TERMINATION FOR CONVENIENCE 

GUIDEBOOK

 

FOREWORD

This guidebook was developed to provide guidance, suggestions and lessons learned on issues relating to the settlement of contracts terminated for convenience.  The contents are discretionary and support DCMA policy established in the DCMAD 1 (One Book).  The contents are intended only as a guide and may be supplemented locally.  All DCMA personnel are encouraged to submit suggestions to the HQ performance advocate Juanita McKee for publication and sharing throughout DCMA.  We hope you find this Guidebook useful.

 

DAVID RICCI

Director, Contract Business Relations


TABLE OF CONTENTS

 Foreword   

Introduction 

Team Players    

Receipt of Notice of Termination

Post Termination Conference    

Submission of Settlement Proposals

Review of Proposal

Prenegotiation Objectives

Settlement

Report of Bankruptcy

Inventory Schedules

Docket Administration

TCO Locations


Introduction

FAR Parts 49, 12, 13 and 31 (et al) establish the regulatory requirements for termination and settlement of Government contracts.  While the FAR is clear about the basic requirements, many aspects of a settlement are not clear-cut.  This guide attempts to provide general guidance in addition to the FAR and offer lessons learned to assist the TCO in negotiation of a settlement.

Once a contract has been terminated for convenience, the PCO may delegate settlement costs to DCMA.  Settlement can be very simple or complex.  It may involve many players both within DCMA and from the buying activity.  Communication amongst all players is essential for a successful settlement that ensures the contractor has been fairly compensated on a timely basis while protecting the rights and interests of the Government. 

Team Players 

Once a contract has been terminated for convenience, timely settlement of the costs by the TCO involves the coordination and effort of a variety of functional specialists.  The key players in the settlement phase may include the PCO, PM, ACO, TCO, Plant Clearance Officer (PLCO), Industrial Specialist (IS), Legal Counsel and the Defense Contract Audit Agency (DCAA) auditor.  

PCO/PM Duties

The PCO and the PM will make the decision to terminate a contract for convenience of the Government.  Once this decision has been made, the PCO will issue a written notice in accordance with FAR 49.601 to the contractor.  The notice should state that the contract is being terminated for the convenience of the Government, cite the termination clause, identify the effective date of termination and extent of the termination (full or partial) and detail any special instructions.  If the contract has been delegated to DCMA for administration, the PCO may delegate settlement of the termination to DCMA.  The PCO must send a notice of delegation and a copy of the termination notice/modification to the CMO and any known Assignee, Guarantor, or Surety of the contractor.

The PCO should advise the ACO/TCO of any outstanding requests for equitable adjustments, any technical or delivery problems, and any Government caused delays.  The PCO should also ensure that he/she and his/her representatives are available to assist the TCO in identifying, evaluating and making technical recommendations with respect to any unadjusted contract changes that may require negotiation by the TCO.

At times, DCMA may accept delegation of termination settlement responsibilities although we did not receive the initial administration delegation.  This effort should be coordinated with the District and HQ performance advocates.

ACO Duties

Upon receipt of the notice of termination/modification, the ACO must immediately forward a copy of the notice to the TCO.  This can be accomplished via email, fax, or regular mail.  The ACO should review the notice and prepare the contract and associated documents as necessary for shipment to the TCO.  A brief summary of any issues relating to the contract or contractor's systems may accompany the contract documents to inform the TCO of important issues that may affect the settlement.  Examples of issues include a disapproved property system, accounting system deficiencies and status of the contract (quantity delivered, paid to date, overruns, etc). 

Upon conclusion of the settlement, the TCO will return the completed docket to the ACO to be filed with the contract.  If the contract was completely terminated, the ACO, upon receipt of the docket, should take actions for closeout.

TCO Duties

The TCO is responsible for settlement of the termination, and, if delegated by the PCO, any equitable adjustment claims in conjunction with the termination.  To accomplish this, the TCO may need the services of the PLCO, IS, and DCAA auditor.  Settlement responsibilities include ensuring receipt of a termination proposal, schedule of accounting information, and inventory schedule (if applicable), identification of excess funds to the PCO, and generation of a settlement that compensates the contractor for work accomplished while protecting the rights and interests of the Government.  More examples and suggestions will be provided in the section titled "Submission of Settlement Proposal."

Prime Contractor Duties

Upon receipt of the notice of termination, the prime contractor should immediately stop all work and terminate all subcontracts related to the terminated portion of the prime contract.  The contractor should initiate efforts to preserve property.  Actions should be undertaken to solicit settlement proposals from all subcontractors.  The contractor is responsible for submission of a settlement proposal and inventory schedule to the TCO.  The proposal must be adequately supported.  

