FAR 49.602-1—Termination settlement proposal forms.
Plain-English Summary
FAR 49.602-1 tells contractors and contracting officers which Standard Forms must be used to submit termination settlement proposals after a contract is terminated. It covers four specific proposal forms: SF 1435 for fixed-price terminations computed on an inventory basis, SF 1436 for fixed-price terminations computed on a total cost basis, SF 1437 for cost-reimbursement contract terminations, and SF 1438 for small fixed-price termination proposals under $10,000. The section exists to standardize how settlement claims are presented so the Government can review, compare, and negotiate them efficiently and consistently. In practice, the form used depends on both the contract type and the method used to compute the settlement, so choosing the wrong form can delay processing or require resubmission. This section is a procedural crossroad between the termination clause, the settlement computation method, and the documentation package the contractor submits to support payment.
Key Rules
Use SF 1435 for inventory basis
If a fixed-price contract termination settlement proposal is computed on an inventory basis, the contractor must use Standard Form 1435. This form applies when the settlement is built around inventory and related termination costs under the inventory-basis method referenced in FAR 49.206-2(a).
Use SF 1436 for total cost basis
If a fixed-price contract termination settlement proposal is computed on a total cost basis, the contractor must use Standard Form 1436. This form is tied to the total-cost method referenced in FAR 49.206-2(b), where the proposal is based on total incurred costs rather than inventory valuation.
Use SF 1437 for cost-reimbursement terminations
For terminated cost-reimbursement contracts, the contractor must use Standard Form 1437. This form is the required settlement proposal form for cost-reimbursement terminations under FAR 49.302.
Use SF 1438 for small fixed-price claims
If a fixed-price termination settlement proposal totals less than $10,000, the contractor must use Standard Form 1438, the short form. This simplified form is intended for smaller settlements and is linked to FAR 49.206-1(d).
Match the form to the settlement method
The required form is determined by both the contract type and the settlement computation method. A contractor cannot choose a form based only on convenience; the form must align with the applicable termination settlement approach.
Responsibilities
Contractor
Prepare and submit the termination settlement proposal on the correct Standard Form based on the contract type, settlement method, and dollar amount. The contractor must ensure the proposal is complete, accurate, and consistent with the applicable FAR settlement procedures.
Contracting Officer
Direct or review the contractor’s use of the proper settlement proposal form and ensure the submission is processed under the correct termination settlement framework. The contracting officer should identify when a proposal appears to be on the wrong form and require correction if needed.
Agency
Provide and administer the standardized forms and settlement procedures used for termination claims. The agency must apply the proper FAR references and internal procedures so settlement proposals are handled consistently.
Practical Implications
Using the wrong form can slow down settlement review and may require the contractor to resubmit the proposal in the proper format.
The contractor must first determine whether the terminated contract is fixed-price or cost-reimbursement, then determine whether the fixed-price settlement is inventory-based, total-cost-based, or qualifies for the short form.
The $10,000 threshold for SF 1438 is important; if the total proposal exceeds that amount, the short form is not the correct form.
Because the forms are tied to specific FAR settlement methods, the form choice can signal whether the contractor has used the correct underlying calculation approach.
Contracting officers should check form selection early, since form errors often indicate broader issues with the settlement computation or supporting documentation.
Official Regulatory Text
(a) Standard Form 1435 , Settlement Proposal (Inventory Basis), shall be used to submit settlement proposals resulting from the termination of fixed-price contracts if the proposals are computed on an inventory basis (see 49.206-2 (a)). (b) Standard Form 1436 , Settlement Proposal (Total Cost Basis), shall be used to submit settlement proposals resulting from the termination of fixed-price contracts if the proposals are computed on a total cost basis (see 49.206-2 (b)). (c) Standard Form 1437 , Settlement Proposal for Cost- Reimbursement Type Contracts, shall be used to submit settlement proposals resulting from the termination of cost-reimbursement contracts (see 49.302 ). (d) Standard Form 1438 , Settlement Proposal (Short Form), shall be used to submit settlement proposals resulting from the termination of fixed-price contracts if the total proposal is less than $10,000 (see 49.206-1 (d)).