FAR 49.603-1—Fixed price contracts-complete termination.
Plain-English Summary
FAR 49.603-1 provides the standard supplemental agreement language used in Block 14 of SF 30 when a fixed-price contract has been completely terminated and the parties are documenting a final settlement. It covers the contractor’s certifications about termination inventory and scrap, subcontractor certificates, proper accounting for proceeds and retention credits, allocability and reasonableness of inventory costs, notice of material changes in inventory status, assignment of rights in subcontract termination inventory, payment obligations to immediate subcontractors, the government’s acknowledgment of amounts already received and the net settlement amount, and the reservation of rights and liabilities that are not released by the settlement. In practice, this clause is the legal “closeout” document that turns a negotiated termination settlement into a binding final agreement, while preserving any rights the parties intentionally exclude. It is important because it protects the government from overpayment, double recovery, and unresolved downstream subcontract claims, while also giving the contractor certainty that the terminated contract is fully settled except for expressly reserved matters. The section also signals that the contracting officer must carefully tailor the reserved-rights list to the contract and the facts, rather than using boilerplate blindly.
Key Rules
Use in SF 30 Block 14
This language is inserted in Block 14 of SF 30 for settlements of fixed-price contracts that have been completely terminated. It is the standard supplemental agreement format for documenting the final termination settlement.
Contractor inventory certification
The contractor must certify that all termination inventory, including scrap, has been properly retained, acquired, sold, returned, delivered, stored, or otherwise accounted for, and that all proceeds and retention credits were used in the settlement. This prevents hidden inventory value from being left out of the settlement calculation.
Subcontractor certificate chain
If subcontract settlement proposals are included in the prime contractor’s proposal, the contractor must certify that each immediate subcontractor provided a similar certificate, and that each such subcontractor obtained comparable certificates from its own immediate subcontractors. This creates a traceable certification chain for lower-tier termination claims.
Inventory cost limits
The contractor must certify that termination inventory costs used in the settlement are properly allocable to the terminated portion, do not exceed reasonable quantitative requirements, and do not include items reasonably usable on other work without loss. The contracting officer must also be informed of any substantial change in inventory status between the schedules and the agreement date.
Assignment of subcontract inventory rights
The contractor transfers, conveys, and assigns to the Government any right, title, and interest it has received or is entitled to receive in subcontract termination inventory not otherwise properly accounted for. This protects the Government’s ability to recover or control residual value tied to subcontractor inventory.
Payment to subcontractors
Within 10 days after receiving settlement payment, the contractor must pay each immediate subcontractor, or its assignee, the amount due after deducting prior payments and any amounts the contractor elects to offset that are due from the subcontractor. This ensures prompt downstream payment after the prime receives settlement funds.
Settlement amount and finality
The agreement states the amount already received for completed work or services, the gross and net settlement amounts, deductions for unliquidated progress or advance payments, property disposal credits, and any other amounts due the Government. The net settlement, together with prior payments, constitutes payment in full and complete settlement except for reserved rights.
Reserved rights and liabilities
The agreement must preserve any rights and liabilities the parties intend to exclude from the final settlement, including renegotiation matters, royalty-related rights, rights under mandatory statutory or executive-order clauses, and any other applicable contract rights. The contracting officer should omit inapplicable items and add any needed exceptions to avoid unintentionally waiving claims.
Responsibilities
Contracting Officer
Prepare or approve the supplemental agreement language in SF 30 Block 14, tailor the reserved-rights list to the contract, verify that the settlement terms reflect the negotiated amount, and ensure the contractor’s certifications and inventory accounting support the final settlement.
Contractor
Certify the disposition and accounting of all termination inventory and scrap, obtain and pass through required subcontractor certificates, confirm allocability and reasonableness of inventory costs, notify the contracting officer of material inventory changes, assign applicable subcontract inventory rights to the Government, and pay immediate subcontractors within 10 days after receiving settlement funds.
Immediate Subcontractors
Provide certificates to the prime contractor confirming proper accounting for their termination inventory and scrap, use of proceeds and retention credits, and receipt of similar certificates from their own immediate subcontractors when applicable.
Government
Confirm the contractor’s right to retain amounts already received for completed work, pay the net settlement amount when properly invoiced, and preserve any rights and liabilities expressly reserved in the agreement.
Assignees
Receive payment or assigned rights only to the extent recognized in the settlement agreement and applicable assignment arrangements.
Practical Implications
This section is the final paper trail for a complete termination, so errors in inventory accounting, subcontractor certifications, or reserved-rights language can create post-settlement disputes or audit findings.
Contractors should reconcile termination inventory schedules carefully before signing, because the certification covers disposition, proceeds, retention credits, and whether items could be used elsewhere without loss.
Contracting officers should not rely on boilerplate reserved-rights language without checking whether the contract contains special clauses, statutory requirements, royalty issues, or other exceptions that must be preserved.
The 10-day subcontractor payment requirement is a common compliance trap; primes need a process to pay lower-tier settlements promptly after receiving the government’s settlement payment.
Any substantial change in inventory status between the schedule date and the agreement date must be disclosed, or the settlement may be vulnerable to challenge for inaccurate facts or incomplete disclosure.