Others' Duties

The TCO may request a review of the contractor's settlement proposal from the IS and DCAA auditor.  The IS is responsible for documenting the percent of completion.  Per FAR 49.107, when requested, the DCAA auditor will perform a review of the contractor's proposed costs.  This review, with any questioned costs, will be forwarded to the TCO for use in preparing a Government position prior to negotiation.  The PLCO is responsible for review of the contractor's inventory schedule and directing disposition of the items listed.  

Receipt of Notice of Termination

Upon receipt of the notice of termination and accompanying contract files, the TCO should perform contract receipt and review as applicable on all incoming contractual documents.  This review may include review of the termination modification issued by the PCO, contract requirements such as type and kind, and MOCAS data.  An abstract should be printed from MOCAS identifying the available funds, ULO and date the information was obtained.  Since some payments may be in the process, the TCO may want to check with DFAS or DCAA to identify any invoices/vouchers approved but not paid.  

The TCO will establish a new termination docket into the Termination Automated Management System (TAMS) within three days of receipt of the termination notice.  As events occur, the TCO will update TAMS accordingly. 

Post Termination Conference

FAR 49.105(c) directs the TCO to conduct a post termination conference.  This conference is an excellent opportunity to remind the contractor of the requirements of FAR and timeframes for submission of information.  Topics that should be discussed should include:
  • general principles and obligations of the Contractor
  • extent of termination
  • names of subcontractors 
  • First Article (approved or disapproved)
  • obligation of the contractor to settle subcontracts 
  • names/phone numbers of contracting personnel handling the settlement 
  • discussion of the roles and responsibilities of the players
  • diversion or retention of property
  • preparation of inventory schedules
  • contractor accounting practices
  • basis for settlement and required forms
  • accounting review of settlement proposal
  • interim financing (partial payment requests)
  • tentative time schedule to settle claim
  • contractor action to minimize impact on employees
  • contractor obligation to furnish pricing data

It is advisable to follow-up this meeting with a letter to the contractor, again restating the required timeframes for submission of the inventory schedule  and the 365-day time limit for submittal of the settlement proposal.  The contractor should be reminded of the TCO's authority to issue a unilateral settlement modification in the event that the contractor fails to submit a timely proposal.  The contractor should be advised that a unilateral determination issued by the TCO as a consequence of the contractor's failure to submit a timely proposal may not be appealed.

The TCO should obtain an initial estimate of funds and advise the PCO within 30 days of assignment.

Submission of Settlement Proposals

The contractor should promptly submit to the TCO a settlement proposal for the amount claimed because of the termination.  This proposal must be submitted within one year from the effective date of termination unless extended by the TCO.  Termination charges under a single prime contractor may be consolidated and included in a single settlement proposal.  

Fixed Price Contracts

According to the FAR, a settlement should compensate the contractor fairly for the work done and the preparations made for the terminated contract, including a reasonable allowance for profit.  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 and therefore the use of business judgment is at the heart of a settlement.

Per FAR 49.206-2, the contractor's settlement proposal must be on an inventory or total cost basis.  The inventory basis is preferred by FAR.  The total cost basis must be approved in advance by the TCO.  FAR 49.602-1(d) says the contractor shall use a short form if the proposal is less than $10,000.00 while FAR 49.206-1(d) says the contractor may use this form.  Therefore, use of this form should be included as a topic of discussion at the Post Termination Conference.

Cost Reimbursement Contracts

The contractor's settlement proposal should include all unvouchered costs and any proposed fee.  The proposal should not include costs that have been disallowed by the Contracting Officer or formally questioned by the Government and not yet decided as to allowability.    

Commercial Contracts

The termination clauses included in a commercial contract differ from those found in FAR Part 49 which does not apply when terminating contracts for commercial items awarded under FAR Part 12.  Instead, FAR 12.403 provides guidance for settlement of a terminated commercial contract.  Probably most important to remember in a termination for convenience of commercial items is that the contractor is paid for the percentage of the contract price reflecting the percentage of work performed prior to the termination plus any directly related termination costs.   Listed below are the most significant aspects of a commercial termination:  

  • There is no visibility of mitigated costs

  • The contractor is not required to comply with the cost accounting standards or contract cost principles

  • The Government does not have any right to audit the Contractor's records solely as a result of the termination 

  • There is no time limit for submitting a proposal

  • The final settlement is not restricted to the contract value

  • There is no allowance for partial payments prior to final settlement 

  • There is no certification required on the proposal

  • There is no allowance for equitable adjustments to the continuing portion of the contract in the event of a partial termination. 

