Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 3 and 49

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Federal Register › Vol. 91 › 91 FR 37698

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OFFICE OF MANAGEMENT AND BUDGET Office of Federal Procurement Policy DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 3, 49, and 52 [FAR Case 2026-007, Docket No. FAR-2026-0007, Sequence No. 1] RIN 9000-AO92 Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 3 and 49 AGENCY:

Office of Federal Procurement Policy (OFPP), Office of Management and Budget (OMB); Department of Defense (DoD); General Services Administration (GSA); and National Aeronautics and Space Administration (NASA).

ACTION:

Proposed rule.

SUMMARY:

OFPP, DoD, GSA, and NASA (collectively referred to as the Federal Acquisition Regulatory Council or FAR Council) are proposing to amend the Federal Acquisition Regulation (FAR) to implement Executive Order (E.O.) 14275, Restoring Common Sense to Federal Procurement. The E.O. directs the elimination of excessive acquisition regulations to stop the inefficient use of American taxpayer dollars. The FAR Council is issuing twelve proposed rules that collectively will streamline the FAR in its entirety. This rule proposes revisions to FAR parts 3 and 49.

DATES:

Interested parties should submit written comments to the Regulatory Secretariat Division at the address shown below on or before July 23, 2026, to be considered in the formation of the final rule.

ADDRESSES:

Submit comments in response to FAR Case 2026-007 to the Federal eRulemaking portal at https://www.regulations.gov. Follow the instructions for sending comments.

Instructions: Please submit comments only and cite “FAR Case 2026-007” in all correspondence related to this case. Include your name, company name (if any), and “FAR Case 2026-007” on any attached document. Comments received generally will be posted without change to https://www.regulations.gov, including any personal and/or business confidential information provided

orm procedures across executive departments and agencies), into an excessive and overcomplicated regulatory framework and bureaucracy. While meant to “deliver, on a timely basis, the best value product or service to the customer, while maintaining the public's trust and fulfilling public policy objectives,” the FAR has become an expensive barrier to achieving those objectives. As a result, the E.O. directed the FAR Council and OMB to create an agile, effective, and efficient regulation that contains only provisions required by statute or essential to sound procurement.

To implement E.O. 14275, OMB issued Memorandum M-25-26, Overhauling the Federal Acquisition Regulation, which announced the “Revolutionary FAR Overhaul” (RFO) and created a roadmap for producing simpler regulations aligned to statute, rewritten in plain language, and including nonstatutory requirements that are necessary to conducting a sound procurement. The memorandum described a new streamlined vision for the FAR, to be maintained alongside nonregulatory governmentwide guidance to provide a common-sense authoritative foundation for nimble response and delivery of mission capability.

This new vision represents a paradigm shift where over-engineered regulations designed for paperwork and compliance are replaced with streamlined regulations focused on core stewardship principles and nonregulatory guidance that will be used in concert with the streamlined FAR focused on proven buying strategies, critical thinking, market awareness (including to expand awareness of goods, products, and materials offered in the United States), and risk literacy to enhance workforce problem-solving. The significant reduction of unnecessary mandates is intended to clarify and reinforce the contracting officer's discretion to determine the best way to apply policies and practices

to plain language, where possible. The plain language efforts include changes to active voice, edits to improve readability, and reorganization to present information more logically. None of the plain language edits are intended to change existing FAR requirements. The rewriting of the entire FAR also required edits to harmonize the changes being proposed such as updating the cross-references.

2. Standardization of Prescriptions

This rule proposes revisions to standardize prescriptions for provisions and clauses. These changes are intended to provide better clarity around the applicability of provisions and clauses such as whether they apply to commercial products and commercial services.

3. Use of “Must” Instead of “Shall”

Additional revisions are being proposed throughout the FAR text and FAR provisions and clauses to replace the use of the term “shall” with “must” or “will,” as appropriate, to impose requirements.

4. Non-Statutory Requirements

Section 4 of the E.O. required amendments to the FAR to ensure it contains only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security. The FAR Council reviewed all non-statutory requirements to determine if they are still relevant and essential to sound procurement in today's contracting environment based on the criteria from section 4 of the E.O. The proposed rule retains non-statutory requirements that further one or more of the elements of sound procurements, including those requirements that serve as guardrails to protecting taxpayer interests and promote taxpayer confidence in the procurement system. Non-statutory requirements that were beneficial but not essential were retained in the non-regulatory guidance documents. Other non-statutory requirements that did not meet these standards, were removed

one or more of the elements of sound procurements, including those requirements that serve as guardrails to protecting taxpayer interests and promote taxpayer confidence in the procurement system. Non-statutory requirements that were beneficial but not essential were retained in the non-regulatory guidance documents. Other non-statutory requirements that did not meet these standards, were removed. The Council considered the extent to which regulation is the most efficient means for capturing the benefit of the policy. For example, most “how to” requirements were found to be more appropriately suited for non-regulatory coverage which better enables a contracting officer to use discretion in determining the application of a strategy to a given situation and limits the risk of overapplication, which can create wasteful burden on the contracting parties.

As part of the RFO, the FAR Council has created a number of non-regulatory resources, including the FAR Companion, which provides insight from experienced practitioners across the government on using more streamlined practices and processes. The migration of significant coverage to non-regulatory guidance is intended to ensure that the benefits of the policy are not outweighed by the compliance burden of a more rigidly written regulation that is prone to application in an overly broad manner. This approach was explained to the public in a set of “frequently asked questions” that were posted on the Revolutionary FAR Overhaul homepage shortly after the initiative was launched.

B. Summary of Proposed Changes to FAR Part 3, Improper Business Practices and Personal Conflicts of Interest

1. Retain Statutorily Based Requirements

s Practices and Personal Conflicts of Interest

1. Retain Statutorily Based Requirements

FAR part 3 was reviewed comprehensively to distinguish provisions and clauses grounded in statute from those that were discretionary, duplicative, or informational in nature, consistent with the policy objectives of Executive Order No. 14275, Restoring Common Sense to Federal Procurement, 90 FR 16447 (2025). As a result of this review, this rule retains all statutory requirements governing improper business practices and personal conflicts of interest, including 10 U.S.C. 4651; 10 U.S.C. 4655; 41 U.S.C. 4704; 18 U.S.C. 208; 18 U.S.C. 218; 41 U.S.C. 2101 et seq.; 41 U.S.C. 3509; 41 U.S.C. 4712; 41 U.S.C. 8701 et seq.; and Executive Order No. 12731, Principles of Ethical Conduct for Government Officers and Employees; among others. These authorities ensure that the FAR continues to provide clear, stable, and enforceable ethical standards, advancing the objectives of Executive Order No. 14275, to promote regulatory discipline, usability, and common-sense procurement.

2. Remove Obsolete and Duplicative Sections

The revisions to FAR part 3 eliminate provisions that are obsolete, duplicative, or nonstatutory in nature. These revisions include removal of references to the superseded Executive Order No. 11222, Prescribing Standards of Ethical Conduct for Government Officers and Employees, 30 FR 6469 (1965), in subsection 3.101-3, Agency Requirements; removal of section 3.301, General, which was informational in nature; removal of agency guidance in section 3.406, Records; streamlining of section 3.700, Scope of Subpart; and removal of section 3.907, Whistleblower Protections Under the American Recovery and Reinvestment Act of 2009, which is now obsolete because all funds appropriated under the Act are expired. Additionally, outdated antitrust violation instructions were removed.

These changes do not deviate from existing statutory authorities or ethical standards

er FAR part 3, including clarifying the appropriate dispute avenues under applicable protest and claims processes. Additionally, the rule codifies statutory Freedom of Information Act (FOIA) protections by stating that proposals remain exempt from disclosure under 41 U.S.C. 4702 regardless of marking disputes and clarifies when agencies must modify procedures to comply with agency FOIA regulations. Collectively, these changes reinforce statutory protections, align processes with procurement integrity requirements, and improve clarity and usability for contracting officers, offerors, and contractors.

C. Summary of Proposed Changes to FAR Part 49

1. Retain Statutorily Based Subparts

FAR part 49 was comprehensively reviewed to identify the portions of the termination framework that remain required to implement statutory authorities governing contract terminations. As a result of this review, this rule retains all statutory requirements, including 10 U.S.C. 3201 et seq.; 41 U.S.C. 3301 et seq; 41 U.S.C. 3901; 40 U.S.C. 502; 41 U.S.C. 1303; 41 U.S.C. 3901; 41 U.S.C. ch 13; 41 U.S.C. 6502; 41 U.S.C. 7101-7109; 10 U.S.C. et seq.; among others. These authorities implement longstanding requirements, including the Government's right to terminate contracts for convenience, principles for determining fair compensation, statutory rights to recover excess costs following default, and the requirement to settle subcontractor claims in accordance with applicable statutes and judicial precedent. These subparts also incorporate statutory provisions governing the Government's ability to recover funds when contracts are voided or rescinded (49.700-49.705), and statutory accounting, payment, and property transfer requirements associated with termination actions

following default, and the requirement to settle subcontractor claims in accordance with applicable statutes and judicial precedent. These subparts also incorporate statutory provisions governing the Government's ability to recover funds when contracts are voided or rescinded (49.700-49.705), and statutory accounting, payment, and property transfer requirements associated with termination actions. Preserving these statutory subparts ensures alignment with long-standing case law, maintains the integrity of the Government's termination authority, and continues to provide contracting officers and contractors with the legally required procedures for administering termination actions.

2. Remove Obsolete, Duplicative, or Nonstatutorily Based Sections

This rule removes or streamlines provisions in part 49 that are obsolete, duplicative of other FAR parts, or purely informational in nature and therefore unnecessary to retain in regulation. Several sections, including FAR 49.108-7 (Government Assistance in Settling Subcontracts), FAR 49.113 (Cost Principles), and FAR 49.405 (Completion by Another Contractor), contained narrative guidance or explanatory text that duplicated requirements addressed elsewhere in the FAR, such as cost principles in FAR part 31, property management in part 45, inspection and acceptance in FAR part 46, and Government claims and recovery authorities in FAR parts 1, 32, and 33. Additional outdated or duplicative material, including explanatory text related to termination inventory, settlement forms, and administrative practices now addressed through standardized processes or cross-referenced authorities, has been removed or consolidated into existing subparts. These revisions are consistent with the objectives of Executive Order No. 14275, Restoring Common Sense to Federal Procurement

dated or duplicative material, including explanatory text related to termination inventory, settlement forms, and administrative practices now addressed through standardized processes or cross-referenced authorities, has been removed or consolidated into existing subparts. These revisions are consistent with the objectives of Executive Order No. 14275, Restoring Common Sense to Federal Procurement. Removing non-statutory and duplicative sections strengthens regulatory discipline, improves readability, reduces redundancy, and promotes consistent application of termination procedures while maintaining clear, stable, and enforceable requirements aligned with current statutes, case law, and modern acquisition practices.

3. Revise Audit of Prime Contractor and Subcontractor Termination Settlement Proposals From Mandatory to Permissive

This rule proposes revisions to FAR 49.107, Audit of Prime Contract Settlement Proposals and Subcontract Settlements, to replace the mandatory termination settlement proposal audit requirement with a permissive, risk-based approach. The revisions remove the certified cost or pricing data threshold as a trigger for audit and provide the termination contracting officer (TCO) discretion to determine whether audit support is appropriate based on the facts and risk of the settlement. These changes maintain appropriate oversight of risk associated proposals prepared in a noncompetitive environment, while improving flexibility in the administration of contract termination settlements, allowing audit resources to be applied where risk warrants and reducing unnecessary administrative burden for both the Government and contractors.

rms and Settlement Agreements, without altering substantive rights or obligations.

This rule proposes to implement improved readability as a result of the plain-language edit. Sections 49.001, Definitions, and 49.002, Applicability, are retained and updated for plain language with a simpler structure. In addition, nonsubstantive comments were addressed through clarifying and corrective revisions. These included revising informal advisory language at 49.202, Determining Profit, with a plain-language edit stating that the TCO may use any reasonable method to determine a fair profit, taking into account specified factors; and restoring previously removed text specifying the interest rate computation for excess payments at 49.112-1, Partial Payments, to reflect applicable statutory requirements. Further nonsubstantive revisions corrected formatting, indentation, and spacing and reserved deleted sections to improve navigability and internal consistency.

