FAR 49.603-7—No-cost settlement agreement-partial termination.
Plain-English Summary
FAR 49.603-7 provides the standard contract language for documenting a no-cost settlement agreement when only part of a contract is terminated. It tells contracting officers what to insert in Block 14 of SF 30 and what the supplemental agreement must say about the notice of termination, the exact terminated portion of the contract, and the parties’ mutual release of claims and obligations for that terminated portion. The section also requires the agreement to preserve any rights and liabilities that are not being waived, so the termination does not accidentally erase unrelated contract terms or unresolved issues. In practice, this clause is used to close out a partial termination without a monetary settlement when the parties agree that neither side owes the other additional compensation for the terminated work. It is important because it creates a clear written record, reduces later disputes, and ensures the termination is limited to the specific line items, quantities, and obligations actually being ended.
Key Rules
Use SF 30 Block 14
If the parties execute a no-cost settlement agreement for a partial termination, the contracting officer must place the prescribed language in Block 14 of SF 30. This makes the agreement an official supplemental agreement modifying the contract.
Reference the termination notice
The agreement must identify the Notice of Termination by date. This ties the settlement to the specific termination action and avoids confusion with any other contract changes or termination notices.
Describe the terminated portion precisely
The agreement must specify the terminated portion of the contract, including line item numbers, descriptions, quantities terminated, unit and total prices of the terminated items, and any other explanation needed to avoid uncertainty or misunderstanding. Precision is essential so the parties know exactly what work, supplies, or services are covered.
Contractor waives termination claims
The contractor must unconditionally waive any charges against the Government arising under the terminated portion of the contract or because of its termination. This includes, without limitation, any further payment obligations or other undertakings by the Government related to the terminated portion.
Government releases further performance duties
The Government acknowledges that the contractor has no further obligation to perform work, services, or deliveries under the terminated portion of the contract. This confirms that the terminated work is fully ended and prevents later demands for performance on that portion.
Preserve other contract terms
The agreement must state that nothing in the paragraph affects other covenants, terms, or conditions of the contract. The no-cost settlement applies only to the terminated portion and does not rewrite the rest of the contract.
Reserve specific rights and liabilities
The agreement must list any rights and liabilities that are reserved or excepted under the terminated portion. The section points to FAR 49.109-2 and 49.603-1(b)(7) for guidance, so parties should identify any issues that remain open despite the no-cost settlement.
Responsibilities
Contracting Officer
Prepare the supplemental agreement using the prescribed SF 30 language, accurately identify the terminated portion, and ensure any reserved or excepted rights and liabilities are listed. The contracting officer must make sure the agreement clearly limits the settlement to the partial termination and does not unintentionally affect the rest of the contract.
Contractor
Agree to the no-cost settlement terms, unconditionally waive charges arising from the terminated portion, and confirm that no further performance, delivery, or service obligations remain for that portion. The contractor should also review the reserved rights and liabilities to ensure no unintended waiver of valid claims or protections.
Government/Agency
Acknowledge that the contractor has no further obligation under the terminated portion and accept the no-cost settlement as a final resolution of that partial termination. The agency must ensure the settlement is properly documented and that any rights or liabilities that should survive are expressly reserved.
Practical Implications
This section is mainly about clean documentation: if the terminated portion is not described precisely, later disputes can arise over what was actually ended and what remains due.
A no-cost settlement is not the same as a blanket release of the entire contract; only the terminated portion is covered, so parties must be careful not to overstate the waiver or release.
Reserved rights and liabilities matter a lot. If they are not listed clearly, a party may later argue that an issue was waived or, conversely, that it was never resolved.
Contracting officers should verify that the termination notice date, line items, quantities, and prices match the underlying contract records and termination action.
Contractors should review the agreement for hidden waivers, especially language that could be read to eliminate claims, equitable adjustments, or other rights unrelated to the terminated portion.
Official Regulatory Text
[ Insert the following in Block 14 of SF 30 if a no-cost settlement agreement, under partial termination, is to executed. ] (a) This supplemental agreement modifies the contract to reflect a no-cost settlement agreement with respect to the Notice of Termination dated ____. (b) The parties agree as follows: (1) The terminated portion of the contract is as follows: [ Specify- (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 Contractor unconditionally waives any charges against the Government arising under the terminated portion of the contract or by reason of its termination, including, without limitation, all obligations of the Government to make further payments or to carry out any further undertakings under the terminated portion of the contract. The Government acknowledges that the Contractor has no obligation to perform further work or services or to make further deliveries under the terminated portion of the contract. Nothing in this paragraph affects any other covenants, terms, or conditions of the contract. Under the terminated portion of the contract, the following rights and liabilities of the parties are reserved: [ List reserved or excepted rights and liabilities. See 49.109-2 and 49.603-1 (b)(7). ] (End of agreement)