claim, including settlements with subcontractors. With the consent of the contracting officer, 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 contracting officer may authorize otherwise.

(c) A settlement proposal shall be in the form established by the procuring agency (see § 1-8.802 for suggested formats of forms), but shall be in reasonable detail supported by adequate accounting data and shall include a certificate substantially as contained in the appropriate settlement proposal format set forth in § 1-8.802. A suggested format of a form for obtaining accounting information is in § 1-8.8041. Actual, standard (appropriately adjusted), or average costs, may be used in preparing settlement proposals if such costs are determined in accordance with generally recognized accounting principles consistently followed by the contractor. Where actual, standard, or average costs are not reasonably available, estimated costs may be used if the method of arriving at the estimates is approved by the contracting officer. A contractor shall not be required to maintain unduly elaborate cost accounting systems merely because his contracts may subsequently be terminated.

(d) If the total amount of claim is less than $10,000, a simplified settlement proposal form (see § 1-3.802-3) may be used. Claims which would normally be included in a single settlement proposal, such as those based on a series of separate orders for the same item under one contract, shall be consolidated wherever possible and shall not be divided in such a way as to bring them below $10,000.

[29 FR 10196, July 24, 1964, as amended at 35 FR 6474, Apr. 23, 1970]

§ 1-8.307-2 Bases for settlement proposals.

(a) General. The preferred accounting basis for preparing the settlement proposal is the inventory basis, since the contractor must compute and set forth costs applicable to that portion of the contract which is terminated. However, if costs are so recorded in the contractor's books as to make it

impossible to separate costs between completed units and work in process, it will not be possible to use the inventory basis; in which case the contracting officer may approve the total cost basis, which is a more indirect method of arriving at the contractor's costs applicable to the terminated portion of the contract. Termination claims shall not be submitted on any basis other than the inventory and total cost basis without the prior approval of the head of the procuring activity or his duly authorized representative.

(b) Inventory basis.

(1) Under the inventory basis the contractor shall claim only costs chargeable or allocable to that portion of the contract which is terminated, and the settlement proposal shall itemize separately:

(i) At purchase or manufacturing cost, each of the following-metals, raw materials, purchased parts, work in process, finished parts, components, dies, jigs, fixtures, and tooling;

(ii) Charges such as engineering costs, initial costs, and general and administrative costs;

(iii) Costs of settlements with subcontractors;

(iv) Settlement expenses; and

(v) Other proper charges.

(2) An allowance for profit (see § 18.303) or adjustment for loss (see § 18.304(b)) shall be made to complete the gross termination claim. All unliquidated advance and progress payments, and all disposal and other credits known when the proposal is submitted, shall then be deducted.

ed shall be deducted. All unliquidated advance payments, unliquidated progress payments and disposal and other credits known when the proposal is submitted shall 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 shall be prepared in accordance with (2) of this § 1-8.307-2(c), except that all costs incurred to the date of completion of the continued portion of the contract shall be included.

Termination clauses for cost-reimbursement type contracts (see §§ 18.702 and 1-8.704) provide for the settlement of costs and of fee, if any. The provisions of the particular contract governing costs shall determine what costs are allowable.

§ 1-8.402 Discontinuance of invoices or vouchers.

(a) Where the contract has been completely terminated, the contractor shall not use invoices or Standard Form 1034 vouchers after the last day of the sixth month following the month in which the termination notice is effective; however, he may elect to discontinue the use of such invoices or vouchers at any time prior thereto. Where the contractor has invoiced or vouchered out all costs within the six-month period, his claim for fee, if any, may be submitted on a form of the type suggested in § 1

8.802-4 or by letter; but in either case the contractor must substantiate the amount of the fee he claims and submit an appropriate certification. The claim for fee must be submitted to the contracting officer within one year from the effective date of termination, unless the period has been extended in accordance with the terms of the contract. When the use of invoices or vouchers has been discontinued, all uninvoiced or unvouchered costs and claim for fee, if any, shall thereafter be submitted in accordance with § 1-8.404.

(b) Where the contract has been partially terminated, the provisions of § 18.405 shall be applied.

§ 1-8.403 Notice to the General Accounting Office.

If the General Accounting Office does not make site audits of an agency's contracts, the contracting officer shall promptly send a copy of the notice of termination to the General Accounting Office; in addition, he shall advise that office of the date on which the six-month vouchering period will expire, or of the contractor's election to discontinue the use of invoices or vouchers prior to expiration of the six-month period. If site audits are conducted, such copy and information shall be included in the file available to the General Accounting Office.

§ 1-8.404 Procedure after invoices or vouchers are discontinued.

§ 1-8.404-1 Submission of settlement proposal.

