TERMINATION OF CONTRACTS

(a) General. If the contract authorized partial payments on termination claims prior to settlement, a fixed-price prime contractor, or a cost-reimbursement prime contractor whose settlement proposal includes costs, may request such partial payments in the form referenced in 8.802-10 at any time after submission of interim or final settlement proposals. Applications for partial payments shall be processed promptly. A subcontractor's partial payment application shall be submitted through the prime contractor and the prime contractor shall attach his own invoice and recommendations to the subcontractor's application. Partial payments to a subcontractor shall be made only by the prime contractor.

(b) Amount of Partial Payment. Before approving any partial payment requested by the contractor, the TCO shall have made such accounting, engineering, or other specialized reviews as he deems proper of the data required by this Part to be submitted in support of the contractor's settlement proposals. If such reviews and the TCO's examination of the data indicate that the requested partial payment is proper, the TCO may, in his discretion, authorize payments as follows:

(i) an amount up to 100 percent of the contract price, adjusted in accordance with 8.306 for undelivered acceptable items completed prior to the termination date, or completed thereafter with the approval of the TCO, which are included in the contractor's settlement proposals pursuant to 8.306;

(ii) an amount up to 100 percent of the amount of any subcontract settlement effected and paid by the prime contractor; provided the settlement has been approved or ratified by the TCO pursuant to 8.209-3(c) or has been authorized pursuant to 8.209-4;

(iii) an amount up to 90 percent of the direct cost of termination inventory, including costs of raw materials, purchased parts, supplies, and direct labor;

(iv) a reasonable amount, not to exceed 90 percent, of other allowable costs (including manufacturing and administrative overhead) allocable to the terminated portion of the contract and not included in (i), (ii), or (iii) above; and

(v) an amount up to 100 percent of partial payments made to subcontractors in conformance with this subparagraph (b).

No partial payments shall be made on account of profit or fee which may be claimed with respect to the terminated portion of the contract. In exercising his discretion as to the extent to which partial payments shall be made, the TCO shall consider the diligence of the contractor in settling with his subcontractors and in preparing his own claim.

(c) Recognition of Assignments. Where an assignment of claims has been made under the contract, partial payments shall not be made to other than the assignee unless the parties to the assignment consent to the payments. Where moneys payable under the contract have been assigned, applications of subcontractors for partial payment shall not be approved for payment unless a written statement has been secured by the contractor from the assignee, agreeing to and authorizing the payment of funds in the manner prescribed by Section V of the Application (DD Form 548).

(d) Security for Partial Payments. To the extent that any partial payment is made with respect to completed end items or for direct or indirect costs of termination inventory, the interest of the Government shall be protected by transfer of title to the Government of the completed end items or termination inventory concerned, or by the creation of a lien in favor of the Government, paramount to all other liens, on such completed end items or termination inventory, or by other appropriate means.!

(e) Deductions in Computing Amount of Partial Payments. There shall be deducted from the gross amount of any partial payment otherwise payable under 8.213-1(b):

(i) all unliquidated balances of progress payments and advance payments (including interest thereon) theretofore made to the contractor, which are allocable to the terminated portion of the contract; and

(ii) the amounts of all credits arising from the purchase, retention, or sale of property the costs of which are included in the application for partial payment.

(f) Limitation on Total Amount: Effect of Overpayment. The total amount of all partial payments shall not exceed the amount which will, in the opinion of the TCO, become due to the contractor by reason of the termination. If the total of partial payments made to the contractor should exceed the amount finally determined to be due to the contractor on his termination claim, the

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CFR TITLE 41 CHAPTER 18

CONTRACTS TERMINATED FOR CONVENIENCE

excess shall be repayable to the Government on demand, together with interest computed at the rate of six percent per annum from the date such excess payment was received by the contractor to the date of repayment; provided, that (i) no interest shall be charged for any such excess payment attributable to a reduction in the contract termination claim by reason of retention or other disposition of termination inventory, until 10 days after the date of such retention or disposition, or such later date as determined by the TCO by reason of the circumstances, and (ii) no interest shall be charged for overpayment under cost-reimbursement type research and development contracts (without profit or fee to the contractor) if the overpayments are repaid to the Government within 30 days after demand.

