FAR 49.603-8—Fixed-price contracts-settlements with subcontractors only.
Plain-English Summary
FAR 49.603-8 provides the standard SF 30 settlement agreement language for a very specific type of termination settlement: a fixed-price contract settlement that covers only the contractor’s settlement with its subcontractors. It addresses how to identify the terminated subcontracts included in the settlement, what the contractor must certify about subcontractor certificates, how termination inventory and scrap must be accounted for, how the contractor must confirm the inventory is properly allocable and not usable elsewhere, how rights in unaccounted-for subcontract termination inventory are assigned to the Government, how the contractor must pay its immediate subcontractors after receiving settlement funds, and how the Government’s payment and any prior partial, progress, or advance payments are treated. It also preserves any reserved or excepted rights and liabilities, with cross-references to FAR 49.109-2 and 49.603-1(b)(7). In practice, this clause is used to document and close out the subcontractor portion of a termination settlement while protecting the Government from duplicate payment, improper inventory treatment, and unresolved liabilities. It is both a payment instrument and a certification package, so accuracy, traceability, and proper reservation of rights are critical.
Key Rules
Use only for subcontractor settlements
This SF 30 language is limited to settlements of fixed-price contracts that cover only settlements with subcontractors. The agreement must specifically list the terminated subcontracts included in the settlement so the scope of the release is clear.
Subcontractor certificates are required
The contractor must certify that each immediate subcontractor included in the settlement has provided a certificate covering inventory disposition and proceeds, and that each such subcontractor has obtained similar certificates from its own immediate subcontractors included in its proposal.
Termination inventory must be properly accounted for
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 to the contractor.
Government must be told of material changes
If the status of termination inventory changes materially between the inventory schedules and the date of the agreement, the contractor must inform the contracting officer before settlement is finalized.
Unaccounted-for inventory is assigned to the Government
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 that is not otherwise properly accounted for.
Subcontractors must be paid promptly
Within 10 days after receiving the 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 to the contractor.
Government payment is in full settlement, with exceptions
The Government pays the net settlement amount upon proper invoice or voucher, and that payment—together with prior partial, progress, or advance payments—constitutes full and complete settlement of the covered subcontract portion, except for any rights and liabilities specifically reserved.
Reserved rights must be listed
Any rights and liabilities the parties intend to preserve must be expressly listed in the agreement. The clause points to FAR 49.109-2 and 49.603-1(b)(7) for handling exceptions and reservations.
Responsibilities
Contracting Officer
Ensure the settlement agreement is used only for the subcontractor portion of a fixed-price termination settlement, verify that the terminated subcontracts are identified, review any reserved or excepted rights and liabilities, and confirm the contractor’s certifications and supporting documentation are adequate before payment.
Contractor
Obtain and provide the required certificates from each immediate subcontractor, certify the status and proper allocation of termination inventory, notify the contracting officer of any substantial inventory changes, assign rights in unaccounted-for inventory to the Government, and pay immediate subcontractors within 10 days after receiving settlement funds.
Immediate Subcontractor
Provide the contractor a certificate stating how subcontract termination inventory and scrap were handled, that proceeds and retention credits were properly used in the settlement, and, if applicable, obtain similar certificates from its own immediate subcontractors whose proposals were included.
Government
Pay the contractor or assignee the agreed net settlement amount upon proper invoice or voucher, recognize the settlement as full payment for the covered subcontract portion subject to any expressly reserved rights, and receive any assigned interest in unaccounted-for subcontract termination inventory.
Practical Implications
This clause is designed to prevent double recovery and unsupported inventory claims, so the contractor’s documentation chain matters as much as the dollar amount of the settlement.
A common pitfall is failing to collect complete subcontractor certificates, especially where lower-tier subcontractors are involved; missing certificates can delay settlement or create audit risk.
Another frequent issue is inventory that has changed status after the schedules were prepared; if the contractor does not disclose those changes, the settlement may be inaccurate or later challenged.
The 10-day subcontractor payment requirement is operationally important and should be tracked carefully, because the contractor’s receipt of Government funds triggers a prompt downstream payment obligation.
Reserved rights should be drafted with precision; if a liability or claim is not expressly reserved, the agreement may be treated as a complete settlement of the covered subcontract portion.
Official Regulatory Text
[ Insert the following in Block 14 of SF 30 for settlements of fixed-price contracts covering only settlements with subcontractors. ] (a) This agreement settles that portion of the settlement proposal of the contractor that is based upon termination of the following subcontracts entered into in performing this contract: [ Insert a list of the terminated subcontracts included in this settlement. ] (b) The parties agree to the following: (1) The Contractor certifies that each immediate subcontractor, whose settlement proposal is included in the proposal settled by the 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. (2) 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. (3) 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. (4) 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. (5) The Government agrees to pay the Contractor or its assignee, upon presentation of a proper invoice or voucher, $____ [ insert net amount of settlement ], which, together with the amount of $____ previously paid the Contractor as partial, progress, or advance payments, constitutes payment in full and complete settlement, except as provided in paragraph (b)(6) of this section, of the amount due the Contractor for that portion of its settlement proposal that is based upon termination of the subcontracts listed above. (6) Regardless of any other provision of this agreement, the following rights and liabilities of the parties under the contract are reserved: [ List reserved or excepted rights and liabilities. See 49.109-2 and 49.603-1 (b)(7) .] (End of agreement)