6. Clarify Default Termination Procedures

This rule clarifies the organization and application of procedures in FAR subpart 49.4, Termination for Default, to ensure consistent use of cure notices and show-cause notices in accordance with long standing FAR practice. This rule refines the text to more clearly distinguish when a contracting officer should issue a cure notice versus when a show-cause notice is practicable, and

D. Summary of Changes to FAR Part 52, Contract Clauses

1. Plain Language Update

As part of the broader plain language initiative, the term “shall” has been replaced with “must” throughout all affected clauses and prescriptions in this rulemaking to promote clarity and consistency. These updates will streamline contract drafting and compliance, reduce ambiguity, and save time for both contracting officers and contractors.

ts for Commercial Products, Commercially Available Off-The-Shelf Items, and Commercial Services

41 U.S.C. 1906 governs the applicability of laws to contracts for the acquisition of commercial products and commercial services and gives the FAR Council the authority to determine to apply a law to contracts or subcontracts for the acquisition of commercial products and commercial services. 41 U.S.C. 1907 exempts contracts for commercially available off-the-shelf (COTS) items from certain provisions of law unless the Administrator for Federal Procurement Policy determines that doing so would not be in the best interest of the Federal Government.

Section 839 of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 (Pub. L. 115-232) required the FAR Council and the Administrator of Federal Procurement Policy to review prior determinations under 41 U.S.C. 1906 and 41 U.S.C. 1907, as well as the applicability of provisions and clauses to contracts and subcontracts for commercial products, COTS items, and commercial services that do not implement statute or Executive order, and propose amendments to the FAR to eliminate or exempt such requirements from commercial acquisitions, unless there are specific reasons to retain particular requirements.

In accordance with section 839 of the NDAA for FY 2019 and their authorities under 41 U.S.C. 1906 and 1907, the FAR Council reviewed the applicability of the provisions and clauses associated with the FAR parts covered by this proposed rule.

The following table reflects the FAR Council and Administrator of Federal Procurement Policy's proposed determination regarding the applicability of the provisions and clauses to solicitations and contracts for commercial products, COTS items, and/or commercial services

II Termination (Cost-Reimbursement) 52.249-6 Alt IV Termination (Cost-Reimbursement) 52.249-7 Termination (Fixed-Price Architect-Engineer) 52.249-8 Default (Fixed-Price Supply and Service) 52.249-8 Alt I Default (Fixed-Price Supply and Service) 52.249-9 Default (Fixed-Price Research and Development) 52.249-10 Default (Fixed-Price Construction) 52.249-10 Alt I Default (Fixed-Price Construction) 52.249-10 Alt II Default (Fixed-Price Construction) 52.249-10 Alt III Default (Fixed-Price Construction) 52.249-12 Termination (Personal Services) 52.249-14 Excusable Delays The FAR Council also reviewed subcontract flow down requirements in clauses associated with the FAR parts covered by this proposed rule. The following table reflects the FAR Council and Administrator of Federal Procurement Policy's proposal regarding whether those clauses flow down to subcontracts for commercial products, COTS items, and/or commercial services. This proposed rule, if finalized, would revise the subcontract paragraphs in these clauses to clearly state whether the clause flows down to commercial subcontracts, as outlined in the table. An “X” in the following table indicates the provision or clause will apply to subcontracts for that category of commercial subcontracts, as described in the clause:

Clause No. Title Commercial products Commercial services COTS items 52.203-6 Restrictions on Subcontractor Sales to the Government 52.203-6 Alt I Restrictions on Subcontractor Sales to the Government X X X 52.203-7 Anti-Kickback Procedures 52.203-12 Limitation on Payments to Influence Certain Federal Transactions X X X 52.203-13 Contractor Code of Business Ethics and Conduct X X X 52.203-14 Display of Hotline Poster(s) 52.203-16 Preventing Personal Conflicts of Interest 52.203-17 Contractor Employee Whistleblower Rights X X X 52.203-19 Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements X X X IV. Expected Impact of the Rule

The intended impact of the RFO, as stated in E.O

nd leave the applicability determination to contracting officer interpretation. By specifically stating when a provision or clause can be applied to commercial acquisitions, proposed RFO rules should decrease the likelihood of inclusion of provisions and clauses in commercial acquisitions that are not required by law and drive greater consistency in the terms and conditions used in these contracts. In turn, these changes should increase the participation of commercial sellers, who are unwilling or unable to manage the cost of complying with noncommercial requirements, and also improve taxpayer access to affordable commercial solutions.

Some RFO rules propose to delete requirements placed on commercial or noncommercial sellers that are not related to performance of the contract, drive up cost without attendant performance benefits, and may misdirect efforts away from innovation, investment and economic growth. Greater emphasis on timeliness should reduce bidders' carrying costs, enabling them to pass those savings on to customers through lower prices.

Increased competition . Since enactment of the Competition in Contracting Act of 1984 (Title VII of Pub. L. 98-369), competition has been the cornerstone of the Federal acquisition system. The benefits of competition are well established: competition saves money for the taxpayer, improves contractor performance, curbs fraud, and promotes accountability for results. Competition also drives contractor resilience and positions the U.S. market to develop a strategic advantage for the nation.

According to data in the SAM Contract Award Management, roughly 45 percent of contract dollars were awarded in FY 2025 either without competition or with competition that received only one offer. Of equal concern, the Federal marketplace has seen a significant decline over the past 20 years in the number of businesses—especially small businesses—participating in the Federal supplier base

solutions in a more dynamic marketplace will drive better return for each taxpayer dollar spent and increase taxpayer confidence in the Federal acquisition system.

The Government has conducted a regulatory impact analysis (RIA) for the RFO rulemaking inclusive of this proposed rule for FAR parts 3 and 49. The RIA includes a discussion of the anticipated effects of the rulemakings as follows:

1. FAR Part 3

This proposed rule streamlines FAR part 3 to improve clarity, consistency, and ease of use without altering statutory requirements or the substantive compliance environment for offerors and contractors. It removes obsolete and duplicative text ( e.g., references to Executive Order 11222 and sections 3.301, 3.406, and 3.907), updates internal cross references, and adopts plain language edits to enhance readability and navigability for the acquisition workforce. The rule also clarifies procedures at FAR 3.104-4 for reviewing markings on contractor bid or proposal information and source selection information.

Benefits to the Government include a more coherent framework for protecting sensitive information and applying procurement integrity provisions, reduced time spent reconciling outdated cross references, and fewer procedural errors associated with inconsistent review practices. By presenting requirements in plain language and removing redundant narrative, the rule supports faster onboarding, more consistent training, and improved day to day application of ethical and integrity standards across agencies. Benefits to industry are indirect but meaningful. Clearer, more predictable processes for markings review, faster resolution of questions tied to proprietary or source selection information, and a FAR part e.g., familiarization and routine updates to agency guidance and training materials), as the rule does not introduce new reporting, recordkeeping, certifications, or contractor systems changes.

This proposed rule, if finalized as proposed, is anticipated to be an E.O. 14192 deregulatory action. See discussion in the “Expected Impact of the Rule” section of this preamble.

VII. Regulatory Flexibility Act

This proposed rule, if finalized, may have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act 5 U.S.C. 601-612. However, an Initial Regulatory Flexibility Analysis (IRFA) is as follows:

1. Reasons for the action.

Executive Order (E.O.) 14275, Restoring Common Sense to Federal Procurement, directs the elimination of excessive acquisition regulations to stop the inefficient use of American taxpayer dollars. The E.O. directs the first comprehensive end-to-end overhaul of the FAR in its 40-year history. The E.O. establishes the policy that the FAR should “contain only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security interests.” In response to E.O. 14275, the Office of Management and Budget issued memorandum M-25-26, Overhauling the Federal Acquisition Regulation. The Memo directed the FAR Council to complete a “revolutionary overhaul” of the FAR. Therefore, the FAR Council is issuing twelve proposed rules that collectively will streamline the FAR in its entirety.

2. Objectives of, and legal basis for, the rule

The revolutionary FAR overhaul (RFO) rewrite represents a paradigm shift in Federal acquisition. It emphasizes streamlining, clarity, and accessibility, while ensuring that the regulation focuses only on statutory mandates and foundational procurement principles. The RFO is designed to simplify compliance for contracting professionals, improve acquisition speed and agility, and reinforce mission outcomes over process formalities.

The basis for the RFO is E.O. 14275. The authority for promulgation of the FAR is 41 U.S.C. 1121(b); 40 U.S.C. 121(c); 10 U.S.C

ring that the regulation focuses only on statutory mandates and foundational procurement principles. The RFO is designed to simplify compliance for contracting professionals, improve acquisition speed and agility, and reinforce mission outcomes over process formalities.

The basis for the RFO is E.O. 14275. The authority for promulgation of the FAR is 41 U.S.C. 1121(b); 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113.

3. Description of and an estimate of the number of small entities to which the rule will apply

All small entity concerns who want to contract with the Federal Government will have to familiarize themselves with the reorganized, streamlined, and revised FAR, including the content of this rulemaking. As of January 2026, there are 401,196 entities registered in the System for Award Management (SAM) that were small for at least one North American Industry Classification System (NAICS) code they had selected.

FAR Part 3:

Proposed revisions to FAR part 3 apply broadly to all Federal offerors and contractors, including small entities across all sectors. In addition to nonsubstantive revisions that reorganize and streamline regulatory text, clarify existing requirements through plain-language edits, correct internal cross-references, and remove duplicative or outdated provisions, the rule includes a substantive revision aligning the procedures for reviewing improperly marked contractor information in FAR 3.104-4(b) and 3.104-4(d) with the procedures set forth in FAR 27.404-5.

ly marked contractor information in FAR 3.104-4(b) and 3.104-4(d) with the procedures set forth in FAR 27.404-5.

Because these changes do not impose new reporting, recordkeeping, or compliance obligations on contractors, including small entities, and do not require changes to internal systems, ethics programs, or business practices, they are not expected to result in significant additional costs. The revisions do not affect contractor pricing, competition, or participation in Federal acquisitions; however, the revisions will make the FAR easier to navigate and reduce confusion for small entities by providing clearer guidance and standardized formats. While small entities may need to update internal procedures to align with the reorganized structure, the overall effect is expected to reduce administrative burden and improve transparency. Familiarization costs are anticipated to be minimal, primarily involving time spent reviewing the new structure.

FAR Part 49:

Proposed revisions to FAR Part 49 affect contractors whose contracts are terminated for convenience or default,

The substantive revisions replace the mandatory termination settlement proposal audit requirement with a permissive, risk-based approach that allows TCOs to determine whether audit support is appropriate based on the facts and risk of the settlement. The revisions also remove the certified cost or pricing data threshold as a trigger for audit.

In addition, the rule revises default submission timeframes for inventory schedules and termination settlement proposals and revises the timing for requesting extensions, while retaining the ability for contractors to request additional time. These changes do not alter the scope or content of termination settlement proposals, inventory schedules, or subcontract settlements, and do not introduce new documentation, reporting, or audit requirements

Revisions to FAR Part 3 do not introduce new reporting, recordkeeping, or information collection requirements for contractors, subcontractors, or offerors, including small entities. The changes are limited to organizational and editorial revisions, clarification of existing requirements through plain-language edits, correction of internal cross-references, and alignment of FAR part 3 with part 27. Contractors remain subject to the same ethical, procurement integrity, and conflict of interest obligations that existed prior to the rule, and no new certifications, disclosures, or documentation submissions are required.

The revisions do not impose new compliance obligations or require changes to contractor systems, staffing, training, or internal controls. Because the rule does not add or modify information collections, it does not result in increased paperwork burden under the Paperwork Reduction Act. The changes are intended to support clearer understanding and more consistent application of existing requirements without creating new compliance responsibilities for contractors or the Government.