  • The clause does not expressly establish the Government's right to take title to the inventory

  • There is no proposed modification format such as found for Fixed-Price Contract - Complete Termination (FAR49.603-1) and Fixed-Price Contracts (FAR 49.603-2) although one is included in TAMS 4.0

  • There is no plant clearance activity required

Other Transactions/Grants

The Administrative Agreements Officer (AAO) and Administrative Grants Officer (AGO) are responsible for settlement of Other Transactions and Grants terminated for the convenience of the Government.  It is important to remember that these OTs and Grants do not incorporate the provisions/clauses of the FAR and DFARS.  Any settlements must be in accordance with the terms and conditions of the OT agreement/grant and sound business judgment.

Cost Elements

There are far too many cost elements involved in a termination to discuss them here but the following areas attempt to address some of the more common questions regarding cost elements.

Bid and Proposal (B&P) Costs

The ASBCA has repeatedly denied reimbursement of B&P costs.  Under the standard termination for convenience clause “Bidding costs were not reimbursed by the government as part of a convenience termination settlement because costs incurred pursuant to competitive bidding are pre-contract costs of doing business and belong in overhead or general and administrative pools.  No contractor has a reasonable expectation that bidding costs, when incurred, will be directly reimbursed by the government because no contractor has a reasonable expectation of award when it puts together its bid.”

Reclassification of Costs

Under the cost principles (FAR 31.202(a) and CAS 402), "No final cost objective must have allocated to it as a direct cost any cost, if other costs incurred for the same purpose in like circumstances have been included in any indirect cost pool to be allocated to that or any other cost objective."  For example, small tools cannot normally be recorded to the indirect expense pools and then charged directly to the Government upon receipt of a Government contract.  This would have the effect of charging the Government for all of the small tools needed for its contract and then assessing them with a proportionate share of small tools used on the commercial contracts through the allocation of the indirect expense pools.  The inequity of such an arrangement is patently evident.

The exception to this consistency rule is found in ASBCA rulings associated with terminations for convenience.  Where the allocation base is insufficient to allow recovery of a cost, the cost may be allocated directly to the terminated contract.   Where pre-termination costs have been reclassified to allow for recovery because the allocation base is inadequate as a result of the termination, the costs are of the same nature and were incurred in like circumstances as those costs remaining in the indirect expense pools.  Thus, for computing indirect expense rates on the termination proposal, all similar costs should be removed. Where a cost is reclassified, all similar costs must be removed in the computation of the indirect expense rates for the termination settlement proposal.  Further, reclassified direct charges should be removed from the indirect expense pools and charged directly to the contract in the accounting records (FAR 31.205-42(c)(3)).  However, the rules for post-termination costs are not the same as those for pre-termination costs.  The Cost Accounting Standards Board in Working Group (WG) paper 77-15 issued 29 March 1977 has stated that termination settlement costs are incurred in different circumstances than contract costs.   Only the costs being claimed need to be removed from the indirect expense pools.

Another consideration is whether overhead and G&A should be applied to these reclassified costs in the termination proposal.  Boards and courts usually do not allow contractors to recover indirect costs on costs that would be classified as indirect but for the termination.  Where such reclassified costs have been included in the base for calculation of the rates, an argument could be made for the application of indirect expense rates.  However, where the rates do not reflect these reclassifications, the Board has in the past viewed these as not being direct charges, but rather indirect costs allocated directly to the terminated contract.  The tribunals reason that one cannot charge overhead on overhead.  The Board held that the contractor can not recover additional G&A allowance on costs of a general and administrative nature for which it was reimbursed directly.

First Article Costs

The standard First Article clauses (FAR 52.209-3 and FAR 52.209-4) provide that the acquisition of materials for or the commencement of production of the contract quantity over and above the First Article quantity (i.e. the production units) is at the sole risk of the contractor.  Before First Article approval, such costs are not allocable to termination settlements.  The exceptions are (1) prior approval by the Contracting Officer, and (2) minimum buy requirements.  The First Article clause limits the contractor to its incurred costs for the First Article, NOT the contract price for the First Article.

Unabsorbed Overhead

The measure of recovery for the exclusive remedy afforded by the termination for convenience clause is costs incurred plus reasonable termination settlement expenses and profit on work performed.  Post-termination overhead costs are neither incurred as a result of the work performed on the contract nor generated directly by the termination action.  The termination action merely reduces the base against which overhead can be applied.  Just as anticipatory profits are not allowable, so a loss of business, whether in the guise of post-termination G&A or otherwise, is not recoverable in a termination claim.  The courts and boards have long and consistently held that general indirect costs which continue after termination are not allocable to the terminated contract but are simply ongoing business costs unrelated to the terminated work, i.e., unabsorbed overhead costs, which the contractor incurs at its own risk.  The continuing costs to which FAR 31.205-42 refers clearly are only those costs directly related to the terminated contract, which cannot reasonably be shut off immediately upon termination.  Moreover, the continuation of overhead after a termination is a common occurrence and if the drafters of the regulation had intended to allow such costs, they could have done so simply and clearly as they did for rental cost. In practical effect, the Government would be guaranteeing the contractor’s overhead costs, without receiving any benefit, as a “penalty” for exercising its contractual rights.

