[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 922-923]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 49_TERMINATION OF CONTRACTS--Table of Contents
 
Subpart 49.2_Additional Principles for Fixed-Price Contracts Terminated 
                             for Convenience
 
Sec.  49.206-2  Bases for settlement proposals.

    (a) Inventory basis. (1) Use of the inventory basis for settlement 
proposals is preferred. Under this basis, the contractor may propose 
only costs allocable to the terminated portion of the contract, and the 
settlement proposal must itemize separately--
    (i) Metals, raw materials, purchased parts, work in process, 
finished parts, components, dies, jigs, fixtures, and tooling, at 
purchase or manufacturing cost;
    (ii) Charges such as engineering costs, initial costs, and general 
administrative costs;
    (iii) Costs of settlements with subcontractors;
    (iv) Settlement expenses; and
    (v) Other proper charges.
    (2) An allowance for profit (49.202) or adjustment for loss 
(49.203(b)) must be made to complete the gross settlement proposal. All 
unliquidated advance and progress payments and all disposal and other 
credits known when the proposal is submitted must then be deducted.
    (3) This inventory basis is also appropriate for use under the 
following circumstances:
    (i) The partial termination of a construction or related 
professional services contract.
    (ii) The partial or complete termination of supply orders under any 
terminated construction contract.
    (iii) The complete termination of a unit-price (as distinguished 
from a lump-sum) professional services contract.
    (b) Total cost basis. (1) When use of the inventory basis is not 
practicable or will unduly delay settlement, the total-cost basis (SF-
1436) may be used if approved in advance by the TCO as in the following 
examples:
    (i) If production has not commenced and the accumulated costs 
represent planning and preproduction or get ready expenses.
    (ii) If, under the contractor's accounting system, unit costs for 
work in process and finished products cannot readily be established.

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    (iii) If the contract does not specify unit prices.
    (iv) If the termination is complete and involves a letter contract.
    (2) When the total-cost basis is used under a complete termination, 
the contractor must itemize all costs incurred under the contract up to 
the effective date of termination. The costs of settlements with 
subcontractors and applicable settlement expenses must also be added. An 
allowance for profit (49.202) or adjustment for loss (49.203(c)) must be 
made. The contract price for all end items delivered or to be delivered 
and accepted must be deducted. All unliquidated advance and progress 
payments and disposal and other credits known when the proposal is 
submitted must also be deducted.
    (3) When the total-cost basis is used under a partial termination, 
the settlement proposal shall not be submitted until completion of the 
continued portion of the contract. The settlement proposal must be 
prepared as in subparagraph (2) above, except that all costs incurred to 
the date of completion of the continued portion of the contract must be 
included.
    (4) If a construction contract or a lump-sum professional services 
contract is completely terminated, the contractor shall--
    (i) Use the total cost basis of settlement;
    (ii) Omit Line 10 ``Deduct-Finished Product Invoiced or to be 
Invoiced'' from Section II of Standard Form-1436) Settlement Proposal 
(Total Cost Basis); and
    (iii) Reduce the gross amount of the settlement by the total of all 
progress and other payments.
    (c) Other basis. Settlement proposals may not be submitted on any 
basis other than paragraph (a) or (b) above without the prior approval 
of the chief of the contracting or contract administration office.