The contractor shall submit a settlement proposal covering his costs and his claim, if any, for a fee. Such proposal shall be submitted to the contracting officer within one year from the effective date of termination, unless the period has been extended in accordance with the terms of the contract. The proposal shall be submitted in the form required by the procuring agency (see suggested format of form in § 1-8.802-4), but shall include a certificate substantially as contained in the format set forth in § 1-8.802-4. The proposal shall contain only uninvoiced or unvouchered costs, and the

contractor may not include in such proposal those costs which (a) have been finally disallowed by the contracting officer or the General Accounting Office, or (b) are the subject of a reclaim invoice or voucher, or any costs of a similar nature.

§ 1-8.404-2 Interim negotiations.

The contracting officer and the contractor shall proceed immediately to take all action required by the termination clause of the contract and by this Part 1-8 (including negotiation of settlements with fixed-price subcontractors), but no final settlement agreement shall be executed until there has been full compliance with § 1-8.404-5.

§ 1-8.404-3 Partial payments.

Requests for partial payments shall be made and processed in accordance with § 1-8.212-1.

§ 1-8.404-4 Adjustment of overhead costs. (a) If the contract contains a negotiated overhead rate clause which provides for the negotiation of a final overhead rate and it appears that adjustment of overhead costs applicable to invoiced or vouchered costs under procedures established for determining negotiated final overhead rates will unduly delay final settlement, the contracting officer after obtaining appropriate information from the agency audit office may agree with the contractor:

(1) To negotiate the amount of overhead for the contract for the period for which fixed overhead rates have not previously been negotiated, based upon audit recommendations requested by the contracting officer for such purpose or utilize provisional rates for this period to expeditiously effect final settlement if the provisional rate appears reasonable; or

(2) That any overhead adjustment shall be reserved in the final settlement agreement, pending establishment of negotiated final overhead rates.

(b) Where an amount of overhead is negotiated pursuant to (a)(1) of this § 1-8.404-4, the contractor shall eliminate such overhead and the related direct costs on which it was based

from the total overhead and base (direct) costs used to compute overhead for other contracts performed during the applicable accounting period.

§ 1-8.404-5 Information concerning previous cost invoices or vouchers.

Prior to proceeding with the settlement, the contracting officer, with the cooperation of the accounting office where the invoices or vouchers have been certified, shall determine the payments previously made under the contract and any General Accounting Office exceptions taken thereto.

§ 1-8.404-6 [Reserved]

§ 1-8.404-7 [Reserved]

§ 1-8.404-8 Final settlement.

(a) The contracting officer may proceed with completion of the settlement and execution of an appropriate settlement agreement at any time after development of the information required by § 1-8.404-5.

(b) The fee shall be adjusted as provided in § 1-8.406.

(c) The final settlement agreement may include all claims of the Government and of the contractor under the terminated contract, except that no amount may be allowed for any item of cost which is the subject of a General Accounting Office exception, either cleared by deduction or uncleared, or for any other item of cost of the same nature, unless a reclaim invoice or voucher covering such cost has been presented by the contractor and authorized by the General Accounting Office for payment.

(d) The provisions of the contract governing the types of reimbursable costs shall constitute the basis of negotiation; however, if an overall settlement of costs is agreed upon, agreement on each separate element of cost is not necessary. In appropriate cases, differences may be compromised and doubtful questions settled by agreement. An overall settlement shall not, under any circumstances, be made the means of reimbursing contractors for costs which, under the provisions of the contract, are clearly not allowable.

§ 1-8.405 Procedure for partial termination.

§ 1-8.405-1 General.

(a) In the event of a partial termination, the settlement shall be limited to adjustment of the fee, if any, in accordance with §§ 1-8.405-2 and 1-8.406, unless the contracting officer determines that:

(1) The terminated portion is clearly severable from the balance of the contract; or

(2) Performance of the contract is virtually complete, or that performance of any continued portion is only on subsidiary items or spare parts, or is otherwise not substantial.

(b) In the case of the exception in (a) of this § 1-8.405-1, the procedures in §§ 1-8.402, 1-8.403, and 1-8.404 are applicable.

§ 1-8.405-2 Submission of settlement proposal (fee only).

The contractor shall submit a settlement proposal which shall be limited to the amount of his claim, if any, for a fee. Such proposal shall be submitted to the contracting officer within one year from the effective date of termination, unless the period has been extended in accordance with the terms of the contract. The proposal may be submitted on a form of the type suggested in § 1-8.802-4 or by letter; but in either case the contractor must substantiate the amount of the fee he claims and submit an appropriate certification.

§ 1-8.405-3 Submission of invoices vouchers.

or

In the event of a partial termination where settlement is limited to adjustment of fee, if any, the contractor shall continue to submit by invoice or voucher all costs reimbursable under the contract, including (a) his own costs allocable to the terminated portion of the contract, (b) costs of settlements with subcontractors properly identified as such, and (c) applicable settlement expenses. The contractor shall not be reimbursed for costs of settlements with subcontractors unless the approvals or ratifications required pursuant to the contract have been obtained (see § 1-8.208).