Reclassification of costs should not be considered on cost-type contracts. The concept of “fair compensation” as contained in FAR 49.201 allows for the reclassification of costs.  However, for cost-type contracts, FAR Part 31 and the contract terms govern the Termination Contracting Officer’s (TCO’s) actions. The basic termination clause for cost-reimbursement contracts provides: “the cost principles and procedures in Part 31 of the Federal Acquisition Regulation, in effect on the date of this contract, must govern all costs claimed, agreed to, or determined under this clause” (FAR 52.249-6(i)).  This language is the same as that found in the fixed-price contract clause (FAR 52.249-2(i)).  However the fixed-price contracts also reference FAR 49.201(a) which states, “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 use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement.”  While this clause gives TCOs the authority to waive the cost principles, it is not applicable to cost-type contracts.  There is therefore no contractual or regulatory basis on which to deviate from the terms and cost principles contained in the contract and FAR Part 31.  

   

Review of Proposal 

An adequate proposal consists of the settlement form, the inventory schedules, and the Schedule of Accounting Information.  If an inadequate proposal is received, the contractor should be advised that a reasonable period will be allowed for correcting these deficiencies or it will be treated as if no proposal had been received.

If the proposal is not received within one year from the termination date, the TCO must issue a unilateral determination due to time.  The TCO must also issue a demand letter for any unliquidated payments on a complete termination.

If the TCO elects to accept an untimely proposal, the contractor must be sent a letter noting that while the proposal will be evaluated, the Government preserves its rights to issue a unilateral determination not subject to appeal in the event a bilateral agreement cannot be reached.

When granting an extension for submission of a termination settlement proposal, a justification must be prepared and included in the termination file.  It must state why the granting of an extension is in the Government’s best interests.

The TCO must request DCAA audit assistance for proposals that are equal to or greater than $100,000 as required by FAR 49.107.  When an audit is requested for a proposal which falls below the audit threshold, the TCO documents the file as to why the audit is in the best interest of the Government.  TCOs are responsible for the resolution and disposition of DCAA audits.

Prenegotiation Objectives

TCOs are required to develop prenegotiation objectives prior to negotiation of any pricing actions and/or disposition of findings and recommendations contained in contract audit reports.  Documentation of the prenegotiation objective must be developed and included in the docket file.

The TCO may invite the auditor to attend fact-finding sessions with the contractor if determined necessary or beneficial.  It is essential that audit reports and contractor comments/rebuttals are obtained and given due consideration by the TCO prior to formulating the Government's prenegotiation position.  The Prenegotiation position must indicate whether the audit recommendations were accepted, rejected, or if the auditor revised them in the light of new data provided by the contractor.  The TCO will address the specific facts which were not resolved and provide appropriate rationale taken for resolution of the audit report.  TCOs may follow the format suggested for a termination settlement negotiation memorandum contained in DFARS 249.110, appropriately modified, or may use any other format which adequately explains the basis for the TCO's decision.  The prenegotiation position should include as a minimum the contractor proposed amounts, audit recommended amounts, and the TCO's position.  Information obtained during fact-finding and/or comments obtained from the contractor, as appropriate, must be included in the TCO's prenegotiation objectives.

Approval of the prenegotiation objectives must be in accordance with section 3.3.2.6. of Onebook Chapter 7.2, Pricing and Negotiation and local District/CMO policy.

In the event of disagreement between the TCO and the reviewing/approving official, the resolution of the disagreement will be documented by the TCO and presented to management before the supplemental agreement is issued.

Although not required, the TCO should keep the PCO advised of the Government's position on sensitive or highly visible terminations.  While the responsibility for settlement is a TCO function, the PCO also has a keen interest in the settlement agreement.  Their involvement throughout the process may ensure a satisfied customer.

Settlement

Prior to the commencement of negotiation the TCOs must have funds available or the TCO must advise the contractor that while negotiations are being conducted, funds are not yet obligated and any settlement is contingent on funding being placed on the contract.  The TCO must use extreme caution should negotiations be entered into prior to the receipt of additional funding.  Funding shortfalls must be discussed with the PCO prior to negotiation and additional funding requested.  The TCO should escalate the failure of the PCO to provide additional funding within 30 days of the TCO’s requests. The CMO management and the DCMA Customer Service Representative Liaison to the buying command should be used to work the issues to obtain the required funding.  If still unsuccessful, the issue should be elevated to the District Process Owner for assistance. 

If funding is insufficient, we suggest the TCO discuss the issue with the buying command in advance of negotiations.  The TCO should seek a mutual agreement on how much money the buying command will make available to the TCO for settlement, beyond the contract price.

