signee shall consent in writing to such payment.

(4) In no event shall the surety be entitled to be paid any amount in excess of its total expenditures necessarily made in completing the work and discharging its liabilities under the payment bond of the defaulting contractor. Furthermore, payments to the surety to reimburse it for discharging its liabilities under the payment bond of the defaulting contractor shall be only on authority of (i) mutual agreement between the Government, the defaulting contractor, and the surety, or (ii) determination of the Comptroller General as to payee and amount, or (iii) order of a court of competent jurisdiction.

§ 1-8.603-5 Procedure in lieu of termination for default.

If, after due consideration, the contracting officer determines that termination is not in the best interest of the Government although the contractor is in default, the contracting officer may permit the contractor to continue the work, and the contractor and his sureties shall be liable to the Government for liquidated damages, as specified in the contract, or if liquidated damages are not so specified, to any actual damages occasioned by the failure of the contractor to complete the work in accordance with the terms of the contract.

In all cases where a contractor's right to proceed is terminated for default or where the procedure authorized by § 1-8.603-5 is followed, the contract file shall be well documented to explain fully the reasons for the action taken.

§ 1-8.603-7 Liquidation of liability.

In accordance with the provisions of the contract, the contractor and his surety are liable to the Government for resulting damages. All retained percentages of progress payments previously made to the contractor and any progress payments due for work completed prior to the termination of the right to proceed shall be used for the purpose of liquidating the liability of the contractor and his surety to the Government for such damages. Where the retained and unpaid amounts are insufficient to liquidate such liability, steps shall be taken

to recover the additional sum from the contractor and his surety.

§ 1-8.604 Default termination of costreimbursement type contracts.

(a) Under cost-reimbursement type contracts containing the Termination for Default or for Convenience of the Government clause in § 1-8.702, the Government has the right to terminate the contract for default for the reasons contained in paragraph (a)(1) of the clause.

(b) Settlement of a cost-reimbursement type contract terminated for default is subject to the principles set forth in Subparts 1-8.2 and 1-8.4 and is performed in the same manner and with the same consequences as when the contract is terminated for convenience except:

(1) The costs of preparing the contractor's settlement proposal are not allowable (see paragraph (e) (1) (iii) of the clause in § 1-8.702); and

(2) The fixed fee, if any, is paid only with respect to articles delivered and accepted (see paragraph (e) (1) (iv) (B) of the clause in § 1-8.702).

(c) In order that the best interests of the Government will be served, the procedures set forth in §§ 1-8.602 and 1-8.603 shall be used to the extent appropriate in considering the termination for default of a cost-reimbursement type contract; however, a cost-reimbursement type contract does not contain any provision for recovery of excess costs of reprocurement after termination for default.

§ 1-8.605 Default termination of certain fixed-price research and development contracts.

(a) Under fixed-price research and development contracts containing the Default clause in § 1-8.710, the Government has the right to terminate the contract for default under the conditions set forth in the clause.

(b) The language of the Default clause in § 1-8.710 closely parallels the wording of the Default clause set forth in § 1-8.707 for use in fixed-price supply contracts. That being the case, the guidelines and procedures in § 1-8.602 are generally applicable and shall be followed to the extent appropriate in considering the termination for default of a fixed-price research and development contract containing the Default clause in § 1-8.710.

66-087 O-67-17

Subpart 1-8.7—Clauses

§ 1-8.700 Scope and applicability of subpart.

§ 1-8.700-1 Scope.

This subpart contains certain contract clauses related to the termination of contracts (1) for the convenience of the Government, and (2) for default. § 1-8.700-2 Applicability.

(a) Termination for convenience clauses. The clauses set forth in §§ 18.701 through 1-8.706 are prescribed for use in accordance with this § 1-8.7002(a) whenever an agency considers it necessary or desirable to provide in its contracts for termination for the convenience of the Government. Whenever such a clause is to be included:

(1) In any fixed-price contract in excess of $2,500 for (i) supplies, or (ii) experimental, developmental, or research work where a profit is contemplated, the clause set forth in § 1-8.701 shall be used, except as otherwise permitted by § 1-8.700-2(a) (2), when the contract is entered into by formal advertising or by negotiation.

(2) In any fixed-price contract for supplies which is not in excess of $10,000, the short-form termination clause set forth in § 1-8.705-1 is authorized for use in lieu of any other clause providing for termination for the convenience of the Government. The short-form clause is also authorized for use in any contract for services (such as contracts for rental of unreserved garage space and laundry and dry-cleaning services) where it is intended that a termination claim will not be made in the event of termination for the convenience of the Government.

(3) In any cost-reimbursement type contract for (i) supplies, or (ii) experimental, developmental, or research work where a fee is contemplated, the clause set forth in § 1-8.702 shall be used.

