[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 913-914]
 
            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.  49.108-5  Recognition of judgments and arbitration awards.

    (a) When a subcontractor obtains a final judgment against a prime 
contractor, the TCO shall, for the purposes of settling the prime 
contract, treat the amount of the judgment as a cost of settling with 
the contractor, to the extent the judgment is properly allocable to the 
terminated portion of the prime contract, if--
    (1) The prime contractor has made reasonable efforts to include in 
the

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subcontract a termination clause described in 49.502(e), 49.503(c), or a 
similar clause excluding payment of anticipatory profits or 
consequential damages;
    (2) The provisions of the subcontract relating to the rights of the 
parties upon its termination are fair and reasonable and do not 
unreasonably increase the common law rights of the subcontractor;
    (3) The contractor made reasonable efforts to settle the settlement 
proposal of the subcontractor;
    (4) The contractor gave prompt notice to the contracting officer of 
the initiation of the proceedings in which the judgment was rendered and 
did not refuse to give the Government control of the defense of the 
proceedings; and
    (5) The contractor diligently defended the suit or, if the 
Government assumed control of the defense of the proceedings, rendered 
reasonable assistance requested by the Government.
    (b) If the conditions in subparagraphs (a)(1) through (5) above are 
not all met, the TCO may allow the contractor the part of the judgment 
considered fair for settling the subcontract settlement proposal, giving 
due regard to the policies in this part for settlement of proposals.
    (c) When a contractor and a subcontractor submit the subcontractor's 
settlement proposal to arbitration under any applicable law or contract 
provision, the TCO shall recognize the arbitration award as the cost of 
settling the proposal of the contractor to the same extent and under the 
same conditions as in paragraphs (a) and (b) above.