Here is the language that may be sent and agreed to by the contractor and the buying command prior to negotiations.  It avoids the potential binding effect of an oral agreement.

“Throughout negotiations, neither the Government nor the Contractor shall be bound by any agreement reached, unless such agreement is reduced to writing and signed by duly authorized representatives of both parties, and then they shall be bound only by the terms of that written and signed agreement.  Any agreement reached is contingent upon the signing of a written settlement agreement and is otherwise without force and effect.  Only the funds currently obligated against this contract are available for settlement of this termination and any authorized performance of this contract.  No legal liability on the part of the Government for payment of any money in excess of the funds currently obligated and available under this contract shall arise unless and until funds are made available to the Termination Contracting Officer for this procurement and notice of such availability, to be confirmed in writing by the Termination Contracting Officer, is given to the Contractor.”

The TCO should consult with General Counsel concerning negotiations subject to the availability of funds. The TCO should also provide notice to the PCO that negotiations will commence and inquire if there are any outstanding claims that may impact the TCO’s settlement.  In the event the PCO has outstanding claims, the TCO should request that the PCO forward the action to the TCO for resolution. 

Subcontract Settlement

Subcontract settlements submitted for approval should be reviewed by the TCO and approved or disapproved pursuant to FAR 49.108-3.  Contractor requests for authorization to settle subcontracts without ratification should be processed pursuant to FAR 49.108-4.

The TCO must prepare a memorandum for record (MFR) setting forth in detail the extent of reviews conducted and the basis for a determination to grant or deny authorization referenced in FAR 49.108-4.  Copies of audit and plant clearance findings and recommendations must support the MFR.

Partial Settlement

In cases where it is not possible to settle all elements of the termination proposal by negotiation, the TCO and the contractor may negotiate a partial settlement on the severable elements on which agreement can be reached.  The supplemental agreement must include a reservation of the rights of the parties with respect to the elements of the proposal excluded from the settlement.   An example of a reservation clause for rates is as follows: This modification constitutes a partial settlement of the subject termination action.  The settlement amount reflects indirect expenses at the provisional billing rates in effect (per XYZ letter dated xx/xx/xx).  

Upon definitization of the final indirect expense rates (through audit determination or negotiation with the cognizant Administrative Contracting Officer) the settlement amount must be adjusted by applying the difference between the provisional and final indirect expense rates to the appropriate bases.  The interests of the parties in disposing of the unsettled part of the termination proposal will not be prejudiced as a result of this agreement.

Review by Legal Counsel

Prior to requesting contractor signature, supplemental agreements must be reviewed by the Office of Counsel for legal sufficiency whenever nonstandard clauses/provisions or reservation of rights clauses are incorporated therein.

 

No-Cost Settlements

 

In a partial termination of a cost-reimbursement contract without fee, if funds are not to be removed from the contract, indicate $0.00 in the estimated cost portion as suggested by FAR 49.603-5(b)(3).  If funds are to be removed, the TCO should show that dollar amount in the estimated cost portion per FAR 49.603-5(b)(3). Do not include paragraph (b)(2) in the agreement.

Settlements by Determination, Unilateral Determination, and Final Decision

The TCO should be alert to language that indicates that the contractor considers his proposal to be a claim.

For example, a contractor’s letter may have the tone that indicates that a dispute has begun.  In such a case the TCO will issue a letter advising the contractor that the Government considers itself to be in negotiations and if the Contractor considers itself to be in a claim situation, it should clearly state so and a final decision will be issued on the basis of the information available.

Contractor Failure to Submit a Timely Proposal

Termination clauses provide that the contractor's right of appeal from a determination of the TCO is forfeited if the contractor fails to submit a settlement proposal within the regulatory 1-year time period.  Although the clause states that the TCO may accept and act upon a termination proposal at any time after the original 1-year time limit or extension thereof, the contractor's right of appeal from a determination by the TCO, once forfeited for failure to submit a timely proposal, is not restored.  Therefore, if a late proposal is accepted, the TCO must notify the contractor that, while the proposal will be considered, the contractor shall have no right of appeal.  If an extension is not granted, the TCO should not take any action on any late proposals submitted.  The TCO is not required to notify the contractor of an impending unilateral determination due to the contractor’s failure to submit a timely proposal.

Timely but Inadequate Contractor Proposal Submission

If the contractor submits a timely but inadequate proposal, the TCO must advise the contractor by certified letter that unless an adequate proposal is submitted within one year from the date the contractor receives such TCO written notification, the contractor shall have no right of appeal from the TCO's subsequent determination of the settlement (ASBCA case, Harris Corp., 90-3 BCA 23,257 (Harris III).