(4) In any fixed-price or cost-reimbursement type contract for experimental, developmental, or research work placed with an educational or nonprofit institution on a no-fee or no-profit basis, the clause set forth in § 1-8.704-1 shall be used.

(5) In any fixed-price construction contract estimated to exceed $10,000, the clause set forth in § 1-8.703 shall be used when the contract is entered into by formal advertising or by negotiation.

(6) In any fixed-price construction contract estimated not to exceed $10,000, the clause set forth in § 1-8.705-2 shall be used when the contract is entered into by formal advertising or by negotiation.

(7) Suggested clauses for use in certain subcontracts are covered in §§ 1-8.704-2 and 1-8.706.

(b) Termination for default clauses. (1) In any fixed-price supply contract, the clause set forth in § 1-8.707 shall be used when the contract is entered into either (i) by formal advertising, or (ii) by negotiation (when for other than small purchases made in accordance with Subpart 1-3.6).

(2) In any cost-reimbursement type contract for (i) supplies, or (ii) experimental, developmental, or research work where a fee is contemplated, the clause set forth in § 1-8.702 shall be used whenever an agency considers it desirable to provide a termination for default clause in such a contract.

(3) In any fixed-price research and development contract except a contract awarded on the basis of no-profit to an educational or nonprofit institution, the clause set forth in § 1-8.710 shall be used whenever an agency considers it desirable to provide a termination for default clause in such a contract.

(4) In any fixed-price construction contract estimated to exceed $10,000, the clause set forth in § 1-8.709-1 shall be used, except as modified by the footnote to § 1-8.709-1, when the contract is entered into either (i) by formal advertising, or (ii) by negotiation. During periods of national emergency, agencies may amend paragraph (d) of the clause as provided in § 1-16.404 (e).

(5) In any fixed-price construction contract estimated not to exceed $10,000, the clause set forth in § 1-8.709-2 shall be used, except as modified by the footnote to § 1-8.709-2, when the contract is entered into either (i) by formal advertising, or (ii) by negotiation (when for other than small purchases made in accordance with Subpart 1-3.6).

(c) Excusable delays clause. A clause substantially as set forth in § 1-8.708 shall be used in a contract containing the termination clause set forth in § 1-8.702.

(d) Special termination clauses. Special termination clauses may be used in contracts such as letter contracts, time

and materials contracts, labor-hour contracts, and facilities contracts for which no clauses are prescribed for use by (a) and (b) of this § 1-8.700-2; however, the principles set forth in this Part 1-8 should be followed to the extent practicable.

§ 1-8.701 Termination clause for fixedprice contracts.

The following clause is applicable as prescribed in § 1-8.700−2(a) (1):

TERMINATION FOR CONVENIENCE OF THE
GOVERNMENT

(a) The performance of work under this contract may be terminated by the Government in accordance with this clause in whole, or from time to time in part, whenever the Contracting Officer shall determine that such termination is in the best interest of the Government. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying the extent to which performance of work under the contract is terminated, and the date upon which such termination becomes effective.

(b) After receipt of a Notice of Termination, and except as otherwise directed by the Contracting Officer, the Contractor shall:

(1) Stop work under the contract on the date and to the extent specified in the Notice of Termination;

(2) Place no further orders or subcontracts for materials, services, or facilities, except as may be necessary for completion of such portion of the work under the contract as is not terminated;

(3) Terminate all orders and subcontracts to the extent that they relate to the performance of work terminated by the Notice of Termination;

(4) Assign to the Government, in the manner, at the times, and to the extent directed by the Contracting Officer, all of the right, title, and interest of the Contractor under the orders and subcontracts so terminated, in which case the Government shall have the right, in its discretion, to settle or pay any or all claims arising out of the termination of such orders and subcontracts;

(5) Settle all outstanding liabilities and all claims arising out of such termination of orders and subcontracts, with the approval or ratification of the Contracting Officer, to the extent he may require, which approval or ratification shall be final for all the purposes of this clause;

(6) Transfer title to the Government and deliver in the manner, at the times, and to the extent, if any, directed by the Contracting Officer, (1) the fabricated or unfabricated parts, work in process, completed work, supplies, and other material produced as a part of, or acquired in connection with the performance of, the work terminated by the

Notice of Termination, and (11) the completed or partially completed plans, drawings, information and other property which, if the contract had been completed, would have been required to be furnished to the Government;

(7) Use his best efforts to sell, in the manner, at the times, to the extent, and at the price or prices directed or authorized by the Contracting Officer, any property of the types referred to in (6) above: Provided, however, That the Contractor (1) shall not be required to extend credit to any purchaser, and (ii) may acquire any such property under the conditions prescribed by and at a price or prices approved by the Contracting Officer: And provided further, That the proceeds of any such transfer or disposition shall be applied in reduction of any payments to be made by the Government to the Contractor under this contract or shall otherwise be credited to the price or cost of the work covered by this contract or paid in such other manner as the Contracting Officer may direct;

(8) Complete performance of such part of the work as shall not have been terminated by the Notice of Termination; and

(9) Take such action as may be necessary, or as the Contracting Officer may direct, for the protection and preservation of the property related to this contract which is in the possession of the Contractor and in which the Government has or may acquire an interest.