FAR Part 49:

Revisions to FAR Part 49 do not establish new reporting or recordkeeping requirements related to contract terminations, including termination settlement proposals or inventory schedules. Contractors are not required to submit additional information beyond what is already required under existing termination procedures. The revisions adjust procedural timeframes for the submission of termination settlement proposals and inventory schedules, clarify existing FAR text, and promote a risk-based approach to the administration of termination proposal audits, without expanding documentation or data submission requirements.

The rule does not require contractors to modify accounting systems, recordkeeping practices, or internal termination procedures, nor does it impose new compliance steps or documentation obligations

le on small entities.

The Regulatory Secretariat Division has submitted a copy of the IRFA to the

The FAR Council will also consider comments from small entities concerning the existing regulations in subparts affected by the rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite “5 U.S.C. 610 (FAR Case 2026-007)” in correspondence.

VIII. Paperwork Reduction Act

This rule includes information collections under the Paperwork Reduction Act (44 U.S.C. 3501-3521). Following are the specific collections associated with each FAR part in this rule as previously approved by OMB followed by how each collection would be affected by the proposed rule. If a FAR part is not listed below, then there are no information collections associated with the part.

Part 3

OMB Control No 9000-0018, Federal Acquisition Regulation Part 3: Improper Business Practices and Personal Conflicts of Interest—FAR sections affected: 52.203-2, 52.203-7, 52.203-13, and 52.203-16. The changes under this proposed rule, if finalized, would not affect the information collection or the paperwork burden previously approved by OMB. The collection would remain unchanged.

Part 49

OMB Control No 9000-0012, Termination Settlement Proposal Forms (SFs 1435 through 1440); FAR Section Affected: SFs 1435 through 1440. The changes under this proposed rule, if finalized, would not affect the information collection or the paperwork burden previously approved by OMB. The collection would remain unchanged.

IX. Severability

If any portion ( e.g., section, clause, sentence) of this rule is held to be invalid or unenforceable facially, or as applied to any entity or circumstance, it shall be severable from the remainder of this rule, and shall not affect the remainder thereof, or its application to entities not similarly situated or to other dissimilar circumstances. The various portions of this rule are independent and serve distinct purposes

er official's acceptance of compensation from a contractor. 3.104-7 Violations or possible violations. 3.104-8 Criminal and civil penalties, and further administrative remedies. 3.104-9 Contract clauses. Subpart 3.2—Contractor Gratuities to Government Personnel

3.201 Applicability. 3.202 Contract clause. 3.203 Reporting suspected violations of the Gratuities clause. 3.204 Treatment of violations. Subpart 3.3—Reports of Suspected Antitrust Violations

3.301 [Reserved] 3.302 Definitions. 3.303 Reporting suspected antitrust violations. Subpart 3.4—Contingent Fees

3.400 Scope of subpart. 3.401 Definitions. 3.402 Statutory requirements. 3.403 Applicability. 3.404 Contract clause. 3.405 Misrepresentations or violations of the Covenant Against Contingent Fees. Subpart 3.5—Other Improper Business Practices

3.501 Buying-in. 3.501-1 Definition. 3.501-2 General. 3.502 Subcontractor kickbacks. 3.502-1 Definitions. 3.502-2 Subcontractor kickbacks. 3.502-3 Contract clause. 3.503 Unreasonable restrictions on subcontractor sales. 3.503-1 Policy. 3.503-2 Contract clause. Subpart 3.6—Contracts with Government Employees or Organizations Owned or Controlled by Them

3.601 Policy. 3.602 Exceptions. 3.603 Responsibilities of the contracting officer. Subpart 3.7—Voiding and Rescinding Contracts

3.700 Scope of subpart. 3.701 Purpose. 3.702 Definition. 3.703 Authority. 3.704 Policy. 3.705 Procedures. Subpart 3.8—Limitations on the Payment of Funds to Influence Federal Transactions

3.800 Scope of subpart. 3.801 Definitions. 3.802 Statutory prohibition and requirement. 3.803 Exceptions. 3.804 Policy. 3.805 Exemption. 3.806 Processing suspected violations. 3.807 Civil penalties. 3.808 Solicitation provision and contract clause. Subpart 3.9—Whistleblower Protections for Contractor Employees

ing suspected violations. 3.807 Civil penalties. 3.808 Solicitation provision and contract clause. Subpart 3.9—Whistleblower Protections for Contractor Employees

3.900 Scope of subpart. 3.901 Definitions. 3.902 Classified information. 3.903 Policy. 3.904 Complaints. 3.904-1 Procedures for filing complaints. 3.904-2 Procedures for investigating complaints. 3.905 Remedies and enforcement of orders. 3.905-1 Remedies. 3.905-2 Enforcement of orders. 3.906 Contract clause. 3.907 [Reserved] 3.908 [Reserved] 3.909 Prohibition on providing funds to an entity that requires certain internal confidentiality agreements or statements. 3.909-1 Prohibition. 3.909-2 Representation by the offeror. 3.909-3 Solicitation provision and contract clause. Subpart 3.10—Contractor Code of Business Ethics and Conduct

3.1000 Scope of subpart. 3.1001 Definitions. 3.1002 Policy. 3.1003 Requirements. 3.1004 Contract clauses. Subpart 3.11—Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions

3.1100 Scope of subpart. 3.1101 Definitions. 3.1102 Policy. 3.1103 Procedures. 3.1104 Mitigation or waiver. 3.1105 Violations. 3.1106 Contract clause. Authority:

41 U.S.C. 1121(b); 40 U.S.C. 121(c); 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016); and 51 U.S.C. 20113.

3.000 Scope of part. This part prescribes policies and procedures for avoiding improper business practices and personal conflicts of interest and for dealing with their apparent or actual occurrence.

Subpart 3.1—Safeguards

3.101 Standards of conduct.

3.101-1 General. Government business must be conducted in a manner above reproach. Except as authorized by statute or regulation, business must be conducted with complete impartiality and without preferential treatment for anyone. Transactions involving public funds require the highest degree of public trust and impeccable standards of conduct

ance or nonperformance of the employee's official duties.

(b) Certain limited exceptions are authorized in agency regulations.

3.101-3 Agency regulations. (a) Agencies must prescribe Standards of Conduct as required by 5 CFR part 735. These agency standards contain—

(1) Agency-authorized exceptions to 3.101-2; and

(2) Disciplinary measures for persons violating the standards of conduct.

(b) Requirements for employee financial disclosure and restrictions on private employment for former Government employees are contained in Office of Personnel Management and agency regulations implementing Public Law 95-521, which amended 18 U.S.C. 207.

3.102 [Reserved]

3.103 Independent pricing.

3.103-1 Solicitation provision. Insert the provision at 52.203-2, Certificate of Independent Price Determination, in solicitations, other than those for commercial products or commercial services, for firm-fixed-price contracts or fixed-price contracts with economic price adjustment, unless-

(a) The purchase uses simplified acquisition procedures from part 13;

(b) The solicitation only requests technical proposals under two-step sealed bidding; or

3.103-2 Evaluating the certification. (a) Evaluation guidelines.

(1) The following activities are not considered “disclosure” as used in paragraph (a)(2) of the Certificate of Independent Price Determination (the certificate):

), with respect to procurements subject to that section).

(2) Indirect costs and direct labor rates.

(3) Proprietary information about manufacturing processes, operations, or techniques marked by the contractor in accordance with applicable law or regulation.

(4) Information marked by the contractor as “contractor bid or proposal information” in accordance with applicable law or regulation.

(5) Information marked in accordance with 52.215-1(e).

Decision to award a subcontract or modification of subcontract means a decision to designate award to a particular source.

Federal agency procurement means the acquisition (by using competitive procedures and awarding a contract) of goods or services (including construction) from non-Federal sources by a Federal agency using appropriated funds. For broad agency announcements and small business innovation research programs, each proposal received by an agency counts as a separate procurement for purposes of 41 U.S.C. chapter 21.

In excess of $10,000,000 means—

(1) The value, or estimated value, at the time of award, of the contract, including all options;

(2) The total estimated value at the time of award of all orders under an indefinite-delivery, indefinite-quantity, or requirements contract;

(3) Any multiple award schedule contract, unless the contracting officer documents a lower estimate;

(4) The value of a delivery order, task order, or an order under a Basic Ordering Agreement;

(5) The amount paid or to be paid in settlement of a claim; or

(6) The estimated monetary value of negotiated overhead or other rates when applied to the Government portion of the applicable allocation base.

Official means—

(1) An officer, as defined in 5 U.S.C.2104;

(2) An employee, as defined in 5 U.S.C.2105;

(3) A member of the uniformed services, as defined in 5 U.S.C.2101(3); or

(4) A special Government employee, as defined in 18 U.S.C.202.

Participating personally and substantially in a Federal agency procurement means—

ed to the Government portion of the applicable allocation base.

Official means—

(1) An officer, as defined in 5 U.S.C.2104;

(2) An employee, as defined in 5 U.S.C.2105;

(3) A member of the uniformed services, as defined in 5 U.S.C.2101(3); or

(4) A special Government employee, as defined in 18 U.S.C.202.

Participating personally and substantially in a Federal agency procurement means—

(1) Active and significant involvement of an official in any of the following activities directly related to that procurement:

(i) Drafting, reviewing, or approving the specification or statement of work for the procurement.

(ii) Preparing or developing the solicitation.

(iii) Evaluating bids or proposals or selecting a source.

(iv) Negotiating price or terms and conditions of the contract.

(v) Reviewing and approving the award of the contract.

(2) “Participating personally” means participating directly and includes the direct and active supervision of a subordinate's participation in the matter.

(3) “Participating substantially” means that the official's involvement is of significance to the matter. Substantial participation requires more than official responsibility, knowledge, perfunctory involvement, or involvement on an administrative or peripheral issue. Participation may be substantial even though it is not determinative of the outcome of a particular matter. A finding of substantiality should be based not only on the effort devoted to a matter, but on the importance of the effort. While a series of peripheral involvements may be insubstantial, the single act of approving or participating in a critical step may be substantial. However, the review of procurement documents solely to determine compliance with regulatory, administrative, or budgetary procedures, does not constitute substantial participation in a procurement.

(4) Generally, an official will not be considered to have participated personally and substantially in a procurement solely by participating in the following activities:

ical step may be substantial. However, the review of procurement documents solely to determine compliance with regulatory, administrative, or budgetary procedures, does not constitute substantial participation in a procurement.

(4) Generally, an official will not be considered to have participated personally and substantially in a procurement solely by participating in the following activities:

(i) Agency-level boards, panels, or other advisory committees that review program milestones or evaluate and recommend alternative technologies or approaches for broad agency-level missions or objectives.

(ii) General technical, engineering, or scientific work with broad application not directly tied to a specific procurement, even if that work later becomes part of a procurement.

(iii) Clerical functions supporting a particular procurement.

(iv) For OMB Circular A-76 procurements, participation in management studies, preparation of in-house cost estimates, preparation of “most efficient organization” analyses, or providing data or technical support for others to develop performance standards, statements of work, or specifications.

Source selection evaluation board means any board, team, council, or other group that evaluates bids or proposals.

3.104-2 General. (a) This section implements 41 U.S.C. chapter 21, Restrictions on Obtaining and Disclosing Certain Information. The senior procurement executive of the agency must approve any agency supplementation to 3.104. This includes specific definitions identifying individuals who occupy positions specified in 3.104-3(d)(1)(ii), and any required clauses. A law may establish a higher level of approval for that agency.

former Government employees. This includes representing a contractor before the Government regarding any contract or other particular matter involving specific parties where the former employee participated personally and substantially while employed by the Government. Additional restrictions apply to certain senior Government employees and for matters under an employee's official responsibility;

(4) Parts 14 and 15 restrict the release of procurement information and other

(5) The Privacy Act (5 U.S.C. 552a), the Trade Secrets Act (18 U.S.C. 1905), and other laws may prohibit releasing information both before and after award (see 3.104-4); and

(6) Using nonpublic information for an employee's private interest or another's benefit and engaging in financial transactions using nonpublic information are prohibited by 5 CFR 2635.703.

3.104-3 Statutory and related prohibitions, restrictions, and requirements. (a) Prohibition on disclosing procurement information (41 U.S.C. 2102).

