FAR 49.305—Adjustment of fee.

General.

FAR 49.305-1 explains how the Termination Contracting Officer (TCO) determines the adjusted fee, if any, payable after a termination for convenience. It covers the basic method for calculating fee based on the percentage of completion of the whole contract or the terminated portion, and it identifies the work factors the TCO must compare against the total work required. Those factors include planning, scheduling, technical study, engineering, production, supervision, placing and supervising subcontracts, and the contractor’s efforts in stopping work, settling terminated subcontracts, and disposing of termination inventory. The section also makes clear that the contractor’s adjusted fee cannot include fee on subcontract effort that is already included in subcontractors’ settlement proposals. Finally, it warns that the ratio of costs incurred to total estimated cost is only one input, not the sole determinant, and the TCO may adjust the completion percentage upward or downward based on other relevant factors. In practice, this section matters because it prevents a mechanical cost-ratio approach and requires a reasoned, work-based evaluation of the contractor’s actual performance before fee is settled.

Construction contracts.

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.