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contractor's settlement with the subcontractor should normally be measured by the aggregate amount which would be due under subparagraphs (i), (ii), and (iii) of paragraph (e) of the suggested subcontract termination clause. Reimbursement in excess of that amount shall be allowed only in unusual cases and then only when the TCO is satisfied that the terms of the subcontract were negotiated in good faith and did not unreasonably increase the rights of the subcontractor.

8.209-3 Settlement Procedure.

(a) Settlements with subcontractors shall be made in general conformity with the policies and principles relating to settlement of prime contracts as set forth in this Subpart 2, and in Subparts 3 and 4 of this Part 8, as applicable. However, the bases and form of the subcontractor's settlement proposal must be acceptable to the prime contractor or the next higher tier subcontractor. Each such settlement shall be supported by accounting and other data sufficient for adequate review by the Government. In no event shall the Government pay to the prime contractor any amount for loss of anticipatory profits or consequential damages resulting from the termination of any subcontract (but see 8.209-5).

(b) Except as provided in 8.209–4, (i) all subcontractor termination inventory shall be disposed of and accounted for in accordance with Part 24, and (ii) the TCO shall require the prime contractor to submit to him for approval or ratification all termination settlements with subcontractors. In submitting each settlement, the prime contractor shall certify that he has examined the subcontractor's claims included therein, that they are allocable to the terminated portion of the prime contract, and that the settlement is fair and reasonable, was negotiated in good faith, and is not more favorable to the subcontractor than if the Government were not involved. The contractor shall also certify that he has received from all his immediate subcontractors certifications substantially in the form of his own certification. With respect to settlements with more remote subcontractors, the contractor shall certify that he has no information leading him to doubt their reasonableness or their allocability to the terminated portion of the prime contract. (c) The TCO shall promptly examine such subcontract settlement required to be submitted to him (including the basis and form of the proposal upon which the settlement was based) to satisfy himself that the subcontract termination was made necessary by the termination of the prime contract (or by issuance of a change order-see 8.000(c)), and that the settlement was arrived at in good faith, is reasonable in amount, and is allocable to the terminated portion of the contract (or if allocable only in part, that the proposed allocation is reasonable). In considering the reasonableness of any subcontract settlement, the TCO shall be guided generally by the provisions of this Part relating to the settlement of prime contracts, and shall comply with any applicable requirements of 8.208 and 8.212 relating to accounting and other reviews. Upon completion of the examination, the TCO shall notify the contractor in writing of (i) his approval or ratification, or (ii) his reasons for disapproval.

8.209-4 Authorization for Subcontract Settlements Without Approval or Ratification.

(a)(1) The TCO may, upon the written request of the prime contractor, authorize him in writing to conclude settlements of $10,000 or less (see 8.101-1) of his terminated subcontracts, without approval or ratification by the TCO, if:

(i) the TCO is satisfied with the adequacy of the procedures used by the contractor in settling termination claims (including proposals for retention, sale, or other disposal of termination inventory) of his immediate and lower tier subcontractors. (The TCO shall obtain the advice and recommendations of (A) the cognizant audit agency with respect to the adequacy of the contractor's audit administration, including personnel; and (B) the cognizant disposal office with respect to the adequacy of the contractor's procedures and personnel for the administration of property disposal matters.);

(ii) any termination inventory included in determining the amount of the settlement will be disposed of in accordance with 24.212, except that the disposition of such inventory shall not (A) be subject to review by the TCO under 8.209-3(c) or 24.212-3, or (B) be subject to 24.205; provided however, no centrally reportable equipment (see 24.101-35) included in such inventory shall be disposed of prior to screening pursuant to 24.205-2(e); and

(iii) the settlement will be accompanied by a certificate substantially similar to the certificate set forth in the settlement proposal form referenced in 8.802.

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Except as provided in (3) below, authority granted to a prime contractor pursuant to this subparagraph (a)(1) by any contracting officer within NASA shall be applicable to all prime contracts of all procurement offices within NASA which have been (i) terminated or (ii) modified by change orders.