(1) A person described in paragraph (a)(2) of this subsection must not knowingly disclose contractor bid or proposal information or source selection information before a Federal agency awards the procurement contract to which the information relates. This restriction applies except when disclosure is allowed by law. (See 3.104-4(a).)

(2) Paragraph (a)(1) of this subsection applies to any person who—

(i) Is a present or former official of the United States, or a person who is acting or has acted for or on behalf of, or who is advising or has advised the United States with respect to, a Federal agency procurement; and

(ii) By virtue of that office, employment, or relationship, has or had access to contractor bid or proposal information or source selection information.

icer, the source selection authority, a member of a source selection evaluation board, or the chief of a financial or technical evaluation team in a procurement where that contractor received a contract in excess of $10,000,000;

(ii) Served as the program manager, deputy program manager, or administrative contracting officer for a contract in excess of $10,000,000 awarded to that contractor; or

(iii) Personally made for the Federal agency a decision to—

(A) Award a contract, subcontract, modification of a contract or subcontract, or a task order or delivery order in excess of $10,000,000 to that contractor;

(B) Establish overhead or other rates for that contractor's contracts valued in excess of $10,000,000;

(D) Pay or settle a claim in excess of $10,000,000 with that contractor.

(2) The 1-year prohibition begins on the date—

(i) Of contract award for positions described in paragraph (d)(1)(i) of this subsection, or the date of contractor selection if the official was not serving in the position on the date of award;

(ii) The official last served in one of the positions described in paragraph (d)(1)(ii) of this subsection; or

(iii) The official made one of the decisions described in paragraph (d)(1)(iii) of this subsection.

(3) The prohibition in paragraph (d)(1) of this subsection does not prevent a former official from accepting compensation from any division or affiliate of a contractor that does not produce the same or similar products or services than the entity responsible for the contract referred to in paragraph (d)(1).

3.104-4 Disclosure, protection, and marking of contractor bid or proposal information and source selection information

(d)(1) of this subsection does not prevent a former official from accepting compensation from any division or affiliate of a contractor that does not produce the same or similar products or services than the entity responsible for the contract referred to in paragraph (d)(1).

3.104-4 Disclosure, protection, and marking of contractor bid or proposal information and source selection information. (a) No person or entity may disclose contractor bid or proposal information or source selection information to any person other than those authorized to receive that information, in accordance with applicable agency regulations or procedures, by the agency head or contracting officer. This restriction applies except as specifically provided in this subsection.

(b) Contractor bid or proposal information and source selection information must be protected from unauthorized disclosure according to 14.303(a), 14.301(c), 14.211-3(a)(3), 15.207, applicable law, and agency regulations.

(c) Individuals who are unsure if specific information is source selection information, as defined in 2.101, should consult with agency officials. Individuals preparing material that may be source selection information as described in paragraph (10) of the “source selection information” definition in 2.101 must mark the cover page and each page they believe contains source selection information with this legend: “Source Selection Information—See FAR 2.101 and 3.104.” Although information in paragraphs (1) through (9) of the definition in 2.101 counts as source selection information whether or not marked, all reasonable efforts must be made to mark such material with the same legend.

nition in 2.101 must mark the cover page and each page they believe contains source selection information with this legend: “Source Selection Information—See FAR 2.101 and 3.104.” Although information in paragraphs (1) through (9) of the definition in 2.101 counts as source selection information whether or not marked, all reasonable efforts must be made to mark such material with the same legend.

(d) The contracting officer must notify the offeror or contractor in writing and follow the procedures in paragraphs (d)(1)-(3) of this section if the contracting officer believes proprietary information, contractor bid or proposal information, or information marked under 52.215-1(e) has been inappropriately marked.

(1) Agencies must not cancel or ignore markings unless they first provide a written request asking the offeror or contractor to submit a written justification substantiating the proprietary markings. The contracting officer must establish a reasonable response date that does not exceed 60 days.

(2) If the offeror or contractor either fails to respond or fails to provide a written justification substantiating the markings within the time afforded, the Government may cancel or ignore the markings.

(3) If the offeror or contractor provides a written justification substantiating the markings, consider the justification.

(i) Upon determining that the markings are authorized, notify the offeror or contractor in writing.

n a Federal agency official and an offeror or potential offeror for, or recipient of, a contract or subcontract under a Federal agency procurement, provided that unauthorized disclosure or receipt of contractor bid or proposal information or source selection information does not occur; or

(4) The Government's use of technical data in a manner consistent with the Government's rights in the data.

(f) This section does not authorize—

(1) Withholding any information from a proper request by Congress, any committee or subcommittee thereof, a Federal agency, the Comptroller General, or an Inspector General of a Federal agency, except as otherwise authorized by law or regulation. Any release containing contractor bid or proposal information or source selection information must clearly identify the information as contractor bid or proposal information or source selection information related to a Federal agency procurement. The release must also notify the recipient that disclosure of the information is restricted by 41 U.S.C. chapter 21;

(2) Withholding information from, or restricting its receipt by, the Comptroller General during a protest against the award or proposed award of a Federal agency procurement contract;

(3) Releasing information after award of a contract or cancellation of a procurement if such information is offeror or contractor bid or proposal information or source selection information that relates to another procurement; or

(4) Disclosing, soliciting, or receiving bid or proposal information or source selection information after award if such actions are prohibited by law. (See 3.104-2(b)(5) and part 24.)

3.104-5 Disqualification. (a) Contacts through agents or other intermediaries. Employment contacts between an employee and an offeror conducted through agents or other intermediaries may require disqualification under 3.104-3(c)(1). These contacts may also require disqualification under other statutes and regulations. (See 3.104-2(b)(2).)

re prohibited by law. (See 3.104-2(b)(5) and part 24.)

(b) Disqualification notice. An agency official who must disqualify himself or herself under 3.104-3(c)(1)(ii) must submit the contact report required by 3.104-3(c)(1). The official must also promptly submit written notice of disqualification from further participation in the procurement to the contracting officer, the source selection authority (if different from the contracting officer), and the agency official's immediate supervisor. At a minimum, the notice must—

(1) Identify the procurement;

(2) Describe the nature of the agency official's participation in the procurement and specify the approximate dates or time period of participation; and

(3) Identify the offeror and describe its interest in the procurement.

(1) The official must remain disqualified until the agency, at its sole and exclusive discretion, authorizes the official to resume participation in the procurement according to 3.104-3(c)(1)(ii).

(2) After the conditions of 3.104-3(c)(1)(ii)(A) or (B) have been met, the head of the contracting activity (HCA), after consultation with the agency ethics official, may authorize the disqualified official to resume participation in the procurement, or may determine that an additional disqualification period is necessary to protect the procurement process integrity. When determining the disqualification period, the HCA must consider any factors that create an appearance that the disqualified official acted without complete impartiality. The HCA should document the reinstatement decision in writing.

to resume participation in the procurement, or may determine that an additional disqualification period is necessary to protect the procurement process integrity. When determining the disqualification period, the HCA must consider any factors that create an appearance that the disqualified official acted without complete impartiality. The HCA should document the reinstatement decision in writing.

(3) Government officers or employees must also comply with 18 U.S.C. 208 and 5 CFR part 2635 regarding resumed participation in procurement matters. A government officer or employee may not resume participating in a procurement matter affecting the financial interest of someone with whom they are seeking employment, unless the individual receives—

(i) A waiver pursuant to 18 U.S.C. 208(b)(1) or (b)(3); or

(ii) An authorization according to the requirements of subpart F of 5 CFR part 2635.

3.104-6 Ethics advisory opinions regarding prohibitions on a former official's acceptance of compensation from a contractor. (a) An official or former official of a Federal agency may request advice from the appropriate agency ethics official before accepting compensation from a contractor. This applies when the individual does not know whether 41

(b) The request for an advisory opinion must be in writing, include all relevant information reasonably available to the official or former official, and be dated and signed. The request must include information about the—

(1) Procurement(s), or decision(s) on matters under 3.104-3(d)(1)(iii), involving the particular contractor. This includes contract or solicitation numbers, dates of solicitation or award, a description of the supplies or services procured or to be procured, and contract amount;

(2) Individual's participation in the procurement or decision, including the dates or time periods of that participation, and the nature of the individual's duties, responsibilities, or actions; and

ement contract; or

(B) The agency head has determined, based upon a preponderance of the evidence, that the contractor or someone acting for the contractor has engaged in conduct constituting an offense punishable under 41 U.S.C. 2105(a); or

(iii) Take any other appropriate actions in the best interests of the Government.

(3) Refer the matter to the agency suspending and debarring official.

(e) The HCA should recommend or direct an administrative or contractual remedy that matches the severity and effect of the violation.

(f) If the HCA determines that urgent and compelling circumstances justify an award, or award is otherwise in the interests of the Government, the HCA, in accordance with agency procedures, may authorize the contracting officer to award the contract or execute the contract modification after notifying the agency head.

(g) The HCA may delegate authority under this subsection to an individual at least one organizational level above the contracting officer and of General Officer, Flag, Senior Executive Service, or equivalent rank.

3.104-8 Criminal and civil penalties, and further administrative remedies. Criminal penalties, civil penalties, and administrative remedies may apply to conduct that violates procurement integrity laws in 41 U.S.C. chapter 21 (see 3.104-3). For a special rule about bid protests see 41 U.S.C. 2106. For administrative remedies related to contracts, see 3.104-7.

(a) An official who knowingly fails to follow the requirements of 3.104-3 is subject to penalties and administrative action described in 41 U.S.C. 2105.

(b) An offeror who engages in employment discussion with an official subject to the restrictions of part 3, knowing that the official has not complied with part 3, is subject to the criminal, civil, or administrative penalties set forth in 41 U.S.C. 2105.

cial who knowingly fails to follow the requirements of 3.104-3 is subject to penalties and administrative action described in 41 U.S.C. 2105.

(c) An official who refuses to terminate employment discussions (see 3.104-5) may be subject to agency administrative actions under 5 CFR 2635.604(d) if the official's disqualification from participation in a

3.104-9 Contract clauses. Insert the following clauses in solicitations and contracts, other than those for commercial products or commercial services, if the acquisition value exceeds the simplified acquisition threshold:

(a) 52.203-8, Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity; and

(b) 52.203-10, Price or Fee Adjustment for Illegal or Improper Activity.

Subpart 3.2—Contractor Gratuities to Government Personnel

3.201 Applicability. This subpart applies to all executive agencies, except that coverage concerning exemplary damages applies only to the Department of Defense (10 U.S.C. 4651).

3.202 Contract clause. Insert the clause at 52.203-3, Gratuities, in solicitations and contracts, including those for commercial products or commercial services, if the acquisition value exceeds the simplified acquisition threshold, except those—

(a) For personal services; or

(b) Between military departments or defense agencies and foreign governments that do not obligate any funds appropriated to the Department of Defense.

3.203 Reporting suspected violations of the Gratuities clause. Agency personnel must report suspected violations of the Gratuities clause to the contracting officer or other designated official in accordance with agency procedures. The agency reporting procedures must be published as an implementation of this section and must clearly specify—

y funds appropriated to the Department of Defense.

(a) What to report and how to report it; and

(b) The channels through which reports must pass, including the function and authority of each official designated to review them.

3.204 Treatment of violations. (a) Before taking action against a contractor, the agency head or designee must determine, after notice and hearing under agency procedures, whether the contractor, its agent, or representative, under a contract containing the Gratuities clause:

(1) Offered or gave a gratuity (such as entertainment or a gift) to a Government officer, official, or employee; and

(2) Intended to use this gratuity to obtain a contract or favorable treatment under a contract (this intent typically must be inferred from circumstances).

(b) Agency procedures must give the contractor an opportunity to appear with counsel, submit documentary evidence, present witnesses, and confront any person the agency presents. The procedures should be as informal as practicable, while maintaining principles of fundamental fairness.

(1) Terminate the contractor's right to proceed;

(2) Initiate debarment or suspension measures described in part 9; and

eting firms that restrains the natural operation of market forces is suspect. Paragraph (c) of this section identifies behavior patterns that are often associated with antitrust violations. Activities meeting the descriptions in paragraph (c) are not necessarily improper, but they are sufficiently questionable to warrant notifying the appropriate authorities, in accordance with agency procedures.