Lessons Learned

Failure to Reach Agreement Following Timely Filing of a Contractor Proposal - No Prior Contractor CDA Claim: 

Harris Corp., 90-3 BCA 23,257 (Harris III) states a contractor has a reasonable period of time to correct defective proposals.  The TCO should advise the contractor that it has 90 days to correct any deficiencies.  This case also defined a proposal as including the termination settlement form, the inventory schedules and the schedule of accounting information. 

When the contractor and TCO cannot agree on a termination settlement (or equitable adjustment on the continued portion of a partially terminated contract) and the contractor fails to submit a claim complying with the submission and certification requirements for a final decision under the Disputes clause, the TCO must issue a unilateral determination of any amount due. 

The unilateral determination, issued via SF 30, will authorize payment of any amount determined due by the TCO.  The contractor must also be advised of the procedure for filing a claim under the Disputes clause of the contract and that the unilateral determination will be considered final unless disputed within 12 months from date of issuance.  Upon issuance of the unilateral determination, the TCO must advise the contractor that payment of the amount determined to be due will be made without prejudice to the rights of the Government or the contractor.  In the event that the contractor is unwilling to submit an invoice in the amount of the unilateral determination, the TCO should direct payment in that amount. 

Failure to Reach Agreement Following Timely Filing of a Contractor Proposal - Prior Contractor CDA Claim:

When the contractor and TCO cannot agree on a termination settlement (or equitable adjustment on the continued portion of a partially terminated contract) and the contractor has submitted a claim complying with the submission and certification requirements for a final decision under the Disputes clause, the TCO must issue a final decision (FAR 33.211).  The final decision will authorize payment of the amount found due by the TCO. 

Before issuing a unilateral determination or final decision (if not preceded by a unilateral determination), the TCO must give the contractor at least 15 days notice by certified mail (return receipt requested) to submit written evidence substantiating the amount previously proposed [FAR 49.109-7(b)].  The TCO must coordinate determinations, unilateral determinations, and final decisions with the Office of Counsel before release. (FAR 49.105-2 and FAR 49.604.) 

 Suspicion Of Fraud or Other Criminal Conduct - FAR 49.106, 33.209, and 33.210. 

If irregular conduct is suspected, the TCO is precluded from concluding agreement under the termination.  However, administrative actions can be continued up to the point of agreement as to the allowability of costs or entitlement. 

Contractor Appeals of TCO Final Decisions: 

Upon a ruling on an appeal, a modification should be issued to document the decision.

Report of Bankruptcy 

 

The TCO must notify the Office of Counsel of litigation involving terminated contracts. 

Responsibility for providing the Office of Counsel with information concerning contractors in bankruptcy must be assumed by the TCO with respect to contracts completely terminated for the Government's convenience.  If the termination is partial, the notice must be coordinated with the ACO.  Advice to the PCO regarding contracts terminated for convenience must be provided by the TCO through periodic DD Forms 1598.

Inventory Schedules

All termination inventories are required to be listed on an inventory schedule (SF 1426 through 1434). The Plant Clearance Officer is responsible for disposition of these items.   Other than the signature on the form, the PLCO is responsible for having the Contractor correct any deficiencies.  The inventory schedules should be accepted or rejected within 15 days of submission.  This is the pacing milestone in termination processing.

Termination inventory schedules must be routed within three (3) working days after receipt by the TCO to the Plant Clearance Officer (PLCO) for appropriate action

If the Plant Clearance Officer or the Property Administrator meets with the contractor, the following topics will be helpful in getting the contractor to submit inventory schedules: 

  • Emphasize the requirement for the submission of inventory schedules within 120 days from the effective date of termination

  • On cost-reimbursement contracts, request a list of all termination inventories currently accountable under the contract.

  • Request the contractor designate a plant clearance point of contact.

  • Request the contractor develop a timeline for submission of inventory schedules within 120 days.

  • Contractors with approved Government property control systems should be advised that failure to meet the 120-day submission requirement could adversely impact the acceptability of their Property Control System.

Lessons Learned:

On cost reimbursement contracts the contractor’s property system requires inventory accountability.  At the end of each monthly reporting period the contractor has the ability to provide a listing of all property accountable under the contract.  On complete terminations, the TCO should request a complete inventory listing which should be provided to the PCO to enable them to decide if they want to take title to any property.

TCO's should consider sending a contractor an Alert notice for the submission of inventory schedules.  Alerts should be sent on/about days sixty and ninety.

Docket Administration

Docket administration is performed in the Termination Automated Management System (TAMS).  TCOs are expected to keep all fields in TAMS current, accurate, and complete.  New termination dockets must be established, via entry into the Termination Automated Management System (TAMS), within three (3) working days of receipt of the termination notice in the TSO.  All administration efforts should maintain visibility of the timeliness of the docket and its progress towards realizing the Agency’s goal of timely closure.  For the purpose of this guidebook timely closure is considered to be 450 days from the effective date of termination to docket closure.

