CONTRACTS TERMINATED FOR CONVENIENCE request the cognizant audit office periodically to examine the contractor's accounting review procedures (including but not limited to audit programs, cost principles applied, working papers, and audit reports) and performance thereunder and make such comments and recommendations to the contracting officer as may be deemed appropriate. (d) The audit report is an advisory document rendered to the TCO for his use in negotiating a settlement or issuing a unilateral determination. Due care and prudence will be exercised by Government personnel in the handling of audit reports covering a contractor's or subcontractor's settlement proposals so as not to reveal privileged information or information that will jeopardize the negotiation position of the Government, prime contractor, or a higher-tier subcontractor. Consistent with the foregoing and when considered in the Government's interest, accounting reviews under (c) above may be made available to prime and higher-tier subcontractors for their use in settling subcontract claims. 8.209 Settlement of Subcontract Claims. 8.209-1 Subcontractor's Rights. A subcontractor has no contractual rights against the Government upon the termination of a prime contract. The rights of a subcontractor are against the prime contractor or intermediate subcontractor with whom he has contracted. Upon termination of a prime contract, the prime contractor and each subcontractor is responsible for the prompt settlement of the termination claims of immediate subcontractors. 8.209-2 Prime Contractor's Rights and Obligations. Each termination clause provides that, after receipt of a notice of termination and except as otherwise directed by the TCO, the prime contractor shall terminate ali subcontracts to the extent that they relate to the performance of any work terminated by notice of termination. Prime contractors should therefore, for their own protection, include a termination clause in their subcontracts. A suggested subcontract termination clause is set forth in 8.706. The failure of a prime contractor to include an appropriate termination clause in any subcontract, or to exercise his rights thereunder, shall not (i) affect the right of the Government to require the termination of the subcontract, or (ii) increase the obligation of the Government beyond that which would have arisen if the subcontract had contained an appropriate termination clause. In any such case, the reasonableness of the prime 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 NASA PROCUREMENT REGULATION 8.209-3 TERMINATION OF CONTRACTS 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 Section 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 24.101-31) included in such inventory shall be disposed of prior to screening pursuant to 24.2052(e), and 8.209-4 CFR TITLE 41 CHAPTER 18 CONTRACTS TERMINATED FOR CONVENIENCE (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: provided, that the TCO shall not grant to the contractor any authority hereunder for settlements between $2,500 and $10,000 without the written approval as to that contractor of the Office of Procurementr concerned, or his designee. 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, (ii) shall be issued only after written approval thereof by the Procurement Officer or his designee, and (iii) 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 NASA PROCUREMENT REGULATION 8.209-4 TERMINATION OF CONTRACTS 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 order to bring them within an authorization. (e) Upon written request of the contractor and with the prior written approval of the Office of Procurement or his 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(h). A copy of each Letter of Authorization (8.810-1) shall be furnished the Office of Procurement, NASA Headquarters (Code HP). 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; (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. 8.209-5 CFR TITLE 41 CHAPTER 18 CONTRACTS TERMINATED FOR CONVENIENCE 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 Office of Procurementr 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 subcontrac tor. 8.210 Settlement Agreements. 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 TCÓ shall enter into a settlement agree NASA PROCUREMENT REGULATION 8.210-1 |