(1) The existence of an industry price list or price agreement to which contractors refer in formulating their offers;

(2) A sudden change from competitive bidding to identical bidding;

(3) Simultaneous price increases or follow-the-leader pricing;

(4) Rotation of bids or proposals where each competitor takes turns being the low bidder, or where certain competitors bid low only on some sizes of contracts and high on other sizes;

(5) Division of the market, so that certain competitors bid low only for contracts awarded by certain agencies, or for contracts in certain geographical areas, or on certain products, and bid high on all other jobs;

(6) Establishment by competitors of a collusive price estimating system;

(7) The filing of a joint bid by two or more competitors when at least one of the competitors has sufficient technical capability and productive capacity for contract performance;

(8) Any incidents suggesting direct collusion among competitors, such as the appearance of identical calculation or spelling errors in two or more competitive offers or the submission by one firm of offers for other firms; and

(9) Statements by current employees, former employees, or competitors that an agreement to restrain trade exists.

(d) Contracting officers must report identical bids when the agency has reason to believe the bids resulted from collusion.

improper influence. In 10 U.S.C. 3321(b) and 41 U.S.C. 3901, Congress affirmed this public policy but permitted certain exceptions. These statutes—

(a) Require every negotiated contract to include a warranty by the contractor against contingent fees;

(b) Permit, as an exception to the warranty, contingent fee arrangements between contractors and bona fide employees or bona fide agencies; and

(c) Provide that if a contractor breaches or violates this warranty, the Government may annul the contract without liability or deduct from the contract price or consideration, or otherwise recover, the full amount of the contingent fee.

3.403 Applicability. This subpart applies to all contracts. Statutory requirements for negotiated contracts are, as a matter of policy, extended to sealed bid contracts.

3.404 Contract clause. Insert the clause at 52.203-5, Covenant Against Contingent Fees, in solicitations and contracts, other than those for commercial products or commercial services, if the acquisition value exceeds the simplified acquisition threshold.

3.405 Misrepresentations or violations of the Covenant Against Contingent Fees. (a) Government personnel who suspect or have evidence of any of the following must report the matter promptly to the contracting officer or appropriate higher authority according to agency procedures:

(1) Attempted or actual exercise of improper influence;

(2) Misrepresentation of a contingent fee arrangement; or

(3) Other violations of the Covenant Against Contingent Fees.

contract.

Person means a corporation, partnership, business association of any kind, trust, joint-stock company, or individual.

Prime contract means a contract or contractual action entered into by the United States for the purpose of obtaining supplies, materials, equipment, or services of any kind.

Prime Contractor means a person who has entered into a prime contract with the United States.

Prime Contractor employee, as used in this section, means any officer, partner, employee, or agent of a prime contractor.

Subcontract means a contract or contractual action entered into by a prime contractor or subcontractor for the purpose of obtaining supplies, materials, equipment, or services of any kind under a prime contract.

Subcontractor—

(1) Means any person, other than the prime contractor, who offers to furnish or furnishes any supplies, materials, equipment, or services of any kind under a prime contract or a subcontract entered into in connection with such prime contract; and

(2) Includes any person who offers to furnish or furnishes general supplies to the prime contractor or a higher tier subcontractor.

3.502-2 Subcontractor kickbacks. The Anti-Kickback Act of 1986 (now codified at 41 U.S.C. chapter 87, Kickbacks,) was passed to deter subcontractors from making payments and contractors from accepting payments for the purpose of improperly

(a) Prohibits any person from—

(1) Providing, attempting to provide, or offering to provide any kickback;

(2) Soliciting, accepting, or attempting to accept any kickbacks; or

(3) Including, directly or indirectly, the amount of any kickback in the contract price charged by a subcontractor to a prime contractor or a higher tier subcontractor or in the contract price charged by a prime contractor to the United States.

(b) Imposes criminal penalties on any person who knowingly and willfully engages in the prohibited conduct addressed in paragraph (a) of this section.

(c) Provides for the recovery of civil penalties by the United States from any person who knowingly engages in such prohibited conduct and from any person whose employee, subcontractor, or subcontractor employee provides, accepts, or charges a kickback.

(d) Provides that—

(1) The contracting officer may offset the amount of a kickback against monies owed by the United States to the prime contractor under the prime contract to which such kickback relates;

(2) The contracting officer may direct a prime contractor to withhold from any sums owed to a subcontractor under a subcontract of the prime contract the amount of any kickback which was or may be offset against the prime contractor under paragraph (d)(1) of this section; and

(3) An offset under paragraph (d)(1) or a direction under paragraph (d)(2) of this section is a claim by the Government for the purposes of 41 U.S.C. chapter 71, Contract Disputes.

(e) Authorizes contracting officers to order that sums withheld under paragraph (d)(2) of this section be paid to the contracting agency, or if the sum has already been offset against the prime contractor, that it be retained by the prime contractor.

(f) Requires the prime contractor to notify the contracting officer when the withholding under paragraph (d)(2) of this section has been accomplished unless the amount withheld has been paid to the Government.

3.603 Responsibilities of the contracting officer. (a) Before awarding a contract, the contracting officer must obtain an authorization under 3.602 if—

(1) The contracting officer knows, or has reason to believe, that a prospective contractor is one to which award is otherwise prohibited under 3.601; and

(2) There is a most compelling reason to make an award to that prospective contractor.

(b) The contracting officer must comply with the requirements and guidance of the conflicts of interest subpart in part 9 before awarding a contract to an organization owned or substantially owned or controlled by Government employees.

Subpart 3.7—Voiding and Rescinding Contracts

3.700 Scope of subpart. This subpart prescribes Governmentwide policies and procedures for exercising discretionary authority to declare void and rescind contracts.

3.701 Purpose. This subpart provides—

(a) An administrative remedy with respect to contracts in relation to which there has been—

(1) A final conviction for bribery, conflict of interest, disclosure or receipt of contractor bid or proposal information or source selection information in exchange for a thing of value or to give anyone a competitive advantage in the award of a Federal agency procurement contract, or similar misconduct; or

(2) An agency head determination that contractor bid or proposal information or source selection information has been disclosed or received in exchange for a thing of value, or for the purpose of obtaining or giving anyone a competitive advantage in the award of a Federal agency procurement contract; and

advantage in the award of a Federal agency procurement contract, or similar misconduct; or

(b) A method to deter similar misconduct in the future by those who are involved in the award, performance, and administration of Government contracts.

3.702 Definition. Final conviction means a conviction, whether entered on a verdict or plea, including a plea of nolo contendere, for which sentence has been imposed.

3.703 Authority. (a) 18 U.S.C. 218 ( the Act ), gives the President, or the heads of executive agencies acting under regulations prescribed by the President, the power to declare void and rescind contracts and other transactions listed in the Act. This applies when there has been a final conviction for bribery, conflict of interest, or any other violation of Chapter 11 of Title 18 of the United States Code (18 U.S.C. 201-224). Executive Order 12448, November 4, 1983, delegates the President's authority under the Act to the heads of the executive agencies and military departments.

(b) 41 U.S.C. 2105(c) requires Federal agencies, upon receiving information that a contractor or person has violated 41 U.S.C. 2102, to consider rescinding a contract when—

(1) The contractor or someone acting for the contractor has been convicted of an offense punishable under 41 U.S.C. 2105(a); or

(3) Specifically identify the offense or final conviction on which the action is based;

(4) State the amounts expended and property transferred under each of the contracts involved, and the money and the property demanded to be returned;

(5) Identify any tangible benefits received and retained by the agency under the contract, and the value of those benefits, as calculated by the agency;

(6) Advise that pertinent information may be submitted within 30 calendar days after receipt of the notice, and that, if requested within that time, a hearing must be held at which witnesses may be presented and any witness the agency presents may be confronted; and

(7) Advise that action must be taken only after the agency head or designee issues a final written decision on the proposed action.

(e) Final agency decision. The agency head or designee must base the final decision on all available information, and any relevant information submitted in writing or presented during a hearing. If the agency decision declares void and rescinds the contract, the final decision must specify the amounts due and property to be returned to the agency and reflect consideration of the fair value of any tangible benefits received and retained by the agency. Notice of the decision must be sent promptly by certified mail, return receipt requested. When contracts are rescinded under the Act's authority and the agency head demands recovery of amounts expended and property transferred, this is not considered a claim under 41 U.S.C. chapter 71, Contract Disputes or part 33. Therefore, the procedures required by the statute and the FAR for the issuance of a final contracting officer decision are not applicable to final agency decisions under this subpart and must not be followed.

Subpart 3.8—Limitations on the Payment of Funds To Influence Federal Transactions

3.800 Scope of subpart. This subpart prescribes policies and procedures implementing 31 U.S.C

part 33. Therefore, the procedures required by the statute and the FAR for the issuance of a final contracting officer decision are not applicable to final agency decisions under this subpart and must not be followed.

Subpart 3.8—Limitations on the Payment of Funds To Influence Federal Transactions

3.800 Scope of subpart. This subpart prescribes policies and procedures implementing 31 U.S.C. 1352, “Limitation on use of appropriated funds to influence certain Federal contracting and financial transactions.”

3.801 Definitions. As used in this subpart—

Agency means executive agency as defined in 2.101.

Covered Federal action means any of the following actions:

(1) Awarding any Federal contract.

(2) Making any Federal grant.

(3) Making any Federal loan.

(4) Entering into any cooperative agreement.

(5) Extending, continuing, renewing, amending, or modifying any Federal contract, grant, loan, or cooperative agreement.

Indian tribe and “tribal organization” have the meaning provided in section 4 of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b) and include Alaskan Natives.

Influencing or attempting to influence means making, with the intent to influence, any communication to or appearance before an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any covered Federal action.

Local government means a unit of government in a State and, if chartered, established, or otherwise recognized by a State for the performance of a governmental duty, including a local public authority, a special district, an intrastate district, a council of governments, a sponsor group representative organization, and any other instrumentality of a local government.

Officer or employee of an agency includes the following individuals who are employed by an agency:

d, established, or otherwise recognized by a State for the performance of a governmental duty, including a local public authority, a special district, an intrastate district, a council of governments, a sponsor group representative organization, and any other instrumentality of a local government.

Officer or employee of an agency includes the following individuals who are employed by an agency:

(1) An individual who is appointed to a position in the Government under Title 5, United States Code, including a position under a temporary appointment.

(2) A member of the uniformed services, as defined in subsection 101(3), Title 37, United States Code.

(3) A special Government employee, as defined in section 202, Title 18, United States Code.

(4) An individual who is a member of a Federal advisory committee, as defined by the Federal Advisory Committee Act, Title 5, United States Code, appendix 2.

Person means an individual, corporation, company, association, authority, firm, partnership, society, State, and local government, regardless of whether such entity is operated for profit or not for profit. This term excludes an Indian tribe, tribal organization, or any other Indian organization eligible to receive Federal contracts, grants, cooperative agreements, or loans from an agency, but only with respect to expenditures by such tribe or organization that are made for purposes specified in paragraph 3.802(a) and are permitted by other Federal law.

Reasonable compensation means, with respect to a regularly employed officer or employee of any person, compensation that is consistent with the normal compensation for such officer or employee for work that is not furnished to, not funded by, or not furnished in cooperation with the Federal Government.

Reasonable payment means, with respect to professional and other technical services, a payment in an amount that is consistent with the amount normally paid for such services in the private sector.

Recipient includes the contractor and all subcontractors

n for such officer or employee for work that is not furnished to, not funded by, or not furnished in cooperation with the Federal Government.

Reasonable payment means, with respect to professional and other technical services, a payment in an amount that is consistent with the amount normally paid for such services in the private sector.

Recipient includes the contractor and all subcontractors. This term excludes an Indian tribe, tribal organization, or any other Indian organization eligible to receive Federal contracts, grants, cooperative agreements, or loans from an agency, but only with respect to expenditures by such tribe or organization that are made for purposes specified in paragraph 3.802(a) and are permitted by other Federal law.