(2) Except as provided in (3) below, the TCO without further approval or ratification shall accept, as part of the prime contractor's termination claim, any settlement of terminated lower tier subcontracts concluded by any of his immediate or lower-tier subcontractors who, pursuant to (1) above, have been granted, by any contracting officer within NASA, authority as prime contractors to settle subcontracts; provided that the settlement of such lower tier subcontracts is within the limit of such authority. Authorization to settle claims of lower tier subcontractors shall not be granted directly to subcontractors. However, a prime contractor authorized to approve subcontractor settlements may also exercise such authority in his capacity as, a subcontractor, with respect to his terminated subcontracts and orders. When exercising such authority as a subcontractor, notification thereof shall be furnished the purchaser.

(3) The provisions of (1) and (2) above shall not apply to any contracts under the administration of any contracting officer within NASA if such contracting officer so notifies the prime contractor concerned. Such notice (i) shall be in writing, and (ii) if (2) above is involved shall specify any subcontractor affected.

(b) Paragraph 24.212 shall apply to any disposal of completed end items allocable to the terminated subcontract, except that completed end items allocable to the terminated subcontract may be disposed of without review by the TCO under 8.209-3 or 24.212-3, and without screening under 24.205, if the total amount thereof (at the subcontract price) when added to the amount of the settlement does not exceed the amount authorized under this paragraph 8.209-4. (c) A TCO granting the above authorization to a contractor shall be responsible for periodically (at least annually) making a selective review of settlements and settlement procedures to determine whether the contractor is making adequate reviews and fair settlements, and whether such authorization shall remain in effect. In connection with these periodic reviews, the TCO shall obtain the advice and recommendations of the cognizant audit office with respect to the auditing aspects of the contractor's review procedures and those of the disposal office with respect to property disposal aspects of the contractor's review procedures. Whenever the TCO determines that the contractor's procedures are not adequate or that improper settlements are being made, he shall revoke the authorization by written notice to the contractor. The revocation shall take effect only from the date of receipt.

(d) Any number of separate settlements may be made with a single subcontractor. However, claims which would normally be included in a single settlement proposal, such as those based on a series of sepatare orders for the same item under one contract, shall be consolidated wherever possible, and shall not be divided in order to bring them within an authorization.

(e) Upon written request of the contractor and with the prior written approval of the Installation Procurement Officer or a designee, an authorization granted under (a)(1) above, may be increased to authorize the contractor to conclude settlements of more than $10,000 but not more than $25,000 under a particular prime contract. Such authorization in excess of $10,000 may be limited to specific subcontracts or classes of subcontracts. However, industrial plant equipment, the cost of which is included in determining the amount of the claim, shall not be disposed of prior to screening pursuant to 24.205-3.

(f) Authorizations granted under this paragraph shall not authorize the settlement of requisitions or orders placed with any division or unit within the contractor's corporate entity.

(g) A recommended format of the Contractor's Application for the Grant of an Authorization is in 8.810 and the TCO's Letter of Authorization to the contractor is contained in 8.810-1. 8.209-5 Recognition of Judgments and Arbitration Awards.

(a) In the event 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 subcontractor, to the extent such judgment is properly allocable to the terminated portion of the prime contract if:

(i) the prime contractor has made reasonable efforts to include in his subcontract the termination clause in 8.706 or a similar clause excluding payment of anticipatory profits or consequential damages;

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(ii) the provisions of the subcontract relating to the rights of the parties upon its termination, in whole or in part, are fair and reasonable and do not unreasonably increase the common law rights of the subcontractor;

(iii) the contractor has made reasonable efforts to settle the claim of the subcontractor; (iv) the contractor has given prompt notice to the TCO of the initiation of the proceedings in which the judgment was rendered and has not refused to give the Government control of the defense of the proceedings; and

(v) the contractor has diligently defended the suit or, if the Government has assumed control of the defense of the proceedings, has rendered such reasonable assistance as has been requested by the Government.

If the foregoing conditions are not all met, the TCO may allow the contractor such part of the judgment as he considers a fair amount for settling the termination claim under the subcontract, giving due regard to the policies set forth in this Part 8 for settlement of such claims.