Official Regulatory Text
[ Insert the following in Block 14 of SF 30 for settlements of fixed-price contracts completely terminated. ] (a) This supplemental agreement settles the settlement proposal resulting from the Notice of Termination dated . (b) The parties agree to the following: (1) The Contractor certifies that all contract termination inventory (including scrap) has been retained or acquired by the contractor, sold to third parties, returned to suppliers, delivered to or stored for the Government, or otherwise properly accounted for, and that all proceeds and retention credits have been used in arriving at this agreement. (2) The Contractor certifies that each immediate subcontractor, whose settlement proposal is included in the proposal settled by this agreement, has furnished the contractor a certificate stating- (i) That all subcontract termination inventory (including scrap) has been retained or acquired by the subcontractor, sold to third parties, returned to suppliers, delivered to or stored for the government, or otherwise properly accounted for, and that all proceeds and retention credits were used in arriving at the settlement of the subcontract, and (ii) That the subcontractor has received a similar certificate from each immediate subcontractor whose proposal was included in its proposal. (3) The contractor certifies that all items of termination inventory, the costs of which were used in arriving at the amount of this settlement or the settlement of any subcontract settlement proposal included in this settlement, (i) are properly allocable to the terminated portion of the contract, (ii)do not exceed the reasonable quantitative requirements of the terminated portion of the contract, and (iii)do not include any items reasonably usable without loss to the Contractor on its other work. The Contractor further certifies that the Contracting Officer has been informed of any substantial change in the status of the items between the dates of the termination inventory schedules and the date of this agreement. (4) The Contractor transfers, conveys, and assigns to the Government all the right, title, and interest, if any, that the Contractor has received, or is entitled to receive, in and to subcontract termination inventory not otherwise properly accounted for. (5) The Contractor shall, within 10 days after receipt of the payment specified in this agreement, pay to each of its immediate subcontractors (or their respective assignees) the amounts to which they are entitled, after deducting any prior payments and, if the Contractor so elects, any amounts due and payable to the Contractor by those subcontractors. (6)(i) The Contractor has received $ for work and services performed, or items delivered, under the completed portion of the contract. The Government confirms the right of the Contractor, subject to paragraph (7) of this section, to retain this sum and agrees that it constitutes a portion of the total amount to which the Contractor is entitled in complete and final settlement of the contract. (ii) Further, the Government agrees to pay to the Contractor or its assignee, upon presentation of a proper invoice or voucher, the sum of $_____ [ insert net amount of settlement ], arrived at by deducting from the sum of $________ [ for proposals on an inventory basis insert gross amount of settlement; for proposals on a total cost basis, insert gross amount of settlement less amount shown in subdivision(6)(i) of this sub-section ]- (A) The amount of $________ for all unliquidated partial or progress payments previously made to the Contractor or its assignee and all unliquidated advance payments (with any interest), (B) The amount of $_______ for all applicable property disposal credits [ insert if appropriate, "and (C) the amount of $____ for all other amounts due the Government under this contract, except as provided in paragraph (7) of this section."] (iii) The net settlement of $____ in subdivision(ii)of this section, together with sums previously paid, constitutes payment in full and complete settlement of the amount due the Contractor for the complete termination of the contract and all other demands and liabilities of the Contractor and the Government under the contract, except as provided in paragraph (b)(7) of this section. (7) Regardless of any other provision of this agreement, the following rights and liabilities of the parties under the contract are reserved: [ The following list of reserved or excepted rights and liabilities is intended to cover those that should most frequently be reserved and that should be scrutinized at the time a settlement agreement is negotiated (see 49.109-2 ). The suggested language of the excepted items on the list may be varied at the discretion of the contracting officer. If accuracy or completeness can be achieved by referencing the number of a contract clause or provision covering the matter in question, then follow that method of enumerating reserved rights and liabilities. Omit any of the following that are not applicable and add any additional exceptions or reservations required. ] (i) All rights and liabilities, if any, of the parties, as to matters covered by any renegotiation authority. (ii) All rights of the Government to take the benefit of agreements or judgments affecting royalties paid or payable in connection with the performance of the contract. (iii) All rights and liabilities, if any, of the parties under those clauses inserted in the contract because of the requirements of Acts of Congress and Executive orders, including, without limitation, any applicable clauses relating to: labor law, contingent fees, domestic articles, and employment of aliens. [ If the contract contains clauses of this character inserted for reasons other than requirements of Acts of Congress or Executive orders, the suggested language should be appropriately modified .] (iv) All rights and liabilities of the parties arising under the contract and relating to reproduction rights, patent infringements, inventions, or applications for patents, including rights to assignments, invention reports, licenses, covenants of indemnity against patent risks, and bonds for patent indemnity obligations, together with all rights and liabilities under the bonds. (v) All rights and liabilities of the parties, arising under the contract or otherwise, and concerning defects, guarantees, or warranties relating to any articles or component parts furnished to the Government by the Contractor under the contract or this agreement. (vi) All rights and liabilities of the parties under the contract relating to any contract termination inventory stored for the Government. (vii) All rights and liabilities of the parties under agreements relating to the future care and disposition by the Contractor of Government-owned property remaining in the Contractor’s custody. (viii) All rights and liabilities of the parties relating to Government property furnished to the Contractor for the performance of this contract. (ix) All rights and liabilities of the parties under the contract relating to options (except options to continue or increase the work under the contract), covenants not to compete, and covenants of indemnity. (x) All rights and liabilities, if any, of the parties under those clauses of the contract relating to price reductions for defective certified cost or pricing data. (End of agreement)