Regularly employed means, with respect to an officer or employee of a person requesting or receiving a Federal contract, an officer or employee who is employed by such person for at least 130 working days within 1 year immediately preceding the date of the submission that initiates agency consideration of such person for receipt of such contract. An officer or employee who is employed by such person for less than 130 working days within 1 year immediately preceding the date of the submission that initiates agency consideration of such person shall be considered to be regularly employed as soon as he or she is employed by such person for 130 working days.

State means a State of the United States, the District of Columbia, an outlying area of the United States, an agency or instrumentality of a State, and multi-State, regional, or interstate entity having governmental duties and powers.

3.802 Statutory prohibition and requirement. (a) 31 U.S.C

idered to be regularly employed as soon as he or she is employed by such person for 130 working days.

3.802 Statutory prohibition and requirement. (a) 31 U.S.C. 1352 prohibits recipients of Federal contracts, grants, loans, or cooperative agreements from using appropriated funds to pay any person for influencing or attempting to influence an officer or employee of an agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress regarding covered Federal actions.

(1) For purposes of this subpart the term “appropriated funds” does not include profit or fee from a covered Federal action.

(2) If a person shows they have enough funds, other than Federal

(b) 31 U.S.C. 1352 also requires offerors to submit a declaration that includes both certification and disclosure, with regular updates of the disclosure after contract award. These requirements appear in the provision at 52.203-11, Certification and Disclosure Regarding Payments to Influence Certain Federal Transactions, and the clause at 52.203-12, Limitation on Payments to Influence Certain Federal Transactions.

3.803 Exceptions. (a) The prohibition of paragraph 3.802(a) does not apply under the following conditions:

(1) Agency and legislative liaison by own employees.

rofessional and technical services” means advice and analysis directly applying professional or technical expertise. For example, drafting of a legal document accompanying a bid or proposal by a lawyer is allowable. Similarly, technical advice provided by an engineer on the performance or operational capability of a piece of equipment rendered directly in the negotiation of a contract is allowable. However, communications with the intent to influence made by a professional or a technical person are not allowable under this section unless they provide advice and analysis directly applying their professional or technical expertise and unless the advice or analysis is rendered directly and solely in the preparation, submission or negotiation of a covered Federal action. Thus, for example, communications with the intent to influence made by a lawyer that do not provide legal advice or analysis directly and solely related to the legal aspects of his or her client's proposal, but generally advocate one proposal over another, are not allowable under this section because the lawyer is not providing professional legal services. Similarly, communications with the intent to influence made by an engineer providing an engineering analysis prior to the preparation or submission of a bid or proposal are not allowable under this section since the engineer is providing technical services but not directly in the preparation, submission or negotiation of a covered Federal action.

(iv) Requirements imposed by or pursuant to law as a condition for receiving a covered Federal action includes those in laws, regulations, and the actual award documents.

(b) Only the communications and services specifically authorized in paragraph (a) are permitted.

ies apply when the Act's provisions do not conflict with the requirements of this subpart.

3.808 Solicitation provision and contract clause. (a) Insert the provision at 52.203-11, Certification and Disclosure Regarding Payments to Influence Certain Federal Transactions, in solicitations, including those for commercial products or commercial services, if the acquisition value exceeds $200,000.

(b) Insert the clause at 52.203-12, Limitation on Payments to Influence Certain Federal Transactions, in solicitations and contracts, including those for commercial products or commercial services, if the acquisition value exceeds $200,000.

Subpart 3.9—Whistleblower Protections for Contractor Employees

3.900 Scope of subpart. This subpart implements various statutory whistleblower programs. This subpart does not implement 10 U.S.C. 4701, which is applicable only to DoD, NASA, and the Coast Guard.

(a) 41 U.S.C. 4712 is implemented in 3.900 through 3.906. These sections do not apply to—

(1) DoD, NASA, and the Coast Guard; or

(2) Any element of the intelligence community, as defined in section 3(4) of

(i) Relates to an activity of an element of the intelligence community; or

(ii) Was discovered during contract or subcontract services provided to an element of the intelligence community.

(b) Section 743 of Division E, Title VII, of the Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. 113-235) and its successor provisions in subsequent appropriations acts (and as extended in continuing resolutions), is implemented in 3.909, which is applicable to all agencies.

3.901 Definitions. As used in this subpart—

Abuse of authority means an arbitrary and capricious exercise of authority that is inconsistent with the mission of the executive agency concerned or the successful performance of a contract of such agency.

Authorized official of the Department of Justice means any person responsible for the investigation, enforcement, or prosecution of any law or regulation

U.S.C. 4712 does not provide any right to disclose classified information not otherwise provided by law.

3.903 Policy. (a)(1) Contractors and subcontractors are prohibited from discharging, demoting, or otherwise discriminating against an employee as a reprisal for disclosing, to any of the entities listed at paragraph (b) of this section, information that the employee reasonably believes is—

(i) Evidence of gross mismanagement of a Federal contract;

(ii) A gross waste of Federal funds;

(iii) An abuse of authority relating to a Federal contract;

(iv) A substantial and specific danger to public health or safety; or

(v) A violation of law, rule, or regulation related to a Federal contract (including the competition for or negotiation of a contract).

(2) A reprisal is prohibited even when requested by an executive branch official, unless the request takes the form of a non-discretionary directive and is within the authority of the executive branch official making the request.

(b) Disclosure may be made to the following entities:

(1) A Member of Congress or a representative of a committee of Congress.

(2) An Inspector General.

(3) The Government Accountability Office.

(4) A Federal employee responsible for contract oversight or management at the relevant agency.

(5) An authorized official of the Department of Justice or other law enforcement agency.

(6) A court or grand jury.

(7) A management official or other employee of the contractor or subcontractor who has the responsibility to investigate, discover, or address misconduct.

t Accountability Office.

(4) A Federal employee responsible for contract oversight or management at the relevant agency.

(5) An authorized official of the Department of Justice or other law enforcement agency.

(6) A court or grand jury.

(7) A management official or other employee of the contractor or subcontractor who has the responsibility to investigate, discover, or address misconduct.

(c) An employee who initiates or provides evidence of contractor or subcontractor misconduct in any judicial or administrative proceeding relating to waste, fraud, or abuse on a Federal contract must be deemed to have made a disclosure.

3.904 Complaints.

3.904-1 Procedures for filing complaints. A contractor or subcontractor employee who believes that he or she has been discharged, demoted, or otherwise discriminated against contrary to the policy in 3.903 may submit a complaint with the Inspector General of the agency concerned. Procedures for submitting fraud, waste, abuse, and whistleblower complaints are generally accessible on agency Office of Inspector General hotline or whistleblower internet sites or the complainant may directly contact the cognizant Office of the Inspector General for submission instructions. A complaint under 41 U.S.C. 4712 must be filed within three years from the date on which the alleged reprisal occurred.

3.904-2 Procedures for investigating complaints. (a) Investigation of complaints will be conducted according to 41 U.S.C. 4712(b).

(b) After the investigation is complete, the head of the agency must ensure the Inspector General provides the report of findings to—

(1) The head of the agency;

(2) The complainant and any person acting on the complainant's behalf; and

(3) The contractor and/or subcontractor alleged to have committed the violation.

he reprisal had not occurred.

(iii) Order the contractor or subcontractor to pay the complainant employee an amount equal to all costs and expenses (including attorneys' fees and expert witnesses' fees) reasonably incurred by the complainant for, or in connection with, bringing the complaint

(iv) Consider disciplinary or corrective action against any executive agency official, if appropriate.

(b) Complainant's right to go to court.

(1) Paragraph (b)(2) of this section applies if—

(i) The head of the agency issues an order denying relief; or

(ii)(A) The head of the agency has not issued an order—

( 1 ) Within 210 days after the submission of the complaint; or

( 2 ) Within 30 days after the expiration of an extension of time granted in accordance with 41 U.S.C. 4712(b)(2)(B) for the submission of the report to those stated in 3.904-2(b); and

(B) There is no showing that such delay is due to the bad faith of the complainant.

(2) If the conditions in either paragraph (b)(1)(i) or (ii) of this section are met:

(i) The complainant must be deemed to have exhausted all administrative remedies with respect to the complaint; and

(ii) The complainant may bring a de novo action at law or equity against the contractor or subcontractor to seek compensatory damages and other relief available under 41 U.S.C. 4712 in the appropriate U.S. district court, which has jurisdiction regardless of the amount in controversy.

(A) Such an action must, at the request of either party to the action, be tried by the court with a jury.

(B) An action under this authority may not be brought more than 2 years after the date on which remedies are deemed to have been exhausted.

(c) Admissibility in evidence. An Inspector General determination and an agency head order denying relief under this section must be admissible in evidence in any de novo action at law or equity brought pursuant to 41 U.S.C. 4712.

y the court with a jury.

(B) An action under this authority may not be brought more than 2 years after the date on which remedies are deemed to have been exhausted.

(d) No waiver. The rights and remedies provided for in 41 U.S.C. 4712 may not be waived by any agreement, policy, form, or condition of employment.

3.905-2 Enforcement of orders. (a) When a contractor or subcontractor fails to comply with an order issued under 3.905-1(a)(2), the head of the agency concerned must file an action to enforce the order in the U.S. district court for the district where the reprisal occurred. In any action brought under this authority, the court may grant appropriate relief, including injunctive relief, compensatory and exemplary damages, and attorney fees and costs. The complainant employee upon whose behalf an order was issued may also file such an action or join an action filed by the head of the agency.

(b) Any person adversely affected or aggrieved by an order issued under 3.905-1(a)(2) may seek review of the order's compliance with 41 U.S.C. 4712 and its implementing regulations in the U.S. court of appeals for the circuit where the reprisal is alleged to have occurred. The petition for review must be filed within 60 days after the head of the agency issues the order. Filing such an appeal does not stop enforcement of the agency head's order unless the court specifically grants a stay.

3.906 Contract clause. Insert the clause at 52.203-17, Contractor Employee Whistleblower Rights, in all solicitations and contracts, including those for commercial products or commercial services, except those solicitations and contracts of DOD, NASA, the Coast Guard, or elements of the intelligence community (see 3.900(a))

f the agency head's order unless the court specifically grants a stay.

3.907 [Reserved]

3.908 [Reserved]

3.909 Prohibition on providing funds to an entity that requires certain internal confidentiality agreements or statements.

3.909-1 Prohibition. (a) The Government cannot use fiscal year 2015 and later fiscal year funds for contracts with entities that require employees or subcontractors to sign internal confidentiality agreements or statements that prohibit or restrict these employees or subcontractors from lawfully reporting waste, fraud, or abuse to a designated investigative or law enforcement representative of a Federal department or agency authorized to receive such information. This prohibition comes from section 743 of Division E, Title VII, of the Consolidated and Further Continuing Appropriations Act, 2015 (Pub. L. 113-235) and continues in subsequent appropriations acts (including continuing resolutions).

(b) The prohibition in paragraph (a) of this section does not conflict with requirements for Standard Form 312 (Classified Information Nondisclosure Agreement), Form 4414 (Sensitive Compartmented Information Nondisclosure Agreement), or any other Federal government form governing nondisclosure of classified information.

3.909-2 Representation by the offeror. (a) To be eligible for contract award, an offeror must represent that it will not require its employees or subcontractors to sign internal confidentiality agreements or statements that prohibit or restrict them from lawfully reporting waste, fraud, or abuse related to Government contract performance to authorized Federal investigators (such as agency Office of the Inspector General)

ces contracts with individuals, to include the clause before obligating FY 2015 or later funds that are subject to the same prohibition on internal confidentiality agreements or statements.

Subpart 3.10—Contractor Code of Business Ethics and Conduct

3.1000 Scope of subpart. This subpart—

(a) Implements 41 U.S.C. 3509, Notification of Violations of Federal Criminal Law or Overpayments; and

(b) Prescribes policies and procedures for the establishment of contractor codes of business ethics and conduct, and display of agency Office of Inspector General (OIG) fraud hotline posters.

3.1001 Definitions. As used in this subpart—

Subcontract means any contract entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract.

Subcontractor means any supplier, distributor, vendor, or firm that furnished supplies or services to or for a prime contractor or another subcontractor.

