FAR 49.603-5—Cost-reimbursement contracts-partial termination.
Plain-English Summary
FAR 49.603-5 provides a model settlement agreement clause for use in SF 30 when a cost-reimbursement contract is partially terminated. It addresses how the parties document the settlement of the termination settlement proposal, identify the notice of termination, and amend the contract to remove the terminated portion. The section also requires the terminated work to be described with enough specificity to avoid uncertainty, including line item numbers, descriptions, quantities, unit and total prices, and any other clarifying details. It further directs the parties to reduce the contract fee, and, when appropriate, the estimated cost, to reflect the partial termination. Finally, it preserves the contractor’s right to continue billing allowable costs and earned fee for the terminated portion on SF 1034 under the contract and FAR part 31. In practice, this section is a drafting tool that helps contracting officers and contractors memorialize a partial termination cleanly, prevent disputes over what work was removed, and ensure continued reimbursement is handled correctly after termination.
Key Rules
Use SF 30 settlement language
The agreement is inserted in Block 14 of SF 30 for settlement agreements arising from a partial termination of a cost-reimbursement contract. The clause is intended to memorialize the settlement of the termination settlement proposal tied to the specific notice of termination date.
Identify the terminated work precisely
The terminated portion must be deleted from the contract and described clearly enough to avoid ambiguity. The model requires line item numbers, descriptions, quantities terminated, unit and total prices, and any other explanation needed to prevent uncertainty or misunderstanding.
Adjust fee and cost amounts
The contract fee must be decreased by the agreed amount, showing the original and revised fee. If appropriate, the estimated cost of the contract must also be decreased, with the original and revised estimated cost stated in the agreement.
Preserve reimbursement for allowable termination costs
The contractor’s allowable costs and earned fee, if any, for the terminated portion continue to be reimbursed on SF 1034. Those reimbursements remain subject to the contract terms and FAR part 31 cost principles.
Settlement agreement finalizes the partial termination
The document is a supplemental agreement that settles the termination settlement proposal, meaning it is the written record of the parties’ agreement on the financial and contractual consequences of the partial termination.
Responsibilities
Contracting Officer
Prepare or use the SF 30 settlement language, ensure the notice of termination date is correctly identified, clearly amend the contract to delete the terminated portion, and document the agreed reductions in fee and, when appropriate, estimated cost.
Contractor
Submit and support the termination settlement proposal, agree to the contract modifications reflected in the settlement, and continue to bill allowable costs and earned fee for the terminated portion using SF 1034 in accordance with the contract and FAR part 31.
Agency
Ensure the settlement agreement is properly executed and retained in the contract file, and support administration of reimbursement and closeout actions associated with the partial termination.
Practical Implications
The biggest drafting risk is ambiguity about what was terminated; vague descriptions can lead to disputes over remaining work, pricing, and billing.
Fee and estimated cost adjustments must be consistent with the settlement; failing to update them can create accounting and payment errors.
Even after partial termination, the contractor may still bill allowable termination-related costs and earned fee, so payment staff must distinguish those charges from ongoing performance costs.
The SF 30 language is a model, but it should be tailored to the actual contract line items and termination facts to avoid uncertainty.
Because reimbursement continues under FAR part 31, unsupported or unallowable costs can still be questioned or disallowed during settlement review.
Official Regulatory Text
[ Insert the following in Block 14 of SF 30 , Amendment of Solicitation/Modification of Contract, for settlement agreements for cost-reimbursement contracts as a result of partial termination. ] (a) This supplemental agreement settles the termination settlement proposal resulting from the Notice of Termination dated . (b) The parties agree as follows: (1) The contract is amended by deleting the terminated portion as follows: [ specify the terminated portion clearly as to- (i) Line item numbers, (ii) Descriptions, (iii) Quantity terminated, (iv) Unit and total price of terminated items, and (v) Any other explanation necessary to avoid uncertainty or misunderstanding ]. (2) The fee stated in the contract is decreased by $__, from $ to $_ [ Insert, if appropriate, "(3) The estimated cost of the contract is decreased by $, from $ to $____"]. (c) The Contractor’s allowable costs and earned fee, if any, for the terminated portion of the contract will continue to be reimbursed on SF 1034 , Public Voucher for Purchase and Services Other Than Personal, under the applicable provisions of the contract and part 31 of the Federal Acquisition Regulation. (End of agreement)