Overage reason codes are used to explain why a docket has exceeded 450 days from the effective date of termination.  The overage reason code should reflect the event that caused the docket to go overage or should be updated to reflect the current status of an overdue action that prevents the docket from closing.

Examples:

  • Late Receipt of T for C Notice (Code F) - This means the termination notice was not forwarded to the TCO in a timely manner.
  • Protracted Negotiations (Code A) - If the contractor fails to submit a proposal within the FAR requirement of 365 days and the TCO has granted an extension to the submittal due date, then the overage reason is protracted negotiations.  Rationale is that this action is not beyond the TCO's control.  

The Overage Reason Codes are not used to provide the day-to-day status of the docket.  Current information on docket status should be annotated in the TAMS’ note section for each docket.  Each docket over 450 days old from the effective date of termination must have one of the following Overage Reason Codes entered into TAMS:

A - Protracted Negotiations (All actions due to delay by the TCO).  Examples of actions not considered to be TCO delays are items C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q and R below.  Note: For the purposes of management review and reporting all codes except for C, D, E and M must be grouped and reported as Protracted Negotiations.

B - Subcontractor Issues (Example -- The prime contractor has authorized/requested the TCO to negotiate directly with the subcontractor and a settlement has not been reached.)

C - Settlement In Litigation (Example -- The contractor has filed a claim with the ASBCA or Court.)

D - Contractor is Bankrupt - (Example -- TCO has received a copy of the notice of bankruptcy.)

E - Contractor Under Investigation (Example -- An allegation of criminal action is being investigated.)

F - Late Receipt of T/C Notice (Example -- Late receipt of T/C notice by the TCO)

G - Late Receipt of T/C Proposal (Example -- Contractor's  proposal not received by the due date.)

H - Late Receipt of Revised Proposal (Example -- Contractor's revised proposal not received by the due date.)

I - Late Receipt of Plant Clearance (Example -- Plant clearance disposition reports more than 45 days past due.)

J - Late Receipt of Audit (Note: Audits should be allowed 45 days before being considered late.)

K - Late Receipt of Technical (Note: Technical evaluations should be allowed 45 days before being considered late.)

L - Late Receipt of Legal (Note: Legal reviews should be considered late after 15 days.  This code is also used for actions in litigation or ADR.)

M - Awaiting Additional Funds [Note:  Request for funding is considered late after 30 days in accordance with FAR 49.105(b).]

N - Awaiting Final O/H Rates (Rates overdue  from the established due date.  Note:  Allow 45 days after due date.)

O - Other 

P - DFAS Reconciliation (Example - A request has been submitted to DFAS for reconciliation and is overdue.  Note: Allow  45 days)

Q - The contractor was provided an extension in which to file its proposal.

R - Late receipt of inventory schedules.

Docket Consolidation

Orders terminated under the same contract with the same termination effective date, from the same buying command may be combined into a single docket. 

Docket Closure

 

The docket must be closed in TAMS once the settlement modification is signed by the TCO and the invoice is forwarded to DFAS.  (Note:  Although, contractors in some instances may have up to one year to file a claim, dockets may not remain open in anticipation of a claim.  Dockets may be reopened upon receipt of an actual claim from the contractor.)

The TCO is responsible for the termination docket file and for completion of the Termination File Checklist, found in TAMS.

Contract closeout is the responsibility of the ACO.  The completed termination docket file, including applicable plant clearance case files, will be forwarded to the ACO for inclusion as Part 7 in the official contract file.  The TCO must initial the remarks column on the DD Form 1597, certifying the completion of action items for which the TCO is responsible.

 Classified Inventory/Data  FAR 4.403(c).  The TCO must request, if applicable, that the contractor prepare a listing of all classified inventory/data.  This listing is to be coordinated with the Government security officer responsible for the classified inventory/data.

CONTRACT TERMINATION STATUS REPORT (DD Form 1598)

Initial and final reports prepared when action taken.  Semi-annual reports prepared in accordance with FAR 49.105-1.