(g) Certification and Approval of Partial Payments. Partial payments in a specific amount shall be made on the basis of vouchers or invoices certified by the contractor. The certification shall include, in addition to any other provisions ordinarily required to be included in such certificate, the following:

The payment covered by this voucher is a partial payment on account of the Contractor's termination claim under contract No......, made pursuant to Part 8 of the NASA Procurement Regulation.

The invoice or voucher, if proper, shall be approved by the TCO by noting thereon the following:

Payment in the amount of $ approved.

8.213-2 Final Payment.

(a) Negotiated Settlement. Upon execution of a settlement agreement, a voucher or invoice showing the amount agreed upon, less any portion previously paid, shall be prepared and certified in the usual form and presented to the disbursing officer for payment. A copy of the settlement agreement shall be attached to the voucher or invoice.

(b) Settlement by Determination. In the event of a settlement by determination:

(i) if the contractor has not appealed the determination a voucher or invoice showing the amount so determined to be due, less any portion previously paid, shall be prepared and certified in the usual form and presented to the disbursing officer for payment; or

(ii) if the contractor has appealed the determination, a voucher or invoice showing the amount finally determined on such appeal to be due, less any portion previously paid, shall be prepared and certified in the usual form and presented to the disbursing officer for payment. Pending determination of any appeal, an invoice or voucher pursuant to (i) above may be presented to the disbursing officer for payment, without prejudice to the rights of either party on the appeal. (c) Interest. No interest shall be paid by the Government on the amount due under a settlement agreement or a settlement by determination. Interest may, however, be allowed on successful appeals to the contracting officer's determination in accordance with the Payment of Interest on Contractor's Claims clause in 7.104-82.

8.214 Cost Principles. The cost principles and procedures set forth in the applicable Subpart of Part 15 shall, subject to the general policies set forth in 8.301: (i) be used in claiming, negotiating, or determining costs relevant to termination settlements under fixed-price and cost-reimbursement type contracts with other than educational institutions; and (ii) be a guide for the negotiation of settlements under fixed-price or cost-reimbursement type contracts for experimental, developmental or research work with educational institutions (but see 15.103(iii)).

8.215 Settlement of Unadjusted Contract Changes.

(a) Prior to settlement of a completely terminated contract, the TCO shall obtain from the contracting officer a list of all unadjusted contract changes pertaining thereto. The TCO shall settle, as part of final settlement, all unadjusted contract changes after obtaining the recommendations of the purchasing office concerning such changes.

(b) When the contract has been partially terminated, any outstanding unadjusted contract changes will be handled by the contracting officer. However, delegation may be made by the contracting officer to the TCO.

8.216 [Reserved]

8.217 Settlement of Terminated Contracts With Incentive Provisions.

NASA PROCUREMENT REGULATION

8.217

TERMINATION OF CONTRACTS

(a) FPI Contracts. The settlement of terminated contracts containing an incentive clause shall be in accordance with the provisions of paragraph (i) of the clause in 7.108-1 and 8.701 and paragraph (k) of the clause in 7.108-2.

(1) Partial Termination. Under a partial termination of a FPI contract, the TCO shall negotiate a settlement pursuant to the termination for convenience clause, as provided in paragraph (1) of the clause in 7.108-1. The application of the incentive price revision provisions to completed items accepted by the Government, including any for which reimbursement may be claimed in the settlement proposal, shall be accomplished by the contracting officer. Reimbursement for completed articles included in the settlement proposal for which a final price has not been established shall be at target price. An appropriate reservation as to final price with respect to such completed articles shall be incorporated in the supplemental agreement.

