agreement shall cover only the fee, if any, where the contractor has invoiced or vouchered out all costs within the period during which he may submit invoices or vouchers (see §§ 1-8.402(a) and 1-8.405-1).

§ 1-8.209-5 Partial settlements.

Every effort should be made by the contracting officer to settle in one agreement all rights and liabilities of the parties under the contract except those arising from any continued portion of the contract. Generally, contracting officers shall not attempt to make partial settlements covering particular items of the prime contractor's settlement proposal. However, when a contracting officer cannot promptly effect a complete settlement under the terminated contract, a partial settlement may be entered into if (a) the issues on which agreement has been reached are clearly severable from other issues, and (b) the partial setlement would not prejudice the interests of the Government or the contractor in disposing of the unsettled part of the claim.

§ 1-8.209-6 Joint settlement of two or more claims.

(a) With the consent of the contractor, a single settlement agreement may be negotiated to cover the termination claims under two or more contracts, even though the contracts being terminated are with different bureaus or divisions within the contracting agency or with different contracting agencies.

(b) Such joint settlements shall be in accordance with arrangements made between the contracting offices.

(c) Each such joint settlement agreement shall (1) clearly identify the contracts involved; (2) apportion the total amount of the settlement among the several contracts on some reasonable basis; (3) have attached or incorporated therein a schedule showing the apportionment; and (4) be distributed and attached to each contract involved in the same manner as other contract amendments.

§ 1-8.209-7 Settlement by determination.

(a) General. To the extent that the contractor and contracting officer are unable to agree upon the settlement of a terminated contract or if a termination claim is not submitted within the period required by the termination clause in

the contract, the contracting officer shall issue a determination of the amount due in accordance with the termination clause in the contract, including any cost principles incorporated therein by reference. The contracting officer shall comply with the applicable provisions of §§ 1-8.209-1 through 1-8.209-6 in making any such determination.

(b) Notice to contractor. Before issuing a determination of the amount due the contractor, the contracting officer shall give the contractor not less than 15 days' notice by certified mail (return receipt requested) to submit, on or before a stated date, written evidence substantiating the amount claimed to be due.

(c) Submission of evidence.

(1) The contractor has the burden of establishing, by proof satisfactory to the contracting officer, the amount claimed. (2) The contractor may submit such vouchers, verified transcripts of books of account, affidavits, audit reports, and other documents, as he wishes. The contracting officer may request the contractor to submit such additional documents and data, and may cause such accounting, investigations, and audits to be made, as he deems appropriate.

(3) The contracting officer may accept photostatic or other copies of documents and records, without requiring original documents unless there is a question of authenticity.

(4) If the contractor wishes to confer with the contracting officer, or if the contracting officer wishes additional information from Government personnel or from independent experts, or wishes to consult persons whose affidavits or reports have been submitted, the contracting officer may, in his discretion, hold such conference as he deems appropriate.

(d) Determinations. After reviewing the information submitted or otherwise available to him, the contracting officer shall determine the amount due and shall transmit a copy of his determination to the contractor by certified mail (return receipt requested). The letter of transmittal shall advise the contractor that the determination is his final decision. In addition, the letter shall state whether or not an appeal may be taken under the Disputes clause (see (f) of this § 1-8.209-7). The determination shall set forth the amount due the contractor and shall be supported by detailed schedules, additional information,

and analyses, as appropriate. An adequate explanation shall be given for each major item of disallowance. The contracting officer need not reconsider (1) any settlement with a subcontractor, (2) any disposition of property, or (3) any other action relating to the terminated portion of the contract, where such settlement, disposition, or other action has been previously ratified or approved by him or another duly authorized contracting officer.

(e) Preservation of evidence. The contracting officer shall retain in appropriate files of the contracting agency all written evidence and other data or copies thereof, relied upon by him in making his determination, except that copies of original books of account need not be made. Books of account, together with other original papers and documents, shall be returned to the contractor within a reasonable time.

(f) Appeals. The contractor has a right of appeal, under the Disputes clause of the contract, from any settlement by determination, except that the contractor has no such right of appeal where he has failed to submit his settlement proposal within the time provided in the contract and has failed to request extension of such time. The pendency of an appeal shall not affect the authority of the contracting officer to settle the termination claim or any part thereof by a negotiated agreement with the contractor at any time before the appeal is decided.