United States means the 50 States, the District of Columbia, and outlying areas.

3.1002 Policy. (a) Government contractors must conduct themselves with the highest degree of integrity and honesty.

(b) Contractors should have a written code of business ethics and conduct. To promote compliance with such code of business ethics and conduct, contractors should have an employee business ethics and compliance training program and an internal control system that—

(1) Are suitable to the size of the company and extent of its involvement in Government contracting;

(2) Facilitate timely discovery and disclosure of improper conduct in connection with Government contracts; and

(3) Ensure corrective measures are promptly instituted and carried out.

3.1003 Requirements. (a) Contractor requirements.

training program and an internal control system that—

(1) Are suitable to the size of the company and extent of its involvement in Government contracting;

(2) Facilitate timely discovery and disclosure of improper conduct in connection with Government contracts; and

(3) Ensure corrective measures are promptly instituted and carried out.

3.1003 Requirements. (a) Contractor requirements.

(1) Although the policy at 3.1002 provides guidance for all Government contractors, the contract clauses at 52.203-13, Contractor Code of Business Ethics and Conduct, and 52.203-14, Display of Hotline Poster(s), become mandatory when contracts meet the conditions specified in 3.1004.

(2) A contractor may be suspended and/or debarred if a principal knowingly fails to promptly disclose to the Government credible evidence of Federal criminal law violations involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code, or Civil False Claims Act violations. This disclosure requirement applies whether or not clause 52.203-13 is applicable. Failure to timely disclose credible evidence of such violations remains grounds for suspension and/or debarment until 3 years after final contract payment (see part 9).

(3) The Payment clauses at FAR 52.212-4(i)(4), 52.232-25(d), 52.232-26(c), and 52.232-27(l) require contractors to return any contract financing or invoice overpayments they discover to the Government. A contractor may be suspended and/or debarred if a principal knowingly fails to timely disclose credible evidence of a significant overpayment, except for overpayments resulting from contract financing payments as defined in 32.001 (see part 9).

2.232-25(d), 52.232-26(c), and 52.232-27(l) require contractors to return any contract financing or invoice overpayments they discover to the Government. A contractor may be suspended and/or debarred if a principal knowingly fails to timely disclose credible evidence of a significant overpayment, except for overpayments resulting from contract financing payments as defined in 32.001 (see part 9).

(b) Notification of possible contractor violation. If the contracting officer learns of a possible contractor violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 U.S.C., or a violation of the civil False Claims Act, the contracting officer must:

(1) Coordinate the matter with the agency Office of the Inspector General; or

(2) Take action according to agency procedures.

(1) Agency Offices of Inspector General (OIGs) determine the need for and content of their respective agency OIG fraud hotline poster(s).

(2) When requested by the Department of Homeland Security, agencies must ensure that contracts funded with disaster assistance funds require display of applicable fraud hotline posters. As established by the agency OIG, these posters may be displayed instead of, or in addition to, the agency's standard poster.

3.1004 Contract clauses. (a) Insert the clause at FAR 52.203-13, Contractor Code of Business Ethics and Conduct, in solicitations and contracts, including those for commercial products or commercial services, if the acquisition value exceeds $7.5 million and the performance period is 120 days or more.

(b)(1) Insert the clause at 52.203-14, Display of Hotline Poster(s), in solicitations and contracts other than those for commercial products or commercial services, or contracts performed entirely outside the United States, if—

contracts, including those for commercial products or commercial services, if the acquisition value exceeds $7.5 million and the performance period is 120 days or more.

(i) The contract exceeds $7.5 million or a lesser amount established by the agency; and

(ii)(A) The agency has a fraud hotline poster; or

(B) The contract is funded with disaster assistance funds.

(2) In paragraph (b)(3) of the clause, the contracting officer must—

(i) Identify the applicable posters; and

(ii) Insert the website link(s) or other contact information for obtaining the agency and/or Department of Homeland Security poster.

(3) In paragraph (d) of the clause, if the agency has established policies and procedures for display of the OIG fraud hotline poster at a lesser amount, the contracting officer must replace “$7.5 million” with the lesser amount that the agency has established.

Subpart 3.11—Preventing Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions

3.1100 Scope of subpart. This subpart implements policy on personal conflicts of interest by employees of Government contractors as required by 41 U.S.C. 2303.

3.1101 Definitions. As used in this subpart—

Acquisition function closely associated with inherently governmental functions means supporting or providing advice or recommendations with regard to the following activities of a Federal agency:

(1) Planning acquisitions.

(2) Determining what supplies or services are to be acquired by the Government, including developing statements of work.

(3) Developing or approving any contractual documents, to include documents defining requirements, incentive plans, and evaluation criteria.

(4) Evaluating contract proposals.

(5) Awarding Government contracts.

ong the sources of personal conflicts of interest are—

(i) Financial interests of the covered employee, of close family members, or

(ii) Other employment or financial relationships (including seeking or negotiating for prospective employment or business); and

(iii) Gifts, including travel.

(2) For example, financial interests referred to in paragraph (1) of this definition may arise from—

(i) Compensation, including wages, salaries, commissions, professional fees, or fees for business referrals;

(ii) Consulting relationships (including commercial and professional consulting and service arrangements, scientific and technical advisory board memberships, or serving as an expert witness in litigation);

(iii) Services provided in exchange for honorariums or travel expense reimbursements;

(iv) Research funding or other forms of research support;

(v) Investment in the form of stock or bond ownership or partnership interest (excluding diversified mutual fund investments);

(vi) Real estate investments;

(vii) Patents, copyrights, and other intellectual property interests; or

(viii) Business ownership and investment interests.

3.1102 Policy. The Government's policy is to require contractors to—

(a) Identify and prevent personal conflicts of interest of their covered employees; and

(b) Prohibit covered employees who have access to non-public information by reason of performance on a Government contract from using such information for personal gain.

3.1103 Procedures. (a) By use of the contract clause at 52.203-16, Preventing Personal Conflicts of Interest, as prescribed at 3.1106, the contracting officer must require each contractor whose employees perform acquisition functions closely associated with inherently Government functions to—

(1) Have procedures in place to screen covered employees for potential personal conflicts of interest by—

essary.

(b) If a contractor reports a personal conflict-of-interest violation by a covered employee to the contracting officer according to paragraph (b)(6) of clause 52.203-16, Preventing Personal Conflicts of Interest, the contracting officer must—

(1) Review the actions taken by the contractor;

(2) Determine whether the contractor's actions have resolved the violation satisfactorily; and

(3) Take any appropriate action in consultation with agency legal counsel if the contracting officer determines that the contractor has not resolved the violation satisfactorily.

3.1104 Mitigation or waiver. (a) In exceptional circumstances, if the contractor cannot satisfactorily prevent a personal conflict of interest as required by paragraph (b)(2)(i) of the clause at 52.203-16, Preventing Personal Conflicts of Interest, the contractor may submit a request, through the contracting officer asking the head of the contracting activity to—

(1) Agree to a plan to mitigate the personal conflict of interest; or

(2) Waive the requirement to prevent personal conflicts of interest.

(b) If the head of the contracting activity determines in writing that such action is in the best interest of the Government, the head of the contracting activity may impose conditions that provide mitigation of a personal conflict of interest or grant a waiver.

3.1105 Violations. If the contracting officer suspects violation by the contractor of a requirement of paragraph (b), (c)(3), or (d) of the clause at 52.203-16, Preventing Personal Conflicts of Interest, the contracting officer must contact the agency legal counsel for advice and/or recommendations on a course of action.

3.1106 Contract clause. (a) Except as provided in paragraph (b), insert the clause at 52.203-16, Preventing Personal Conflicts of Interest, in solicitations and contracts, other than those for commercial products and commercial services, if-

ng Personal Conflicts of Interest, the contracting officer must contact the agency legal counsel for advice and/or recommendations on a course of action.

(1) The acquisition value exceeds the simplified acquisition threshold; and

(2) Contractor employee(s) will be required to perform acquisition functions closely associated with inherently governmental functions for, or on behalf of, a Federal agency or department.

(b) Do not insert the clause in solicitations or contracts with a self-employed individual if the acquisition functions closely associated with inherently governmental functions are to be performed entirely by the self-employed individual.

PART 49—TERMINATION OF CONTRACTS

Sec. 49.000 Scope of part. 49.001 Definitions. 49.002 Applicability. Subpart 49.1—General Principles

49.100 Scope of subpart. 49.101 Authorities and responsibilities. 49.102 Notice of termination. 49.103 Methods of settlement. 49.104 Duties of prime contractor after receipt of notice of termination. 49.105 Duties of termination contracting officer after issuance of notice of termination. 49.105-1 Release of excess funds. 49.105-2 Cleanup of construction site. 49.105-3 Termination case file documentation. 49.106 Fraud or other criminal conduct. 49.107 Review of prime contract settlement proposals and subcontract settlements. 49.108 Settlement of subcontract settlement proposals. 49.108-1 Subcontractor's rights. 49.108-2 Prime contractor's rights and obligations. 49.108-3 Settlement procedure. 49.108-4 Authorization for subcontract settlements without approval or ratification. 49.108-5 Recognition of judgments and arbitration awards. 49.108-6 Delay in settling subcontractor settlement proposals. 49.108-7 Assignment of rights under subcontracts. 49.109 Settlement agreements

49.108-1 Subcontractor's rights. 49.108-2 Prime contractor's rights and obligations. 49.108-3 Settlement procedure. 49.108-4 Authorization for subcontract settlements without approval or ratification. 49.108-5 Recognition of judgments and arbitration awards. 49.108-6 Delay in settling subcontractor settlement proposals. 49.108-7 Assignment of rights under subcontracts. 49.109 Settlement agreements. 49.109-1 General. 49.109-2 Reservations. 49.109-3 Government property. 49.109-4 No-cost settlement. 49.109-5 Partial settlements. 49.109-6 Joint settlement of two or more settlement proposals. 49.109-7 Settlement by determination. 49.110 Settlement negotiation memorandum. 49.111 Review of proposed settlements. 49.112 Payment. 49.112-1 Partial payments. 49.112-2 Final payment. 49.113 Unsettled contract changes. 49.114 Settlement of terminated incentive contracts. Subpart 49.2—Additional Principles for Fixed-Price Contracts Terminated for Convenience

49.201 General. 49.202 Profit. 49.203 Adjustment for loss. 49.204 Deductions. 49.205 Completed end items. 49.206 Settlement proposals. 49.206-1 Submission of settlement proposals. 49.206-2 Bases for settlement proposals. 49.206-3 Submission of inventory disposal schedules. 49.207 Limitation on settlements. 49.208 Equitable adjustment after partial termination. Subpart 49.3—Additional Principles for Cost-Reimbursement Contracts Terminated for Convenience

49.301 General. 49.302 Discontinuance of vouchers. 49.303 Procedure after discontinuing vouchers. 49.303-1 Submission of settlement proposal. 49.303-2 Submission of inventory disposal schedules. 49.303-3 Audit of settlement proposal. 49.303-4 Adjustment of indirect costs. 49.303-5 Final settlement. 49.304 Procedure for partial termination. 49.304-1 General. 49.304-2 Submission of settlement proposal (fee only). 49.304-3 Submission of vouchers. 49.305 Adjustment of fee. 49.305-1 General. 49.305-2 Construction contracts. Subpart 49.4—Termination for Default

49.401 General

posal schedules. 49.303-3 Audit of settlement proposal. 49.303-4 Adjustment of indirect costs. 49.303-5 Final settlement. 49.304 Procedure for partial termination. 49.304-1 General. 49.304-2 Submission of settlement proposal (fee only). 49.304-3 Submission of vouchers. 49.305 Adjustment of fee. 49.305-1 General. 49.305-2 Construction contracts. Subpart 49.4—Termination for Default

49.401 General. 49.402 Termination of fixed-price contracts for default. 49.402-1 The Government's right. 49.402-2 Effect of termination for default. 49.402-3 Procedure for default. 49.402-4 Procedure in lieu of termination for default. 49.402-5 Memorandum by the contracting officer. 49.402-6 Repurchase against contractor's account. 49.402-7 Other damages. 49.402-8 Reporting information. 49.403 Termination of cost-reimbursement contracts for default. 49.404 Surety-takeover agreements. 49.405 Liquidation of liability. Subpart 49.5—Contract Termination Clauses

49.501 General. 49.502 Termination for convenience of the Government. 49.503 Termination for convenience of the Government and default. 49.504 Termination of fixed-price contracts for default. 49.505 Other termination clauses. Subpart 49.6—Contract Termination Forms and Formats

49.601 Notice of termination for convenience. 49.601-1 Electronic notice. 49.601-2 Letter notice. 49.602 Forms for settlement of terminated contracts. 49.602-1 Termination settlement proposal forms. 49.602-2 Inventory forms. 49.602-3 Schedule of accounting information. 49.602-4 Partial payments. 49.602-5 Settlement agreement. 49.603 Formats for termination for convenience settlement agreements. 49.603-1 Fixed price contracts-complete termination. 49.603-2 Fixed-price contracts-partial termination. 49.603-3 Cost reimbursement contracts-complete termination, if settlement includes cost. 49.603-4 Cost-reimbursement contracts-complete termination, with settlement limited to fee. 49.603-5 Cost-reimbursement contracts-partial termination. 49.603-6 No-cost settlement agreement-complete termination

act is terminated, when work stops, and status of plans, drawings, and information that would have been delivered if the contract had been completed.

