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TERMINATION OF CONTRACTS

(c) Recognition of Assignments. When 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 pay

ments (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 excess shall be repayable to the Government on demand, together with interest computed at the rate established by the Secretary of the Treasury pursuant to Public Law 92-41; 85 STAT 97 for the Renegotiation Board, 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 of 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 as follows:

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

8-213.1

ARMED SERVICES PROCUREMENT REGULATION

TERMINATION OF CONTRACTS

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 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 in

voice showing the amount so determined to be due, less any portion previously paid, shall be prepared and presented to the disbursing of

ficer for payment; or (ii) if the contractor has appealed the determination, a voucher or invo

ice showing the amount finally determined on such appeal to be due, less any portion previously paid, shall be prepared 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 contractor appeals to the contracting officer's determination in accordance with the Payment of Interest on Contractors' Claims clause in 7-104.82.

8–214 Cost Principles. The cost principles and procedures set forth in the applicable Part of Section XV 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 purchasing office 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 purchasing office. However, delegation may be made by the PCO to the TCO.

8-215

ARMED SERVICES PROCUREMENT REGULATION

8:22

TERMINATION OF CONTRACTS

8_216 Terminated Contracts With Canadian Commercial Corporation.

(a) The termination and settlement of contracts with the Canadian Commercial Corporation shall be effected in accordance with the provisions of (i) the Letter of Agreement between the Department of Defence Production (Canada) and the United States Department of Defense (6-506); (ii) policies set forth in Section VI, Part 5, and Section VIII; and (iii) the Manual of Procedure on Termination of Contracts, Department of Defence Production (Canada).

(b) The termination claim of Canadian Commercial Corporation shall be submitted in the form prescribed in 8-802, and shall reflect the amount of settlements with subcontractors. The letter transmitting the claim shall certify that (i) subcontract settlements with Canadian subcontractors have been approved by the Contracts Settlement Committee of the Department of Defence Production (Canada), if required pursuant to the Manual of Procedure on Termination of Contracts, Department of Defence Production (Canada), and (ii) that disposition of inventory has been completed. The TCO shall prepare an appropriate settlement agreement pursuant to the provisions of 8-210 and 8-805.

(c) All Canadian subcontracts shall be settled by the Canadian Commercial Corporation pursuant to 6-504.3. Schedules listing serviceable or usable contractor inventory shall be submitted by the Canadian Commercial Corporation to the TCO for screening in accordance with the provisions of 24–205. Transfer instructions resulting from screening procedures shall be submitted to the Canadian Commercial Corporation for action. At the expiration of the screening period, the TCO shall advise the Canadian Commercial Corporation to proceed with disposition of contractor inventory determined to be surplus to the requirements of the Government. The settlement of Canadian subcontracts shall not be subject to approval or ratification by the TCO, except that in cases that result in a proposed negotiated settlement in excess of the total contract price of the prime contract, ratification of the proposed settlement by the United States procuring contracting officer, evidenced by a contract modification increasing the contract price and obligating required additional funds shall be obtained by the TCO prior to final settlement.

(d) Termination claims submitted by United States subcontractors and suppliers normally should be referred by the Canadian Commercial Corporation to the TCO (normally DCASR, Cleveland) for settlement in accordance with this Section and Section XXIV. Upon completion of all settlement action, the TCO shall advise the Canadian Commercial Corporation of the amount of the net settlement agreed upon, which shall be included in the termination claim submitted pursuant to (b) above. Execution of a settlement agreement with the subcontractor shall be the responsibility of the Canadian Commercial Corporation.

8_217 Settlement of Terminated Contracts With Incentive Provisions.

(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.

(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 (i) of the clause in 7-108.1 and paragraph (k) of the clause in 7-108.2. The application of the incentive price revision provisions to completed items accepted by the Government, including any for which reimbur

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sement may be claimed in the settlement proposal, shall be accomplished by the procuring contracting officer (PCO). 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 PCO 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 PCO), that no portion of the costs considered in the negotiations under the incentive provisions are included in the termination settlement.

(6) 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 (o) of the clause in 7–203.4(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 PCO.

(2) Complete Termination. The settlement will be negotiated in accordance with the provisions of Section VIII, Part 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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TERMINATION OF CONTRACTS Part 3—Additional Principles Applicable to Fixed-Price Contracts 8-301 General.

(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 materi

als and the complexity of manufacturing techniques;

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40-080

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