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 8-217 ARMED SERVICES PROCUREMENT REGULATION 8:23 TERMINATION OF CONTRACTS 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. (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 (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. 8-217 ARMED SERVICES PROCUREMENT REGULATION 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 (iv) amount and source of capital employed and extent of risk assumed; 8-303 ARMED SERVICES PROCUREMENT REGULATION TERMINATION OF CONTRACTS (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. (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; (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 cost 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 less all disposal and other credits, all advance and progress payments, and all other amounts previously paid to the contractor under the contract. 8-304 ARMED SERVICES PROCUREMENT REGULATION TERMINATION OF CONTRACTS 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 Section XXIV, is 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 unless they are inadequate for a particular contract. 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 recognized accounting principles consistently followed by the contractor. When 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 TCO. A contractor shall not be required to maintain unduly elaborate cost accounting systems merely because his contracts may subsequently be terminated. 8-307.1 ARMED SERVICES PROCUREMENT REGULATION |