FAR 49.303—Procedure after discontinuing vouchers.

Submission of settlement proposal.

FAR 49.303-1 governs how a contractor submits a final settlement proposal after a termination for convenience. It addresses four core subjects: the deadline for filing the proposal, the required form for submission, the scope of costs that may be included, and the exclusion of certain costs that have already been finally disallowed or previously questioned by the Government. In practice, this section is meant to move the termination closeout process forward in an orderly way by requiring the contractor to present a complete, timely, and properly formatted claim for unvouchered costs and any proposed fee. It also protects the Government from paying twice or revisiting costs that have already been resolved against the contractor or are still under formal review. For contractors, this rule is critical because missing the deadline or including improper costs can delay settlement, reduce recovery, or create disputes over allowability. For contracting officers and termination contracting officers, it provides a clear framework for reviewing the proposal and ensuring the settlement is limited to costs that remain open and properly supportable.

Submission of inventory disposal schedules.

FAR 49.303-2 explains when and how a contractor must submit inventory disposal schedules after a termination for convenience or other termination action involving termination inventory. It covers three core subjects: the requirement to submit complete schedules for inventory allocable to the terminated portion of the contract, the 120-day submission deadline measured from the effective date of termination, and the possibility of an extension when the Termination Contracting Officer (TCO) approves it based on a written justification. It also specifies the required form, Standard Form 1428, Inventory Disposal Schedule. In practice, this section is the starting point for the government’s review of what property remains after termination, what is usable, what should be retained, and what may be disposed of or otherwise accounted for. The rule exists to ensure timely, organized, and auditable identification of termination inventory so the government can minimize costs, prevent waste, and resolve termination settlement issues efficiently.

Audit of settlement proposal.

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.

Adjustment of indirect costs.

FAR 49.303-4 addresses how indirect costs are handled when a contract is being finally settled under the Allowable Cost and Payment clause at 52.216-7, but final indirect cost rates have not yet been negotiated. The section gives the Terminating Contracting Officer (TCO) a practical way to avoid delaying closeout by either negotiating a reasonable indirect cost amount for the unsettled period or, if appropriate, using billing rates as final rates for that period. It also allows the TCO to reserve the indirect cost issue in the final settlement agreement so the matter can be resolved later under FAR subpart 42.7 when negotiated rates are established. The rule is designed to balance speed in final settlement with accuracy in cost recovery, especially in termination situations where waiting for final indirect rates could hold up payment and contract closeout. It also protects the integrity of the contractor’s indirect cost structure by requiring an adjustment to the contractor’s pool and base when indirect costs are negotiated under this section, so the same costs are not recovered again on other contracts. In practice, this section is about deciding whether to settle indirect costs now, defer them, or use billing rates as a temporary final measure, and then making sure the contractor’s accounting records are adjusted consistently.

Final settlement.

FAR 49.303-5 explains how the Termination Contracting Officer (TCO) completes a final settlement after a termination for convenience, once the audit report (if one is required) and the contract audit closing statement for vouchered costs are received. It covers the timing of settlement action, the requirement to adjust the termination fee under FAR 49.305, what may be included in the final settlement agreement, and how overall settlements of costs may be reached. The section is designed to move the termination process from audit review into final agreement and payment, while protecting the Government from paying disallowed or otherwise unallowable costs. In practice, it tells the TCO when to proceed, what can be negotiated, and where the limits are on reimbursable amounts. It also makes clear that the parties do not need to agree on every individual cost element if they can reach an overall settlement, but they cannot use that flexibility to approve costs that are clearly not allowable under the contract.