§ 1-8.210 Contracting officer's negotiation memorandum.

The contracting officer shall, at the conclusion of the settlement negotiations, prepare and sign a memorandum setting forth the principal elements of the settlement for inclusion in the contract file and for the use of reviewing authorities, if any. If the settlement was negotiated on the basis of individual items, the contracting officer shall specify the factors considered with respect to each item. If the settlement was negotiated on an overall lump-sum basis, the contracting officer need not evaluate each item or group of items individually, but the total amount of the recommended settlement shall be supported in reasonable detail. The memorandum shall include explanations of matters as to which differences and doubtful questions were settled by agreement, and the factors taken into con

sideration in connection therewith, and any other manners which, in the opinion of the contracting officer, will assist reviewing authorities, if any, in understanding the basis for the settlement. § 1-8.211 Review and approval of proposed settlements.

§ 1-8.211-1 Settlement review boards. Each agency shall provide for the review of proposed settlements as required in § 1-8.211-2 (a) and (b). The review shall be by a settlement review board (or other group created for that purpose) established on a permanent or temporary basis. More than one such board may be established if settlements are to be made at different locations, if personnel with different qualifications are needed for different contracts, or if for other reasons the establishment of more than one board is considered desirable. Each settlement review board should be composed of at least three qualified and disinterested employees. The membership of each board should include at least one lawyer and one accountant.

§ 1-8.211-2 Required review and approval.

(a) When required. Prior to executing a settlement agreement, or issuing a determination of the amount due under the termination clause of a contract, or approving or ratifying a subcontract settlement, the contracting officer shall submit each such settlement or determination for review and approval by a settlement review board if:

(1) The amount of settlement (see § 1-8.101(a)), by agreement or determination, involves $50,000 or more;

(2) The settlement or determination is limited to adjustment of the fee of a cost-reimbursement contract or subcontract and (i) in the case of a complete termination, the fee, as adjusted, is $50,000 or more; or (ii) in the case of a partial termination, the fee, as adjusted, with respect to the terminated portion of the contract or subcontract is $50,000 or more;

(3) The head of the procuring activity concerned determines that a review of a specific case or class of cases is desirable; or

(4) The contracting officer, in his discretion, desires review by the settlement review board.

(b) Level of review. When the amount of settlement (see § 1-8.101(a)), by

agreement or determination, is in excess of $1,000,000, the review and approval of the settlement shall be by a board at or above the level of the head of the procuring activity.

(c) Submission of information. The contracting officer shall, in accordance with agency procedures, submit to the settlement review board a statement of the proposed settlement agreement or determination, supported by such detailed information as is required for an adequate

review. This information should normally include copies of (1) the contractor's or subcontractor's settlement proposal, (2) the audit report, (3) the property disposal report and any required approvals in connection therewith, and (4) the contracting officer's memorandum explaining the settlement (see § 1-8.210). The board may, in its discretion, require the submission of additional information.

§ 1-8.211-3 Scope of review.

The function of a settlement review board is to determine the overall reasonableness of the proposed settlement agreement or determination from the standpoint of protecting the Government's interest. The board may vary the scope and intensity of the review according to the size and complexity of the proposed settlement agreement or determination and any other relevant factors. It is not intended that the board examine in detail every element entering into the proposed settlement agreement or determination, but the board may inquire into selected elements of the proposed settlement agreement or determination to assure that it has been developed competently and is based on adequate information.

§ 1-8.211-4 Action by board.

The settlement review board shall give written notification to the contracting officer of its approval, disapproval, or other decision with respect to the proposed settlement agreement or determination. The notification may include an opinion with respect to the decision and any other matter considered in connection therewith. Failure of the board to furnish a decision as to any proposed settlement agreement or determination within 30 days after submission to the board of all information required pursuant to § 1-8.211-2(c) shall operate as an approval by the board.

§ 1-8.212-1 Partial payments upon termination.

(a) General. If the contract authorizes 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 at any time after submission of interim or final settlement proposals. A suggested format of a form to be used in applying for partial payment is set forth in § 1-8.804-2. Applications for partial payments shall be processed promptly. Partial payments to a subcontractor shall be made only through the prime contractor. 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 contracting officer shall consider the diligence of the contractor in settling with his subcontractors and in preparing his own claim.

