FAR 49.303-3—Audit of settlement proposal.
Plain-English Summary
FAR 49.303-3 addresses the audit review step for termination settlement proposals. It tells the Termination Contracting Officer (TCO) when a settlement proposal must be sent to the appropriate audit agency for review, and it also creates a narrow exception when the proposal is limited only to an adjustment of fee. In practice, this section is about ensuring that termination settlements are independently reviewed when needed so the Government can verify the allowability, allocability, and reasonableness of claimed costs before final settlement. It ties directly to FAR 49.107, which governs the broader audit process for termination settlements. For contractors, this means a settlement proposal may be delayed or scrutinized by auditors before payment is finalized; for the TCO, it means deciding whether the proposal requires audit referral or qualifies for the fee-only exception. The section is short, but it is important because it controls a key checkpoint in the termination settlement process and helps prevent overpayment or unsupported claims.
Key Rules
TCO must refer proposals
The Termination Contracting Officer shall submit the settlement proposal to the appropriate audit agency for review. This is the default rule for settlement proposals covered by this section.
Fee-only exception
If the settlement proposal is limited to an adjustment of fee, the TCO does not need to refer it to the audit agency. This exception is narrow and applies only when the proposal concerns fee adjustment alone.
Follow FAR 49.107
The audit referral process is governed in conjunction with FAR 49.107. That cross-reference means the TCO should use the broader audit guidance in deciding how the review is handled.
Responsibilities
Termination Contracting Officer (TCO)
Review the settlement proposal and determine whether it must be sent to the appropriate audit agency. Submit the proposal for audit review unless the proposal is limited solely to an adjustment of fee.
Audit Agency
Review referred settlement proposals as part of the termination settlement process, providing audit support to help verify the proposal before final settlement.
Contractor
Prepare and submit the settlement proposal knowing it may be referred for audit review. If the proposal involves only a fee adjustment, the contractor may avoid the audit referral step, but must still support the fee adjustment as required.
Practical Implications
Most termination settlement proposals will be routed through audit review, so contractors should expect added time before final resolution.
The fee-only exception is narrow; if the proposal includes any cost elements beyond fee adjustment, the TCO should generally refer it for audit.
Incomplete, unsupported, or poorly organized settlement proposals are more likely to trigger questions during audit and delay settlement.
TCOs should document why a proposal was or was not referred, especially when relying on the fee-only exception.
Contractors should align their proposal format and supporting records with the audit process to reduce back-and-forth and speed settlement.
Official Regulatory Text
The TCO shall submit the settlement proposal to the appropriate audit agency for review (see 49.107 ). However, if the settlement proposal is limited to an adjustment of fee, no referral to the audit agency is required.