(b) Where a contractor and his subcontractor submit a subcontractor termination claim to arbitration under any applicable law or contract provision, the TCO shall recognize the amount of the arbitration award as the cost of settling the claim of the subcontractor to the same extent and under the same conditions as specified in (a) above.

8.209-6 Delay in Settlement of Subcontractor Claims. Where a prime contractor is unable to settle with a subcontractor and such inability is delaying the settlement of the prime contract, the TCO may settle with the prime contractor, excepting from the settlement the whole or any part of the claim of such subcontractor and reserving the rights of the Government and of the prime contractor with respect thereto.

8.209-7 Government Assistance in Settlement of Subcontracts. In unusual cases the TCO may determine that it is in the best interest of the Government to offer assistance to the prime contractor in the settlement of a particular subcontract. Such a situation may exist when the prime contractor has made all reasonable efforts to negotiate the settlement without success and the TCO believes that with the assistance of the Government a settlement can be reached. Such assistance shall be furnished only with the consent of the prime contractor. In such cases, an agreement may be entered into by the Government, the prime contractor, and a subcontractor, covering the settlement of one or more subcontracts. In any such case, payment to the subcontractor shall be effected through the prime contractor as part of the overall settlement with the latter.

8.209-8 Assignment of Rights Under Subcontracts.

(a) The termination clauses set forth in Subpart 7 of this Part obligate the prime contractor to assign to the Government, in the manner, at the time, and to the extent directed by the TCO, all his right, title, and interest under any subcontracts terminated by reason of termination of the prime contract. The TCO shall not require such assignment unless he determines that it is in the best interest of the Government.

(b) In giving the Government the right to require the assignment of the prime contractor's interest in terminated subcontracts, the termination clauses set forth in Subpart 7 of this Part also provide that the Government shall have the right, in its discretion, to settle and pay any or all claims arising out of the termination of such subcontracts. This right does not obligate the Government to settle and pay termination claims of subcontractors. As a general rule, the prime contractor is obligated to settle and pay such claims. (Direct settlements with subcontractors are not encouraged.) Where, however, the TCO determines that it is in the best interest of the Government to settle and pay directly a subcontractor's termination claim, he shall first obtain approval of the Procurement Officer or his designee, setting forth in the request the pertinent facts and the reason for recommending direct settlement. Upon receipt of the required approval, the TCO shall, after notifying the contractor, proceed to settle the subcontractor's termination claim in accordance with termination procedures applicable to the settlement of prime contracts. An example of a situation in which the best interest of the Government would be served by effecting a direct settlement would be where a subcontractor is the sole source for a product and it appears that a delay by the prime contractor in settlement or payment of the subcontractor's claim will jeopardize the financial position of the subcontractor.

8.210 Settlement Agreements.

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8.210-1 General. When a settlement has been negotiated with respect to the terminated portion of a contract, and all required reviews have been obtained, the contractor and the TCO shall enter into a settlement agreement on Standard Form 30 (Amendment of Solicitation/Modification of Contract). The settlement shall cover (i) any setoffs and counterclaims which the Government may have against the contractor and which may be applied against the terminated contract, and (ii) all claims of subcontractors, except claims which are specifically excepted from the agreement and reserved for separate settlement.

8.210-2 Reserved Items. Where any rights or claims of the Government or of the contractor other than standard reservations contained in settlement forms in 8.805-1 through 8.805-8 are to be reserved from the settlement agreement, the agreement shall clearly and specifically describe the nature and extent of the reserved items. However, care shall be taken so that the wording of the reservation does not create any new rights in the parties beyond those in existence prior to the execution of the settlement agreement. The settlement agreement shall be clearly marked "This settlement agreement contains a reservation" and the contract file shall be retained until such reservation is removed. The TCO will assure that sufficient funds are reserved to cover complete settlement of the reserved items. The amount to be reserved will be determined by the TCO based on the best evidence available to him at the time of settlement. The separate settlement of reserved items shall be in accordance with the provisions of this Part and shall be set forth in settlement agreements. A recommended format for Settlement of Reservations appears in 8.805-9.