At any time after expiration of the plant clearance period, as defined in Subpart 1-8.1 of the Federal Procurement Regulations (41 CFR 1-8.1), as the definition may be amended from time to time, the Contractor may submit to the Contracting Officer a list, certified as to quantity and quality, of any or all items of termination inventory not previously disposed of, exclusive of items the disposition of which has been directed or authorized by the Contracting Officer, and may request the Government to remove such items or enter into a storage agreement covering them. Not later than fifteen (15) days thereafter, the Government will accept title to such items and remove them or enter into a storage agreement covering the same: Provided, That the list submitted shall be subject to verification by the Contracting Officer upon removal of the items or, if the items are stored, within forty-five (45) days from the date of submission of the list, and any necessary adjustment to correct the list as submitted shall be made prior to final settlement.

(c) After receipt of a Notice of Termination, the Contractor shall submit to the Contracting Officer his termination claim, in the form and with certification prescribed by the Contracting Officer. Such claim shall be submitted promptly but in no event later than one year from the effective date of termination, unless one or more exten

sions in writing are granted by the Contracting Officer upon request of the Contractor made in writing within such one-year period or authorized extension thereof. However, if the Contracting Officer determines that the facts justify such action, he may receive and act upon any such termination claim at any time after such one-year period or any extension thereof. Upon failure of the Contractor to submit his termination claim within the time allowed, the Contracting Officer may, subject to any review required by the contracting agency's procedures in effect as of the date of execution of this contract, determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termination and shall thereupon pay to the Contractor the amount so determined.

or

(d) Subject to the provisions of paragraph (c), and subject to any review required by the contracting agency's procedures in effect as of the date of execution of this contract, the Contractor and the Contracting Officer may agree upon the whole or any part of the amount or amounts to be paid to the Contractor by reason of the total or partial termination of work pursuant to this clause, which amount or amounts may include a reasonable allowance for profit on work done: Provided, That such agreed amount amounts, exclusive of settlement costs, shall not exceed the total contract price as reduced by the amount of payments otherwise made and as further reduced by the contract price of work not terminated. The contract shall be amended accordingly, and the Contractor shall be paid the agreed amount. Nothing in paragraph (e) of this clause, prescribing the amount to be paid to the Contractor in the event of failure of the Contractor and the Contracting Officer to agree upon the whole amount to be paid to the Contractor by reason of the termination of work pursuant to this clause, shall be deemed to limit, restrict, or otherwise determine or affect the amount or amounts which may be agreed upon to be paid to the Contractor pursuant to this paragraph (d).

(e) In the event of the failure of the Contractor and the Contracting Officer to agree as provided in paragraph (d) upon the whole amount to be paid to the Contractor by reason of the termination of work pursuant to this clause, the Contracting Officer shall, subject to any review required by the contracting agency's procedures in effect as of the date of execution of this contract, determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termination and shall pay to the Contractor the amounts determined as follows:

(1) For completed supplies accepted by the Government (or sold or acquired as provided in paragraph (b) (7) above) and not theretofore paid for, a sum equivalent to the aggregate price for such supplies computed

in accordance with the price or prices specified in the contract, appropriately adjusted for any saving of freight or other charges; (2) The total of

(1) The costs incurred in the performance of the work terminated, including initial costs and preparatory expense allocable thereto, but exclusive of any costs attributable to supplies paid or to be paid for under paragraph (e) (1) hereof;

(11) The cost of settling and paying claims arising out of the termination of work under subcontracts or orders, as provided in paragraph (b) (5) above, which are properly chargeable to the terminated portion of the contract (exclusive of amounts paid or payable on account of supplies or materials delivered or services furnished by subcontractors or vendors prior to the effective date of the Notice of Termination, which amounts shall be included in the costs payable under (1) above); and

(iii) A sum, as a profit, equal to 2 percent of that part of the amount determined under (1) above which represents the cost of articles and materials not processed by the Contractor, plus a sum equal to 8 percent of the remainder of such amount, but the aggregate of such sums shall not exceed 6 percent of the whole of the amount determined under (1) above: Provided, however, That if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, no profit shall be included or allowed under this subdivision (iii) and an appropriate adjustment shall be made reducing the amount of the settlement to reflect the indicated rate of loss; and

(3) The reasonable costs of settlement, including accounting, legal, clerical, and other expenses reasonably necessary for the preparation of settlement claims and supporting data with respect to the terminated portion of the contract and for the termination and settlement of subcontracts thereunder, together with reasonable storage, transportation, and other costs incurred in connection with the protection or disposition of property allocable to this contract.

