FAR 49.301—General.
Plain-English Summary
FAR 49.301 is a short but important general rule for terminations of cost-reimbursement contracts. It explains that the termination clauses used in these contracts must address settlement of both costs and fee, if any, and it ties the allowability of costs to the contract’s governing cost clauses rather than to the termination clause itself. In practice, this means a contractor’s recovery after termination is not determined by the termination provision alone; the underlying cost principles and contract clauses control which costs are allowable, allocable, and recoverable. The section matters because it sets the framework for how termination settlements are calculated in cost-reimbursement contracting, including what can be claimed, what cannot, and how any fee is treated. It also signals that termination settlement is a specialized process that depends on the contract’s cost-reimbursement structure and incorporated cost clauses. For contracting officers and contractors, this section is a reminder to look first to the contract’s cost provisions when evaluating a termination settlement proposal.
Key Rules
Termination clauses cover settlement
For cost-reimbursement contracts, the termination clauses must provide for settlement of costs and any fee. This means the contract should contain a mechanism for resolving what the contractor is owed when the work ends before completion.
Cost clauses control allowability
The contract clauses governing costs determine which costs are allowable. The termination clause does not create cost allowability by itself; the incorporated cost principles and contract terms decide whether a claimed cost may be recovered.
Fee is addressed separately
If the contract includes a fee, the termination settlement must also address that fee. Whether any fee is payable depends on the contract terms and the applicable termination provisions, not simply on the fact that the contract was terminated.
Applies to cost-reimbursement contracts
This rule specifically concerns cost-reimbursement contracts. It is a general statement about how termination settlements work in that contract type, and it should be read together with the detailed termination procedures in FAR Part 49 and the contract’s own clauses.
Responsibilities
Contracting Officer
Use the contract’s termination and cost clauses to evaluate settlement proposals, determine what costs are allowable, and ensure any fee treatment follows the contract terms and applicable FAR provisions.
Contractor
Prepare termination settlement proposals based on the contract’s cost clauses and termination provisions, and claim only those costs that are allowable under the governing contract terms.
Agency
Include appropriate termination clauses and cost clauses in cost-reimbursement contracts so that settlements can be administered consistently and in accordance with FAR requirements.
Practical Implications
A contractor cannot assume all termination-related costs are recoverable; allowability depends on the contract’s cost clauses and applicable cost principles.
When a cost-reimbursement contract is terminated, the settlement process must address both reimbursable costs and any fee issue, if the contract provides for a fee.
Contracting officers should review the underlying cost clauses before accepting or negotiating a settlement proposal, because the termination clause alone does not establish allowability.
A common pitfall is treating termination settlement as a standalone calculation without checking whether the claimed costs are allowable, allocable, and otherwise supported under the contract.
This section reinforces the need to read the termination clause together with the cost-reimbursement and cost-principle clauses, since those provisions control the actual recovery outcome.
Official Regulatory Text
Termination clauses for cost-reimbursement contracts (see 49.503 (a)) provide for the settlement of costs and fee, if any. The contract clauses governing costs shall determine what costs are allowable.