8.210-3 Government Property. Before any settlement agreement is executed, the TCO shall determine the status of the Government property account for the terminated contract. If the audit of such property required by B.104 or C.104 discloses property for which the contractor cannot account, the settlement agreement shall reserve the rights of the Government with respect to such property, or make an appropriate deduction from the amount otherwise due the contractor. 8.210-4 No-Cost Settlement.

(a) If no costs have been incurred by the contractor with respect to the terminated portion of the contract or if the contractor is willing to waive the costs incurred by him and if no amounts are due to the Government under the contract, a no-cost settlement agreement shall be executed substantially in the form set forth in 8.805-6 or 8.805-7, as applicable.

(b) Under a terminated cost-reimbursement type contract, the settlement agreement shall cover only the fee, if any, when the contractor has vouchered out all costs within the period specified in 8.402.

8.210-5 Partial Settlements. Every effort should be made by the TCO 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, TCO's shall not attempt to make partial settlements covering particular items of the prime contractor's settlement proposal. However, when a TCO cannot promptly effect a complete settlement under the terminated contract, a partial settlement may be entered into; provided (i) the issues on which agreement has been reached are clearly severable from other issues, and (ii) the partial settlement will not prejudice the interest of the Government or the contractor in disposing of the unsettled part of the claim.

8.210-6 Joint Settlement of Two or More Claims. With the consent of the contractor, the contracting officer or officers concerned may negotiate jointly two or more termination claims-of the same contractor under different contracts, even though such contracts are with different NASA installations. In such cases, accounting work shall be consolidated to the greatest extent practical. The settlement resulting from such joint negotiation may be evidenced by one settlement agreement covering all contracts involved or by a separate agreement for each contract involved. Where the settlement agreement covers more than one contract, it shall (i) clearly identify the contracts involved; (ii) apportion the total amount of the settlement among the several contracts on some reasonable basis; (iii) have attached or incorporated therein a schedule showing the apportionment; and (iv) be distributed and attached to each contract involved in the same manner as other contract amendments.

8.210-7 Settlement by Determination.

(a) General. To the extent that the contractor and TCO 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 TCO shall issue a determination of the amount due in

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accordance with the termination clause in the contract, including any cost principles incorporated therein by reference. An adjustment for loss, if any, should be made in accordance with 8.304. The TCO shall comply with provisions of 8.210–1 through 8.210–6 and 8.212-2 in making any such determination. Copies of determinations shall be accorded the same distribution as modifications to a contract.

(b) Notice to the Contractor. The TCO 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 TCO the amount claimed.

(2) The contractor may submit such vouchers, verified transcripts of books of account, affidavits, audit reports, and other documents as he may wish. The TCO 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 TCO may accept photostatic or other copies of documents and records, and shall not require original documents, unless there is a question of authenticity.

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

(d) Determinations. After reviewing the information submitted or otherwise available to him, the TCO 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 a final decision from which an appeal may be taken under the Disputes clause. The determination shall set forth the amount due the contractor and shall be supported by detailed schedules conforming generally to the forms for settlement proposals prescribed in 8.802 and by additional information, schedules, and analyses, as appropriate. An adequate explanation shall be given for each major item of disallowance. The TCO need not reconsider (i) any settlement with a subcontractor, (ii) any disposition of property, or (iii) 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 TCO shall retain in appropriate files 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.

(1) 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 TCO to settle the termination claim or any part thereof by a negotiated agreement with the contractor at any time before the appeal is decided.

(8) Decision of the NASA Board of Contract Appeals. A decision of the NASA Board of Contract Appeals will be given effect, when necessary, by a supplement to the contract. Where appropriate, a release should be obtained from the contractor. TCOs are authorized to modify forms of Settlement Agreement in 8.805 to accord with this provision.

8.211 Contracting Officer's Negotiation Memorandum. The TCO shall, at the conclusion of the settlement negotiations, prepare a memorandum setting forth the principal elements of the settlement for inclusion in the termination case file and for the use of reviewing authorities. If the settlement was negotiated on the basis of individual items, the TCO shall specify the factors considered with respect to each item. If the settlement was negotiated on an overall lump-sum basis, the TCO 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 consideration in connection therewith, and any other CFR TITLE 41 CHAPTER 18

8.211