The total sum to be paid to the Contractor under (1) and (2) of this paragraph (e) shall not exceed the total contract price as reduced by the amount of payments otherwise made and as further reduced by the contract price of work not terminated. Except for normal spoilage, and except to the extent that the Government shall have otherwise expressly assumed the risk of loss, there shall be excluded from the amounts payable to the Contractor as provided in (e) (1) and (2) (1) above, the fair value, as determined by the Contracting Officer, of property which is destroyed, lost, stolen, or damaged so as to become undeliverable to the Government, or to a buyer pursuant to paragraph (b) (7).

(f) Any determination of costs under paragraph (c) or (e) hereof shall be governed by the principles for consideration of costs

set forth in -------- -, as in effect on the date of this contract.

(g) The Contractor shall have the right to appeal, under the clause of this contract entitled "Disputes," from any determination made by the Contracting Officer under paragraph (c) or (e) above, except that, if the Contractor has failed to submit his claim within the time provided in paragraph (c) above and has failed to request extension of such time, he shall have no such right of appeal. In any case where the Contracting Officer has made a determination of the amount due under paragraph (c) or (e) above, the Government shall pay to the Contractor the following: (1) if there is no right of appeal hereunder or if no timely appeal has been taken, the amount so determined by the Contracting Officer; or (2) if an appeal has been taken, the amount finally determined on such appeal.

(h) In arriving at the amount due the Contractor under this clause there shall be deducted (1) all unliquidated advance or other payments on account theretofore made to the Contractor, applicable to the terminated portion of this contract; (2) any claim which the Government may have against the Contractor in connection with this contract; and (3) the agreed price for, or the proceeds of sale of, any materials, supplies, or other things acquired by the Contractor or sold, pursuant to the provisions of this clause, and not otherwise recovered by or credited to the Government.

(1) If the termination hereunder be partial, prior to the settlement of the terminated portion of this contract, the Contractor may file with the Contracting Officer a request in writing for an equitable adjustment of the price or prices specified in the contract relating to the continued portion of the contract (the portion not terminated by the Notice of Termination), and such equitable adjustment as may be agreed upon shall be made in such price or prices.

(j) The Government may from time to time, under such terms and conditions as it may prescribe, make partial payments and payments on account against costs incurred by the Contractor in connection with the terminated portion of this contract whenever in the opinion of the Contracting Officer the aggregate of such payments shall be within the amount to which the Contractor will be entitled hereunder. If the total of such payments is in excess of the amount finally agreed or determined to be due under this clause, such excess shall be payable by the Contractor to the Government upon demand, together with interest

1 The contracting agency shall insert the reference which is appropriate to that agency: Subpart 1-15.2 of the Federal Procurement Regulations (41 CFR 1-15.2); or the corresponding agency regulations; or both.

computed at the rate of 6 percent per annum for the period from the date such excess payment is received by the Contractor to the date on which such excess is repaid to the Government: Provided, however, That no interest shall be charged with respect to any such excess payment attributable to a reduction in the Contractor's claim by reason of retention or other disposition of termination inventory until ten days after the date of such retention or disposition, or such later date as determined by the Contracting Offcer by reason of the circumstances.

(k) Unless otherwise provided for in this contract, or by applicable statute, the Contractor, from the effective date of termination and for a period of three years after final settlement under this contract, shall preserve and make available to the Government at all reasonable times at the office of the Contractor but without direct charge to the Government, all his books, records, documents, and other evidence bearing on the costs and expenses of the Contractor under this contract and relating to the work terminated hereunder, or, to the extent approved by the Contracting Officer, photographs, microphotographs, or other authentic reproductions thereof.

[End of Clause]

§ 1-8.702 Termination clause for costreimbursement type contracts.

The following clause is applicable as prescribed in §§ 1-8.700-2(a) (3) and 1-8.700-2(b) (2):

TERMINATION FOR DEFAULT OR FOR CONVENIENCE OF THE GOVERNMENT

(a) The performance of work under the contract may be terminated by the Government in accordance with this clause in whole, or from time to time in part:

(1) Whenever the Contractor shall default in performance of this contract in accordance with its terms (including in the term "default" any such failure by the Contractor to make progress in the prosecution of the work hereunder as endangers such performance), and shall fail to cure such default within a period of ten days (or such longer period as the Contracting Officer may allow) after receipt from the Contracting Officer of a notice specifying the default; or

(2) Whenever for any reason the Contracting Officer shall determine that such termination is in the best interest of the Government.

Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying whether termination is for the default of the Contractor or for the convenience of the Government, the extent to which performance of work under the contract is terminated, and the date upon which such termination becomes effective. If, after notice of termination of this contract for