FAR 49.603-4—Cost-reimbursement contracts-complete termination, with settlement limited to fee.
Plain-English Summary
FAR 49.603-4 provides a model SF 30 supplemental agreement for completely terminating a cost-reimbursement contract when the settlement is limited to fee rather than total contract costs. It tells contracting officers how to document that the contract was terminated in its entirety, how to state the amount of fee already paid, how to calculate and record the remaining fee payment, and how to preserve payment of allowable costs under the contract and FAR Parts 31 and 49. It also requires the agreement to reserve specific rights and liabilities that should survive termination, including matters involving renegotiation authority, mandatory statutory and executive-order clauses, patent and invention rights, defects and warranties, Government property, options, covenants not to compete, indemnities, and defective pricing. In practice, this section is a drafting tool for closing out the fee portion of a terminated cost-reimbursement contract while avoiding accidental waiver of important Government or contractor rights. It matters because a poorly drafted settlement can create disputes over what has been paid, what remains payable, and which claims or obligations continue after termination.
Key Rules
Use only for complete terminations
This model applies when a cost-reimbursement contract is terminated in its entirety, not for partial terminations or other settlement structures. The agreement must identify the termination notice date and make clear that the settlement addresses the fee due under the terminated contract.
Settle fee separately
The supplemental agreement is limited to the contractor’s fee, not the full cost settlement. It must state how much fee has already been received and the net amount still owed, with the total of prior and current payments constituting full settlement of fee.
Allowable costs remain payable
The contractor’s allowable costs are not resolved by this fee-only settlement and must still be paid under the contract and FAR Parts 31 and 49. If there are costs to be vouchered out or later covered by a separate settlement agreement, the agreement should include the referenced paragraph addressing that process.
Reserve surviving rights
The agreement must preserve rights and liabilities that are not intended to be waived by the fee settlement. The model lists common reservations, and the contracting officer should omit inapplicable items and add any additional exceptions needed for the specific contract.
Cover statutory and executive-order clauses
Rights and liabilities under clauses inserted because of Acts of Congress or Executive orders should be expressly reserved, including common labor, contingent fee, domestic preference, and alien employment clauses. If the contract includes similar clauses for other reasons, the reservation language should be adjusted accordingly.
Preserve IP and property issues
The settlement should reserve rights relating to reproduction rights, patents, inventions, patent indemnity, Government-furnished or contractor-acquired property, and future care and disposition of Government-owned property remaining with the contractor. These issues often survive termination and should not be unintentionally released.
Keep warranty and pricing remedies alive
The model specifically preserves rights concerning defects, guarantees, warranties, options, covenants not to compete, indemnities, and price reductions for defective certified cost or pricing data. These are common post-termination risk areas and should be reviewed carefully before final signature.
Responsibilities
Contracting Officer
Prepare the SF 30 supplemental agreement using the model language, insert the termination notice date and payment amounts, determine whether paragraph (a)(3) is needed for costs to be vouchered out or later settled, and tailor the reserved-rights list to the contract’s actual clauses and risks. The contracting officer must ensure the settlement is accurate, complete, and does not waive rights that should remain in force.
Contractor
Confirm the fee already received, review the proposed net fee payment, submit a proper invoice or voucher to receive the remaining fee, and continue to pursue allowable cost reimbursement under the contract and applicable FAR cost principles and termination procedures. The contractor should also review the reserved-rights language to understand which obligations continue after termination.
Government
Pay the remaining fee amount upon proper invoicing or voucher submission and continue processing allowable costs under the contract and FAR Parts 31 and 49. The Government must also protect its continuing rights in property, intellectual property, warranties, defective pricing remedies, and other reserved matters.
Assignee, if any
Receive payment if the contract fee has been assigned and the agreement directs payment to the assignee. The assignee must present a proper invoice or voucher consistent with the contract and the settlement agreement.
Practical Implications
This form is a settlement document, not just a payment memo; if the reserved-rights section is incomplete, the Government may accidentally give up claims or remedies it intended to keep.
The biggest drafting risk is confusing fee settlement with total contract settlement. Allowable costs still have to be handled separately, so the contracting officer must not treat the fee-only agreement as a final closeout of all monetary issues.
The reserved-rights list should be customized to the contract. Boilerplate language that leaves inapplicable items or omits relevant clauses can create ambiguity later, especially for patents, property, warranties, and defective pricing.
If there are costs to be vouchered out or later settled, the agreement should clearly point to the correct process; otherwise, payment delays and disputes over final amounts are common.
Because this section is a model clause for SF 30, accuracy in the inserted dates, amounts, and references is critical. Small drafting errors can undermine enforceability or create confusion about what has been fully settled versus what remains open.
Official Regulatory Text
[ Insert the following in Block 14 of SF 30 for settlement of cost-reimbursement contracts that are completely terminated, if settlement is limited to fee .] (a) This supplemental agreement settles the amount of fee due under the contract, terminated in its entirety by Notice of Termination dated . (b) The parties agree to the following: (1) The Contractor has received $ on account of its fee under the contract before the effective date of termination. (2) The Government agrees to pay to the Contractor or its assignee, upon presentation of a proper invoice or voucher, $______ [ insert net amount to be paid on account of fee ]. This sum, with sums previously paid, constitutes payment in full and complete settlement of the amount due the Contractor on account of its fee under the contract. (3) The Contractor’s allowable costs under the contract will be paid under the terms and conditions of the contract and parts 31 and 49 of the Federal Acquisition Regulation. [ Insert paragraph (a)(3) of this subsection only if there are costs to be vouchered out (see 49.302 ) or if there are costs to be covered later by a separate settlement agreement .] (4) 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 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. ] (iii) 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. (iv) 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. (v) 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. (vi) All rights and liabilities of the parties relating to Government property furnished to, or acquired by, the Contractor for the performance of the contract. (vii) 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. (viii) 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)