(b) Amount of partial payment. Before approving any partial payment requested by the contractor, the contracting officer shall have made such accounting, engineering, or other specialized reviews as he deems proper of the data required in this Part 1-8 to be submitted in support of the contractor's settlement proposals. If such reviews and the contracting officer's examination of the data indicate that the requested partial payment is proper, the contracting officer may, in his discretion, authorize payments as follows:

(1) An amount up to 100 percent of the contract price, adjusted in accordance with § 1-8.306, for undelivered acceptable items completed prior to the termination date, or completed thereafter with the approval of the contracting officer, which are included in the contractor's settlement proposals pursuant to § 1-8.306.

(2) An amount up to 100 percent of the amount of any subcontract settlement effected and paid by the prime contractor, if the settlement has been approved or ratified by the contracting officer pursuant to § 1-8.208-3(c) or has been authorized pursuant to § 1-8.208-4;

(3) An amount up to 90 percent of the direct cost of termination inventory,

including costs of raw materials, purchased parts, supplies, and direct labor;

(4) 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 (1), (2), or (3) of this § 1-8.212-1(b); and

(5) An amount up to 100 percent of partial payments made to subcontractors in conformity with this § 1-8.212-1(b).

(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 parties to the assignment consent in writing to the payments.

(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 interests of the Government shall be protected by transfer of title to the Government of 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 means authorized by agency procedures.

(e) Deductions in computing amount of partial payments. There shall be deducted from the gross amount of any partial payment otherwise payable under § 1-8.212-1(b):

of

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

(2) 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 contracting officer, 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 the contractor on his termination claim, the overpayment shall be repayable to the Government on demand, together with interest computed at the rate of 6 per

cent per annum from the date such overpayment was received by the contractor to the date of repayment. However, no interest shall be charged for any such overpayment 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 is set by the contracting officer because of the circumstances; and no interest shall be charged for overpayment under costreimbursement 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.

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

Payment in the amount of $------ approved.

At the

(a) Negotiated settlement. time of execution of a settlement agreement, a voucher or invoice showing the amount agreed upon, less any portion previously paid, shall be prepared and processed 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:

(1) If the contractor has not appealed the determination within the time allowed for appeal, a voucher or invoice showing the amount so determined to be due, less any portion previously paid, shall be prepared and processed for payment; or

(2) 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 processed for payment. Pending determination of any appeal, an invoice or voucher pursuant to (1) of this § 1-8.2122(b) may be processed 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.

§ 1-8.213 Cost principles applicable to the settlement of research and development contracts with educational institutions.

Subject to the general policies set forth in § 1-8.301, the cost principles and procedures set forth in Subpart 1-15.3 shall be used, in accordance with § 1-15.103 and Subpart 1-15.6, as a guide for the negotiation of settlements under fixedprice or cost-reimbursement type contracts for experimental, developmental, or research work with educational institutions.

Subpart 1-8.3-Additional Principles Applicable to the Settlement of Fixed-Price Type Contracts Terminated for Convenience

(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

recordkeeping, 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.

§ 1-8.302 Cost principles.

The principles set forth in the applicable subpart of Part 1-15, or in the corresponding agency regulations, shall be used as a guide for the evaluation of cost information in the negotiation of a termination settlement.

§ 1-8.303 Allowance for profit.

(a) General. Profit shall be allowed only on preparations made and work done by the contractor for the terminated portion of the contract but may not be allowed on the contractor's settlement expenses. Anticipatory profits and consequential damages shall not be allowed (but see § 1-8.208-5). 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 the negotiation of profit, factors to be considered include:

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

(2) Engineering work, production scheduling, planning, technical study and supervision, and other necessary services;

(3) Efficiency of the contractor, with particular regard to (i) attainment of quantity and quality production, (ii) reduction of costs, and (iii) economy in the use of materials, facilities, and manpower;

(4) Amount and source of capital employed, and extent of risk assumed;

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

(6) Character of the business, including the source and nature of materials and the complexity of manufacturing techniques;

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

(8) Character, extent, and difficulty of subcontracting, including selection,