[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR49]

[Page 910-911]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 49_TERMINATION OF CONTRACTS--Table of Contents
 
                     Subpart 49.1_General Principles
 
Sec.  49.107  Audit of prime contract settlement proposals and subcontract 
settlements.

    (a) The TCO shall refer each prime contractor settlement proposal of 
$100,000 or more to the appropriate audit agency for review and 
recommendations. The TCO may submit settlement proposals of less than 
$100,000 to the audit agency. Referrals shall indicate any specific 
information or data that the TCO desires and shall include facts and 
circumstances that will assist the audit agency in performing its 
function. The audit agency shall develop requested information and may 
make any further accounting reviews it considers appropriate. After

[[Page 911]]

its review, the audit agency shall submit written comments and 
recommendations to the TCO. When a formal examination of settlement 
proposals under $100,000 is not warranted, the TCO will perform or have 
performed a desk review and include a written summary of the review in 
the termination case file.
    (b) The TCO shall refer subcontract settlements received for 
approval or ratification to the appropriate audit agency for review and 
recommendations when (1) the amount exceeds $100,000 or (2) the TCO 
wants a complete or partial accounting review. The audit agency shall 
submit written comments and recommendations to the TCO. The review by 
the audit agency does not relieve the prime contractor or higher tier 
subcontractor of the responsibility for performing an accounting review.
    (c)(1) The responsibility of the prime contractor and of each 
subcontractor (see 49.108) includes performance of accounting reviews 
and any necessary field audits. However, the TCO should request the 
Government audit agency to perform the accounting review of a 
subcontractor's settlement proposal when--
    (i) A subcontractor objects, for competitive reasons, to an 
accounting review of its records by an upper tier contractor;
    (ii) The Government audit agency is currently performing audit work 
at the subcontractor's plant, or can perform the audit more economically 
or efficiently;
    (iii) Audit by the Government is necessary for consistent audit 
treatment and orderly administration; or
    (iv) The contractor has a substantial or controlling financial 
interest in the subcontractor.
    (2) The audit agency should avoid duplication of accounting reviews 
performed by the upper tier contractor on subcontractor settlement 
proposals. However, this should not preclude the Government from making 
additional reviews when appropriate. When the contractor is performing 
accounting reviews according to this section, the TCO should request the 
audit agency to periodically examine the contractor's accounting review 
procedures and performance, and to make appropriate comments and 
recommendations to the TCO.
    (d) The audit report is advisory only, and is for the TCO to use in 
negotiating a settlement or issuing a unilateral determination. 
Government personnel handling audit reports must be careful not to 
reveal privileged information or information that will jeopardize the 
negotiation position of the Government, the prime contractor, or a 
higher tier subcontractor. Consistent with this, and when in the 
Government's interest, the TCO may furnish audit reports under paragraph 
(c) above to prime and higher tier subcontractors for their use in 
settling subcontract settlement proposals.

[48 FR 42447, Sept. 19, 1983, as amended at 55 FR 52797, Dec. 21, 1990]