FAR 49.304-1—General.
Plain-English Summary
FAR 49.304-1 explains how the Termination Contracting Officer (TCO) handles a partial termination under a cost-reimbursement contract when only part of the work is ended. It covers the default rule that the settlement is limited to adjusting the fee, if any, and, with contracting office concurrence, reducing the estimated cost; it also points to the specific fee-adjustment procedures in FAR 49.304-2 and 49.305. The section then identifies two exceptions: when the terminated portion is clearly severable from the rest of the contract, or when performance is virtually complete, only subsidiary items or spare parts remain, or the remaining performance is otherwise not substantial. In those exception cases, the more general partial-termination procedures in FAR 49.302 and 49.303 apply instead. Practically, this section matters because it determines whether the government treats the partial termination as a limited accounting adjustment or as a broader partial-termination settlement, which affects how costs, fee, and settlement procedures are handled.
Key Rules
Default partial-termination treatment
In a partial termination, the TCO generally limits the settlement to adjusting the fee, if any, and, with contracting office concurrence, reducing the estimated cost. This means the government does not automatically reopen the entire contract settlement process just because part of the work is terminated.
Fee adjustment required
The TCO must adjust the fee under FAR 49.304-2 and 49.305 unless an exception applies. The rule makes fee treatment a central part of the partial-termination settlement.
Estimated cost reduction needs concurrence
Any reduction in estimated cost requires concurrence from the contracting office. The TCO cannot unilaterally change the estimated cost without that coordination.
Severable work exception
If the terminated portion is clearly severable from the rest of the contract, the default limited-fee-adjustment approach does not apply. In that case, the procedures in FAR 49.302 and 49.303 govern.
Near-complete performance exception
If performance is virtually complete, or only subsidiary items or spare parts remain, or the remaining work is otherwise not substantial, the section treats the situation differently. The broader procedures in FAR 49.302 and 49.303 apply instead of the limited adjustment rule.
Broader partial-termination procedures apply in exceptions
When either exception applies, the TCO follows FAR 49.302 and 49.303. Those provisions provide the general partial-termination framework rather than the narrower settlement approach in paragraph (a).
Responsibilities
Termination Contracting Officer (TCO)
Determine whether the partial termination falls under the default rule or one of the exceptions; limit the settlement to fee adjustment and, if appropriate, estimated cost reduction; apply the fee-adjustment procedures in FAR 49.304-2 and 49.305 unless an exception applies; use FAR 49.302 and 49.303 when the terminated portion is severable or the remaining performance is not substantial.
Contracting Office
Provide concurrence before any reduction in estimated cost is made under the default rule. The contracting office must coordinate with the TCO on the cost adjustment decision.
Contractor
Support the settlement process by providing the information needed to determine fee impact, estimated cost impact, severability, and the extent of remaining performance. The contractor should be prepared to show whether the terminated work is separable or whether the contract is near completion.
Practical Implications
This section is a threshold rule: before settling a partial termination, the TCO must decide whether the case is a limited fee/cost adjustment or a broader partial-termination settlement.
A common pitfall is treating every partial termination the same; the severability and substantial-completion exceptions can change which FAR procedures apply.
Another frequent issue is reducing estimated cost without the required contracting office concurrence.
Contractors should document how much of the work remains and whether the terminated portion is functionally separate, because that can affect the settlement path and the amount at stake.
For contracting personnel, the key practical question is not just what was terminated, but whether the remaining contract work is still substantial enough to justify the default limited approach.
Official Regulatory Text
(a) In a partial termination, the TCO shall limit the settlement to an adjustment of the fee, if any, and with the concurrence of the contracting office to a reduction in the estimated cost. The TCO shall adjust the fee as provided in 49.304-2 and 49.305 , unless- (1) The terminated portion is clearly severable from the balance of the contract; or (2) Performance of the contract is virtually complete, or performance of any continued portion is only on subsidiary items or spare parts, or is otherwise not substantial. (b) In the case of the exceptions in paragraph (a), the procedures in 49.302 and 49.303 apply.