After the government exercises its rights to terminate your contract under the termination for convenience clause, you then have to submit your damages in a termination for convenience settlement proposal. It must be done within one year. Therefore, you must develop your settlement posture early. The government will almost always try to negotiate down.
The termination for convenience settlement proposal should be submitted in the form with the certification prescribed by the contracting officer, then the government and you should attempt to negotiate a settlement. If the negotiations do not come to some amicable resolution, the contracting officer will typically issue a final decision to which you would have the right to appeal.
Under the Termination for Convenience Clause When Does a Settlement Proposal Become a Claim?
Many companies make the mistake of filing an appeal simply because the contracting officer does not make a timely decision. This can be a costly mistake.
- The CO’s request for other information by itself is not grounds to file an appeal.
- If you file an appeal, the Board of Contract Appeals will dismiss the case for lack of jurisdiction.
A termination for convenience settlement proposal submitted pursuant to the Termination clause does not become a claim under the Contract Disputes Act (CDA) until the settlement proposal negotiations required by the clause have reached an impasse after the settlement proposal has been submitted to the contracting officer for a decision. The US Court of Appeals for the Federal Circuit made this ruling in James M Ellett Construction Co. v. United States, 93 F.3d 1537, 1543-45 (Fed. Cir. 1996).
Continuing letters of deficiency should be taken as positive feedback. Although there is an extreme amount of delay, and companies need termination for convenience damages, extreme care is necessary when deciding to launch litigation or appeal. See also Contractor Termination Tips.
- Sometimes more documentation and clarifications are needed to complete audits before the government can reach a final settlement decision.
- Although contractors become frustrated with continued delays, the government has a right to request information and guard tax payer dollars.
When it comes to your termination for convenience settlement proposal, you are contractually obligated to follow the procedures specified in the Termination clause for a termination for convenience settlement proposal. You cannot simply avoid this requirement by reaching for rights under the Contract Disputes Act procedures. Only when there is a final disagreement (impasse) and there is a final agency decision can the settlement proposal be treated as a contract claim.
- Under the Termination for Convenience Clause Certain facts can constitute a final decision or impasse.
FAR 49.108 Subcontractor Settlement Proposals Under the Termination for Convenience Clause
Under FAR 49.108 , a federal subcontractor has no contractual rights against the Government when there is a termination of the prime contract. However, and pursuant to the subcontract, a subcontractor may have rights against the prime contractor or intermediate subcontractor with whom there is a subcontract. Upon termination for convenience clause of the prime contract, the prime contractor and each subcontractor are responsible for the prompt settlement of the settlement proposals of their immediate subcontractors. The contracting officer’s notice of termination should also prompt prime contractors to settle subcontractor proposals as part of the overall settlement proposal.
FAR 49.108-3 — Settlement Procedure.
(a) Contractors shall settle with subcontractors in general conformity with the policies and principles relating to settlement of prime contracts in this subpart and Subparts 49.2 or 49.3. However, the basis and form of the subcontractor’s settlement proposal must be acceptable to the prime contractor or the next higher tier subcontractor. Each settlement must be supported by accounting data and other information sufficient for adequate review by the Government. In no event will the Government pay the prime contractor any amount for loss of anticipatory profits or consequential damages resulting from the termination of any subcontract.
Convenience Termination Settlement Proposals Suspected Fraud FAR 49.6 – Fraud or Other Criminal Conduct
If the contracting officer (CO) suspects fraud or other criminal conduct related to the settlement proposal of a terminated contract for convenience, the CO shall discontinue negotiations and report the facts under agency procedures to respective law enforcement agencies. Sometimes, when developing your settlement posture, you may or may not be aware of the problem of suspected criminal conduct. If you are, then you should immediately contact a government contract termination for convenience attorney.
Applicable FAR Language for Termination Settlement Proposals
(a) Subject to the provisions of the termination clause, the contractor should promptly submit to the TCO a settlement proposal for the amount claimed because of the termination. The final settlement proposal must be submitted within one year from the effective date of the termination unless the period is extended by the TCO. Termination charges under a single prime contract involving two or more divisions or units of the prime contractor may be consolidated and included in a single settlement proposal.
(b) The settlement proposal must cover all cost elements including settlements with subcontractors and any proposed profit. With the consent of the TCO, proposals may be filed in successive steps covering separate portions of the contractor’s costs. Such interim proposals shall include all costs of a particular type, except as the TCO may authorize otherwise.
(c) Settlement proposals must be on the forms prescribed in 49.602 unless the forms are inadequate for a particular contract. Settlement proposals must be in reasonable detail supported by adequate accounting data. Actual, standard (appropriately adjusted), or average costs may be used in preparing settlement proposals if they are determined under generally recognized accounting principles consistently followed by the contractor. When actual, standard, or average costs are not reasonably available, estimated costs may be used if the method of arriving at the estimates is approved by the TCO. Contractors shall not be required to maintain unduly elaborate cost accounting systems merely because their contracts may subsequently be terminated.
(d) The contractor may use the Settlement Proposal (Short Form), SF 1438 (see 49.602-1(d) and 53.249), when the total proposal is less than $10,000, unless otherwise instructed by the TCO. Settlement proposals that would normally be included in a single settlement proposal; e.g., those based on a series of separate orders for the same item under one contract, should be consolidated whenever possible and not divided to bring them below $10,000.
(e) The Schedule of Accounting Information, SF 1439, must be submitted for each termination under a contract for which a settlement proposal is submitted, except when the Standard Form 1438 is used. Although several interim proposals may be submitted, SF 1439 need be submitted only once unless, subsequent to filing the original form, major changes occur in the information submitted.
If you need help with preparing or litigating issues related to a termination for convenience settlement proposal, contact our government contract claims attorneys at 1-866-601-5518.