(2) Complete Termination. If any items were delivered and accepted by the Government, prices shall be established by the contracting officer under the incentive provisions of the contract. On the terminated portion of the contract, the provisions of the termination clause (see 8.701) shall govern and the provisions of the incentive clause shall not be applicable. The TCO responsible for the termination settlement will assure himself, on the basis of evidence he deems proper (including coordination with the contracting officer), that no portion of the costs considered in the negotiations under the incentive provisions are included in the termination settlement.

(b) CPIF Contracts. The settlement of terminated contracts containing an incentive clause shall be in accordance with the provisions of 8.702.

(1) Partial Termination. Under a partial termination of a CPIF contract, settlement by the TCO shall be limited to an adjustment of target fee as provided in paragraph (i) of the clause in 7.2034(b). The supplemental agreement shall include a reservation with respect to any adjustment of target cost resulting from the partial termination. Adjustment of target cost, if required, shall be accomplished by the contracting officer.

(2) Complete Termination. The settlement will be negotiated in accordance with the provisions of Part 8, Subpart 4 and 8.702. The fee shall be adjusted on the basis of the target fee, and the incentive provisions shall not be applied or considered.

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CFR TITLE 41 CHAPTER 18

8.301 General.

Subpart 3-Terminated Fixed-Price Type Contracts

(a) A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including an allowance for profit thereon which is reasonable under the circumstances. Fair compensation is a matter of judgment and cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation. The application of standards of business judgment, as distinguished from strict accounting principles, is the heart of a settlement.

(b) The primary objective is to negotiate a settlement by agreement. The parties may agree upon a total amount to be paid the contractor without agreeing on or segregating the particular elements of costs or profit comprising this amount.

(c) Cost and accounting data may provide guides, but are not rigid measures, for ascertaining fair compensation. In appropriate cases, costs may be estimated, differences compromised, and doubtful questions settled, by agreement. Other types of data, criteria, or standards may furnish equally reliable guides to fair compensation. The amount of record keeping, reporting and accounting, in connection with the settlement of termination claims shall be kept to the minimum compatible with the reasonable protection of the public interest.

8.302 [Reserved).

8.303 Allowance for Profit.

(a) General Profit shall be allowed on preparations made and work done by the contractor for the terminated portion of the contract. Although the contractor's settlement efforts will be considered, profit will not be based on the dollar amount of the contractor's settlement expenses. Anticipatory profits and consequential damages shall not be allowed (but see 8.209-5). Any reasonable method may be used to arrive at a fair profit, separately or as a part of the whole settlement.

(b) Factors To Be Considered. In negotiating or determining profit, factors to be considered include:

(i) extent and difficulty of the work done by the contractor as compared with the total work required by the contract; engineering estimates of the percentage of completion ordinarily should not be required, but if available should be considered;

(ii) engineering work, production scheduling, planning, technical study and supervision, and other necessary services;

(iii) efficiency of the contractor, with particular regard to

(A) attainment of quantity and quality production,

(B) reduction of costs,

(C) economy in the use of materials, facilities, and manpower; and

(D) disposition of termination inventory;

(iv) amount and source of capital employed and extent of risk assumed;

(v) inventive and developmental contributions, and cooperation with the Government and other contractors in supplying technical assistance;

(vi) character of the business, including the source and nature of materials and the complexity of manufacturing techniques;

(vii) the rate of profit which the contractor would have earned had the contract been completed;

(viii) character and difficulty of subcontracting including selection, placement, and management of subcontracts; engineering, technical assistance, and other services rendered; and effort in negotiating settlement of terminated subcontracts. The profit allowed for the contractor's efforts shall not be measured by the amount of the contractor's payment to subcontractors for settlement of their termination claims. The termination of a contract removes risks and responsibilities with respect to material or services which have not been delivered or furnished by the subcontractor. Therefore, no allowance to the prime contractor for profit may be made for such material or services which, as of the effective date of termination, have not been delivered by the subcontractor, regardless of the percentage of completion; and

(ix) the rate of profit both parties contemplated at the time the contract was negotiated. 8.304 Adjustment for Loss.

