FAR 49.305-2—Construction contracts.
Plain-English Summary
FAR 49.305-2 explains how to measure the percentage of completion for construction contracts when a termination settlement or equitable adjustment must be calculated using a percentage-of-completion approach. It makes clear that completion is based on the contractor’s total effort, not just the physical construction work in place, and it identifies the kinds of effort that may be counted: mobilization and organization, use of finances, contracting for and receiving materials, placing subcontracts, preparing shop drawings, work performed by the contractor’s own forces, supervising subcontractors, job administration, and demobilization. The section also requires those factors to be weighted according to their importance and difficulty, with the total weights set up so they can be easily converted into percentages. In practice, this provision gives contracting officers and contractors a structured way to measure progress fairly on cost-reimbursement construction or professional services contracts, especially when work is partially completed or terminated. Its purpose is to avoid simplistic measures that look only at visible construction and instead capture the full effort and cost drivers of contract performance. The result is a more defensible calculation of completion percentage and, ultimately, a more equitable fee adjustment.
Key Rules
Completion Means Total Effort
Percentage of completion is measured by the contractor’s total effort, not just the amount of construction physically installed. This prevents undercounting early-stage and support activities that are essential to performance.
Relevant Effort Factors
The section identifies nine example factors that may be used to measure completion, including mobilization, financing, materials, subcontracts, shop drawings, work in place, subcontract supervision, job administration, and demobilization. These factors are not automatic in every case, but they provide the framework for evaluating the contract’s actual performance profile.
Weights Must Reflect Importance
Each applicable factor must be assigned a weighted value based on its importance and difficulty. The weighting should reflect the realities of the specific contract, rather than using a one-size-fits-all formula.
Weights Should Be Easy To Convert
The total weight of all factors should be set up so it is easily divisible, such as by 100. This makes it straightforward to convert weighted factor completion into an overall percentage of completion.
Completion Must Be Fact-Specific
The percentage of completion for each factor must be determined from the specific facts of each contract. The rule requires an individualized assessment, not a generic estimate or industry average.
Apply Percentage To Fee
After the weighted factor percentages are totaled, the resulting overall completion percentage is applied to the total contract fee or the fee applicable to the terminated portion of the contract. That calculation produces the equitable adjustment.
Responsibilities
Contracting Officer
Identify the applicable completion factors, ensure the weighting approach is reasonable and tied to the contract’s facts, and use the resulting completion percentage to calculate the fee adjustment or termination settlement. The contracting officer must also make sure the method is applied fairly and consistently.
Contractor
Provide accurate, supportable information on the status of each applicable factor, including mobilization, procurement, subcontracting, shop drawings, work performed, supervision, administration, and demobilization. The contractor should substantiate the claimed percentage of completion with records and project data.
Agency
Support the contracting officer with technical, cost, and project information needed to evaluate completion and weighting. The agency should help ensure the method reflects the actual performance structure of the contract and can withstand review.
Auditors or Settlement Analysts
Review the proposed factor percentages and weights for reasonableness, consistency, and documentation. They should verify that the calculation is based on contract-specific facts and that the final fee adjustment follows the weighted completion method.
Practical Implications
This section matters most when a construction or professional services contract is terminated or otherwise requires a fee adjustment based on partial performance. It gives a defensible way to measure progress when physical work alone does not tell the full story.
A common pitfall is overemphasizing visible construction and ignoring front-end and back-end effort such as mobilization, procurement, subcontracting, and demobilization. That can distort the completion percentage and unfairly reduce or inflate the fee.
Another risk is using arbitrary weights or a template that does not match the contract. The weights must be tailored to the specific project, because different contracts place different importance on financing, materials, subcontracting, or self-performed work.
Contractors should keep detailed records showing the status of each factor, not just percent complete for installed work. Without documentation, it is difficult to support a higher completion percentage for non-physical effort.
Contracting officers should ensure the total weight structure is easy to calculate and explain. A clean, transparent weighting system reduces disputes and makes the equitable adjustment easier to defend.
Official Regulatory Text
(a) The percentage of completion basis refers to the contractor’s total effort and not solely to the actual construction work. Generally, the effort of a contractor under a cost-reimbursement construction or professional services contract can be segregated into factors such as- (1) Mobilization including organization, (2) Use of finances, (3) Contracting for and receipt of materials, (4) Placement of subcontracts, (5) Preparation of shop drawings, (6) Work in place performed by own forces, (7) Supervision of subcontractors’ work, (8) Job administration, and (9) Demobilization. (b) Each of the applicable factors in paragraph (a) of this section shall be assigned a weighted value depending on its importance and difficulty. The total weight value of all factors should be easily divisible ( e.g., by 100) to determine percentages. The percentage of completion of each factor must be established based upon the specific facts of each contract. When totaled, the percentage of completion of each factor applied to the weighted value of each factor results in the overall percentage of contract completion. The percentage of completion is then applied to the total contract fee or to the fee applicable to the terminated portion of the contract to arrive at an equitable adjustment.