§ 1-8.406 Adjustment of fee.

The adjusted fee to be paid, if any, shall be determined in the manner provided by the contract, generally based on percentage of completion of the contract or of the terminated portion thereof. Where this basis is used, factors such as the extent and difficulty of the work performed by the contractor (including but not limited to planning, scheduling, technical study, engineering work production and supervision, placing and supervising subcontracts to the extent reasonably required, and work performed by the contractor in (a) stopping performance, (b) settling claims of subcontractors, and (c) disposing of termination inventory) shall be compared with the total work required by the contract or by the terminated portion thereof. The ratio of costs incurred to the total estimated cost of performing the contract or the terminated portion thereof is only one factor in computing the percentage of completion of the contract. This percentage may be either greater or less than that indicated by the ratio of costs incurred, depending upon the evaluation by the contracting officer of the above factors and other relevant considerations.

Subpart 1-8.5-Disposition of Termination Inventory

§ 1-8.501 General.

§ 1-8.501-1 Methods of disposal.

Subject to the Government exercising its right under the termination clause in a contract to acquire title to, and require delivery of, any items of termination inventory, termination inventory shall be disposed of in the manner most favorable to the Government. As hereinafter set forth in this subpart 1-8.5, methods of disposal include purchase or retention by the prime contractor or subcontractor at cost; return to suppliers; utilization, donation, or sale (after screening as provided in § 1-8.505); and destruction or abandonment.

40-104 0-79-31

The following general restrictions are in addition to specific restrictions set forth in this Subpart 1-8.5:

(a) The authority of a contractor to purchase, retain, or dispose of termination inventory or to authorize or approve a purchase, retention, or disposition by a subcontractor is subject to (1) any applicable Government restrictions on the disposition of property which is either classified for security reasons or is dangerous to public health, safety, or welfare, and (2) any contract provisions regarding the disposition of material subject to a lien.

(b) Contractors shall not sell termination inventory to persons known by them to be officers or employees of the Federal Government, except to the extent determined by the heads of the contracting agencies to be in the best interest of the Government and except under procedures and safeguards, prescribed by the heads of such agencies, adequate to preclude collusion and fraud.

(c) With respect to termination inventory, the authority of a higher tier contractor to approve a sale by a subcontractor or to approve a purchase or retention at less than cost by a subcontractor, and the authority of a subcontractor to sell with the approval of the next higher tier contractor or to purchase or retain such inventory at less than cost with the approval of the next higher tier contractor does not include (1) a sale without competitive bids by a subcontractor to the next higher tier contractor or to an affiliate of such contractor or of the subcontractor, or (2) a sale without competitive bids, or a purchase or retention at less than cost, by a subcontractor affiliated with the next higher tier contractor. Each such excluded sale, purchase, or retention requires the written approval of the contracting officer. A firm shall be considered to be affiliated with another firm if, by reason of stock ownership or otherwise, (1) they are under common control, or (2) there is any common interest between them which is sufficient to create a reasonable doubt that the bargaining between them is complete

ly in the best interest of the Government.

§ 1-8.502 Contractor-acquired property. § 1-8.502-1 Purchase or retention at cost.

Subject to the requirement of §§ 18.502-3 and 1-8.510, contractors shall be encouraged to purchase or retain contractor-acquired property at cost. No part of the cost of property so purchased or retained shall be included in settlement proposals. In any instance in which a contractor purchases or retains any allocable contractor-acquired property for use in other continuing Government contracts or commercial operations, handling and transportation charges necessitated by the purchase or retention of such property may be included in the contractor's settlement proposal as "other costs", if such costs are reasonable. Where property purchased or retained is for use on a continuing Government contract and is not in excess of the quantitative requirements for completion of that contract, that property shall be considered properly allocable to the continuing contract if that contract is subsequently terminated, even though its procurement would otherwise constitute undue anticipation of production schedules. If, as a result of the purchase or retention of property from a terminated contract for use on a continuing Government contract, the contractor terminates subcontracts under the continuing Government contract, the charges incurred by reason of the termination of such subcontracts may be included in the termination claim under the terminated contract.

§ 1-8.502-2 Return of property to suppli

ers.

Subject to the requirement of §§ 18.502-3 and 1-8.510, contractors are authorized and shall be encouraged to return allocable quantities of contractor-acquired property to suppliers for full credit less the supplier's normal restocking charge, or 15 percent of cost, whichever is less. Contractors shall not include in their settlement proposals the cost of such property returned to suppliers in accordance with this paragraph. Contractors may in