NASA PROCUREMENT REGULATION

8.304

TERMINATION OF CONTRACTS

(a) In the negotiation or determination of any settlement, no profit shall be allowed if it appears that the contractor would have incurred a loss had the entire contract been completed. The amount of loss shall be negotiated or determined and an adjustment in the amount of settlement shall be made as specified in (b) or (c) below. In estimating the cost to complete, consideration shall be given to expected production efficiencies and to other factors affecting the cost to complete.

(b) If the settlement is on an inventory basis, the contractor shall not be paid more than: (i) the amount negotiated or determined for settlement expenses;

(ii) the contract price, as adjusted, for acceptable completed end items (see 8.306); and (iii) the remainder of the settlement amount otherwise agreed or determined (not excluding the allocable portion of initial costs (see 15.205-42(c)), reduced by multiplying that remainder by the ratio of (A) the total contract price, to (B) the total cost incurred prior to termination plus the estimated costs to complete the entire contract;

less all disposal credits and all unliquidated advance and progress payments previously made to the contractor under the contract.

(c) If the settlement is on a total cost basis, the contractor shall not be paid more than: (i) the amount negotiated or determined for settlement expenses; and

(ii) the remainder of the total settlement amount otherwise agreed or determined, reduced by multiplying that remainder by the ratio of (A) the total contract price, to (B) that remainder plus the estimated cost to complete the entire contract;

less all disposal and other credits, all advance and progress payments, and all other amounts previously paid to the contractor under the contract.

8.305 Deductions. From the amount payable to the contractor under a settlement, there shall be deducted (i) the agreed price for any part of the termination inventory purchased or retained by the contractor, and the proceeds of sale of any materials sold by him, which have not otherwise been paid or credited to the Government; (ii) the fair value, as determined by the TCO, of any part of the termination inventory which, prior to transfer of title to the Government or to a buyer pursuant to Part 24, destroyed, lost, stolen, or so damaged as to become undeliverable, except for normal spoilage or to the extent the Government has expressly assumed the risk of loss; and (iii) such other amounts as appropriate in the particular case.

8.306 Completed End Items. Promptly after the effective date of termination, the TCO shall have all undelivered completed end items inspected and accepted if they comply with the prime contract requirements, and shall determine which accepted end items shall be delivered under the contract. The contractor shall be paid for completed end items so accepted and delivered by invoicing them at the contract price in the usual manner and shall not include such end items in his termination claim. Where completed end items, though accepted, are not to be delivered under the contract, the contractor shall include such end items in his settlement proposal at the contract price, appropriately adjusted for any saving of freight or other charges, together with any credits for their purchase, retention, or sale.

8.307 Settlement Proposals.

8.307-1 Submission of Settlement Proposals.

(a) Subject to the provisions of the Termination clause in the contract, the contractor should promptly submit to the TCO a settlement proposal setting forth the amount claimed to be due by reason of the termination. The proposal must be submitted within one year from the effective date of the termination, unless the period has been extended in accordance with the terms of the contract. Termination charges under a single prime contract involving two or more divisions or units of the prime contractor must be consolidated and included in a single termination claim. (b) The settlement proposal must cover all elements of the contractor's claim, including settlements with subcontractors. With the consent of the TCO, proposals may be filed in successive steps covering separate portions of a claim. Such interim proposals shall include all costs of a particular type, except as the TCO may authorize otherwise.

(c) Settlement proposals must be in the form prescribed in 8.802. When none of those forms are adequate for a particular contract, the Director of Procurement may authorize appropriate modifications. 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; provided, that such costs are determined in accordance with generally

8.305

CFR TITLE 41 CHAPTER 18