CAOs   CAOs Serviced States Serviced  
     

DCMAE 

  

  

  

 

  

DCMA Atlanta 

DCMA Atlanta 

Alabama 

  

DCMA APMO 

Arkansas 

  

DCMA Baltimore 

District of Columbia

 

DCMA Birmingham 

Florida 

  

DCMA Clearwater 

Georgia 

  

DCMA Dayton

Indiana

  

DCMA Detroit 

Kentucky

  

DCMA Grand Rapids  

Louisiana

  

DCMA GE Aircraft Engines

Maryland

  

DCMA Indianapolis  

Michigan

  

DCMA Lockheed Martin Marietta 

Mississippi

  

DCMA Lockheed Martin Orlando 

North Carolina

    

DCMA Northrop Grumman Baltimore 

South Carolina

   

DCMA Northrop Grumman Melbourne 

 Tennessee 

   

DCMA Northrop Grumman
St. Augustine 

 Virginia 

    

DCMA Orlando 

    

    

DCMA St. Petersburg

   

     

DCMA Boston 

DCMA Boston 

Connecticut 

   DCMA Buffalo  Maine

  

DCMA GE Aircraft Engine Lynn 

Massachusetts  

  

DCMA Hartford 

New Hampshire 

  

DCMA 

New York (Upstate)

  

DCMA Lockheed Martin Delaware Valley 

Rhode Island 

  

DCMA Lockheed Martin Sanders 

New York (Upstate) 

  

DCMA Lockheed Martin Owego 

Vermont 

  

DCMA Manchester

 

  

DCMA Pratt & Whitney East Hartford 

 

  

DCMA Raytheon 

 

  

DCMA Stratford 

 

  

DCMA Syracuse 

 

  

DCMA Textron Systems 

 

  DCMA General Dynamics Government Systems

 

   

DCMA General Dynamics Defense Systems (Burlington VT)

 

  

DCMA General Dynamics Defense Systems (Pittsfield MA)

  

     

DCMA Philadelphia 

DCMA Boeing Philadelphia 

Connecticut (DCMA Sikorsky only) 

  

DCMA Cleveland

 Delaware 

  

DCMA Lockheed Martin Delaware Valley 

New Jersey 

  

DCMA Long Island

New York (except upstate)  

  

DCMA New York 

Pennsylvania  

  

DCMA Northrup Grumman Bethpage

 Ohio (Northern)

  

DCMA Philadelphia

West Virginia

  

DCMA Pittsburg 

  

  

DCMA Sikorsky Aircraft 

  

  

DCMA Springfield

  

  

DCMA United Defense LP 

  

        

DCMAW

 

 

        

DCMA Dallas 

DCMA Bell Helicopter Textron 

Arizona

   

DCMA Dallas 

Arkansas 

   

DCMA Lockheed Martin Forth Worth

Louisiana

   

DCMA Loral Vought System 

Mexico

   

DCMA Phoenix 

Nevada

   

DCMA Raytheon-E-Systems

New Mexico  

  

DCMA Raytheon-Hughes Tucson

Oklahoma  

  

DCMA San Antonio  

Texas  

  

DCMA Stewart & Stevenson

  

        

DCMA St. Louis

DCMA Boeing Wichita 

Colorado 

  

DCMA Denver

Illinois

  

CCMA Lockheed Martin Astronautics 

Iowa

  

DCMA McDonnell Douglas St. Louis 

Kansas

  

DCMA St. Louis

Minnesota

  

DCMA Thiokol

Missouri 

  

DCMA Twin Cities

Nebraska

  

DCMA Wichita

North Dakota

  

   

South Dakota  

  

   

Utah 

  

   

 Wisconsin  

  

   

 Wyoming

           

DCMA Van Nuys 

DCMA Santa Ana 

California

  

DCMA McDonnell Douglas Huntingdon Beach

Nevada (Las Vegas) 

  

DCMA McDonnell Douglas Long Beach

 Baja, Mexico

  

DCMA San Diego

    

  

DCMA Boeing Seattle

    

  

DCMA Hughes Los Angeles 

   

  

DCMA Lockheed Martin Missiles & Space 

   

  

DCMA Michoud, Nevada

    

  

DCMA Northrop-Grumman Hawthorne 

    

  

DCMA Rockwell Canoga Park 

   

  

DCMA San Francisco

   

  

DCMA Santa Ana

   

  

DCMA Seattle

   

  

DCMA TRW Redondo Beach

   

  

DCMA United Defense San Jose

   

  

DCMA Van Nuys

   

         

DCMAI 

  

          

DCMA Americas 

DCMA Americas 

  

   

DCMA Puerto Rico 

  

        

DCMA Northern Europe 

DCMA Bristol 

  

  

DCMA Northern Europe 

  

  

DCMA Rochester 

  

       

DCMA Southern Europe 

DCMA Germany 

    

  

DCMA Israel 

    

  

DCMA Italy 

    

  

DCMA Southern Europe 

    

  

DCMA Spain 

    

  

DCMA Turkey 

    

       

DCMA Pacific 

DCMA Australia 

    

  

DCMA Hawaii 

    

  

DCMA Japan 

    

  

DCMA Korea 

    

  

DCMA Kuala Lumpur 

    

  

DCMA Pacific 

    

          

DCMA Middle  East

DCMA Saudi 

Saudi

  

DCMA Iraq    

Kuwait

  

    

Egypt

  

    

Iraq