher-level approval. The section also identifies what cost elements must be itemized under each method, including materials, work in process, engineering and initial costs, subcontract settlements, settlement expenses, profit or loss adjustments, and deductions for advance payments, progress payments, disposal credits, and other known credits. In practice, this section is the roadmap for how a contractor should build a termination settlement proposal and how the Termination Contracting Officer (TCO) should evaluate whether the proposal is on the correct basis. It matters because the chosen basis affects what costs can be claimed, when the proposal can be submitted, and how deductions and profit/loss adjustments are applied. For contractors, the section is critical to avoid unsupported claims or premature submission; for contracting officials, it helps ensure settlements are prepared consistently and in accordance with FAR policy.

Submission of inventory disposal schedules.

FAR 49.206-3 explains how a contractor must submit inventory disposal schedules when a contract is terminated and termination inventory exists. It covers three main subjects: the duty to prepare a complete schedule of inventory allocable to the terminated portion of the contract, the deadline for submitting that schedule to the Termination Contracting Officer (TCO), and the required use of Standard Form 1428, Inventory Disposal Schedule. The rule operates subject to the termination clause, meaning the contract’s termination provisions and any applicable agency procedures still control the details of the process. In practice, this section is important because the inventory disposal schedule is the contractor’s formal accounting of property, materials, and other inventory that may be subject to Government disposition, settlement, or reimbursement decisions after termination. Timely and accurate submission helps the TCO evaluate the Government’s interest, process the termination settlement, and avoid delays, disputes, or unsupported claims for inventory costs.