(3) Status of any continuing work;

(4) The contractor's duty to terminate subcontracts and basic rules for settling subcontractor settlement proposals.

(5) Names of subcontractors involved and dates the termination notices were issued to them.

(6) Contractor staff handling review and settlement of subcontractor settlement proposals and methods being used.

(7) Plans for transferring title and for delivering to the Government any materials the Government needs.

(8) Basic rules and procedures for protecting, preserving, and getting rid of contractor and subcontractor termination inventories, including preparing termination inventory schedules.

(9) Contractor accounting practices and preparation of SF 1439 (Schedule of Accounting Information (49.602-3)).

(10) What form to use when submitting settlement proposals.

(11) Accounting review of settlement proposals.

(12) Any need for interim financing through partial payments.

(13) Rough timeline for negotiating the settlement, including when the contractor and subcontractors must submit settlement proposals, termination inventory schedules, and accounting information schedules (see 49.206-3 and 49.303-2).

(14) Actions taken by the contractor to reduce harm to employees hurt by the termination (see paragraph (g) of the letter notice in 49.601-2).

partial payments.

(14) Actions taken by the contractor to reduce harm to employees hurt by the termination (see paragraph (g) of the letter notice in 49.601-2).

(15) Contractor's duty to provide accurate, complete, and current cost or pricing data, and to certify this data (see part 15 requirements for certified cost or pricing data) when the termination settlement amount, or partial termination settlement amount plus the estimated cost to complete the continued work, exceeds the cost or pricing data threshold in part 15.

49.105-1 Release of excess funds. (a) The TCO must estimate funds needed for settlement and should recommend release of excess funds within 30 days of receiving the termination proposal. When circumstances require additional time, the TCO may take up to, but no more than 120 days after receiving the termination proposal to make the recommendation. The contracting officer or TCO (if given the responsibility) should quickly deobligate excess funds and release them for other use. The TCO must not recommend releasing amounts under $1,000 unless requested by the contracting officer.

(b) The TCO must continuously monitor funding requirements in order to release additional excess funds promptly. See 49.604 for a recommended format. If previous funding releases create a shortage for settlement, the TCO must tell the contracting officer immediately. The contracting officer must restore the funds within 30 days.

49.105-2 Cleanup of construction site. For terminated construction contracts, the contracting officer must direct action to ensure the cleanup of the site, protection of usable materials, removal of hazards, and any other actions needed for a safe and healthy site.

49.105-3 Termination case file documentation

ement proposal. The TCO must assess the risk associated with subcontract settlements and refer to the audit agency when the TCO decides a complete or partial accounting review is advisable. The audit agency must submit written comments and recommendations to the TCO. This review does not remove the prime contractor's or higher-tier subcontractor's responsibility to do their own accounting review.

(1) Prime contractors and subcontractors must perform accounting reviews and necessary field audits. However, the TCO should request a Government audit of a subcontractor's settlement proposal when—

(i) A subcontractor objects, for competitive reasons, to an upper-tier contractor reviewing its records for;

(ii) The Government audit agency is already working at the subcontractor's location, or can do the audit more economically;

(iii) Government audit is needed for consistent treatment and orderly administration; or

(iv) The contractor has substantial or controlling financial interest in the subcontractor.

(2) The audit agency should avoid duplicating reviews done by upper-tier contractors. However, this does not prevent additional Government reviews when appropriate.

(3) When contractors perform accounting reviews, the TCO should ask the audit agency to periodically examine the contractor's procedures and performance, and provide comments and recommendations to the TCO.

ation is reasonable).

(d) When considering if any subcontract settlement is reasonable, the TCO must generally follow the provisions in this part for settling prime contracts. The TCO must also comply with any applicable requirements in 49.106 and 49.111 for accounting and other reviews. After the examination, the TCO must notify the contractor in writing of—

(1) Approval or ratification; and

(2) The reasons for disapproval.

49.108-4 Authorization for subcontract settlements without approval or ratification. (a)(1) The TCO may give written authorization to the prime contractor to complete settlements of subcontracts terminated in whole or in part without approval or ratification when the settlement amount (see 49.002(d)) is $100,000 or less. This requires a written request from the contractor. The TCO may grant this authorization if—

(i) The TCO is satisfied with the adequacy of the procedures used by the contractor in settling settlement proposals, including proposals for keeping, selling, or otherwise disposing of termination inventory of the immediate and lower tier subcontractors. The TCO must obtain advice and recommendations from—

(A) The appropriate audit agency about the adequacy of the contractor's audit administration, including personnel; and

(B) The cognizant plant clearance officer about the adequacy of the contractor's procedures and personnel for handling property disposal matters;

(ii) Any termination inventory included in determining the settlement amount will be disposed of as directed by the prime contractor, except that

(A) Review by the TCO under 49.108-3(c); or

(B) The screening requirements in 45.602-3; and

(iii) A certificate similar to the certificate in the settlement proposal form in 49.602-1(a) will accompany the settlement.

(d) The contractor may make any number of separate settlements with a single subcontractor but must not divide settlement proposals solely to bring them under an authorization limit. Separate settlement proposals that would normally be included in a single proposal, such as those based on a series of separate orders for the same item under one contract, must be consolidated whenever possible.

(e) Upon written request of the contractor, the TCO may increase an authorization granted under paragraph (a)(1) of this section to authorize the contractor to conclude settlements under a particular prime contract. The TCO may limit the increased authorization to specific subcontracts or classes of subcontracts.

(f) Authorizations granted under 49.108-4 do not authorize the settlement of requisitions or orders placed with any unit within the contractor's corporate entity.

49.108-5 Recognition of judgments and arbitration awards. (a) When a subcontractor obtains a final judgment against a prime contractor, the TCO must treat the judgment amount as a cost of settling with the contractor. This applies to the extent the judgment is properly allocable to the terminated portion of the prime contract, if these conditions are met:

(1) The prime contractor made reasonable efforts to include in the subcontract a termination clause described in 49.502(e), 49.503(c), or a similar clause that excludes payment of anticipatory profits or consequential damages.

(2) The subcontract provisions about termination rights of both parties are fair and reasonable and do not unreasonably increase the subcontractor's common law rights.

(3) The contractor made reasonable efforts to settle the subcontractor's settlement proposal.

(4) The contractor promptly notified the contracting officer when the proceedings that led to the judgment began and did not refuse to give the Government control of the defense.

ion rights of both parties are fair and reasonable and do not unreasonably increase the subcontractor's common law rights.

(3) The contractor made reasonable efforts to settle the subcontractor's settlement proposal.

(4) The contractor promptly notified the contracting officer when the proceedings that led to the judgment began and did not refuse to give the Government control of the defense.

(5) The contractor defended the suit diligently or, if the Government took control of the defense, provided reasonable assistance when requested.

(b) If not all conditions in paragraphs (a)(1) through (5) of this section are met, the TCO may allow the contractor the part of the judgment considered fair for settling the subcontract proposal. The TCO must consider the policies in this part for settlement proposals.

(c) When a contractor and subcontractor submit the subcontractor's settlement proposal to arbitration under any applicable law or contract provision, the TCO must recognize the arbitration award as the cost of settling the contractor's proposal. This applies to the same extent and under the same conditions as in paragraphs (a) and (b) of this section.

49.108-6 Delay in settling subcontractor settlement proposals. When a prime contractor's inability to settle with a subcontractor delays prime contract settlement, the TCO may settle with the prime contractor. The TCO must exclude the subcontractor settlement proposal from the settlement completely or partially and reserve the rights of the Government and prime contractor regarding the subcontractor proposal.

49.108-7 Assignment of rights under subcontracts. (a) Termination for convenience clauses in 52.249 (except short-form clauses) require prime contractors to assign to the Government all rights, titles, and interests under any subcontract terminated because of prime contract termination. The TCO directs this assignment. The TCO must not require assignment unless it benefits the Government.

al. When a termination settlement has been negotiated and all required reviews have been obtained, the contractor and the TCO must execute a settlement agreement. Use Standard Form 30 (Amendment of Solicitation/Modification of Contract) (see 49.603). The settlement must cover—

(a) Any offsets that the Government has against the contractor that may be applied against the terminated contract; and

(b) All subcontractor settlement proposals, except proposals that are specifically excluded from the agreement and reserved for separate settlement.

49.109-2 Reservations. (a) The TCO must—

(1) Reserve in the settlement agreement any rights or demands of the parties that are excluded from the settlement;

(2) Ensure reservation wording does not create rights for the parties beyond those existing before executing the settlement agreement;

(3) Mark each applicable settlement agreement with “This settlement agreement contains a reservation” and keep in the contract file until the reservation is removed;

(4) Ensure sufficient funds are kept to cover complete settlement of reserved items; and

(5) At the appropriate time, prepare a separate settlement of reserved items and include it in a separate settlement agreement.

(b) A recommended format for settlement of reservations appears in 49.603-9.

49.109-3 Government property. Before executing a settlement agreement, the TCO must determine the accuracy of the Government property account for the terminated contract. If an audit reveals property the contractor cannot account for, the TCO must either—

(a) Reserve the Government's rights regarding that property in the settlement agreement; or

(b) Make an appropriate deduction from the amount otherwise due the contractor.

49.109-4 No-cost settlement. The TCO must execute a no-cost settlement agreement (see 49.603-6 or 49.603-7, as applicable) if no amounts are due to the Government under the contract and if—

(a) The contractor has not incurred costs for the terminated contract portion; or

roperty in the settlement agreement; or

(b) Make an appropriate deduction from the amount otherwise due the contractor.

49.109-4 No-cost settlement. The TCO must execute a no-cost settlement agreement (see 49.603-6 or 49.603-7, as applicable) if no amounts are due to the Government under the contract and if—

(a) The contractor has not incurred costs for the terminated contract portion; or

(b) The contractor is willing to waive the costs incurred.

49.109-5 Partial settlements. The TCO should try to settle all rights and liabilities of the parties in one agreement except those from any continuing contract portion. Generally, the TCO must not make partial settlements covering particular items of the prime contractor's settlement proposal. However, the TCO may make a partial settlement when complete settlement cannot be finished promptly if—

(a) Agreed upon issues are clearly severable from other issues; and

(b) The partial settlement will not hurt the Government's or contractor's interests in disposing of the unsettled part.

49.109-6 Joint settlement of two or more settlement proposals. (a) With contractor consent, the TCO or TCOs concerned may jointly negotiate two or more termination settlement proposals with the same contractor under different contracts, even if the contracts are with different contracting offices or agencies. Consolidate accounting work as much as practical. The resulting settlement may be shown by—

(1) One settlement agreement covering all contracts involved; or

(2) A separate agreement for each contract involved.

r may appeal under the Disputes clause, except as shown in paragraph (f) of this section. The determination must specify the amount due the contractor and will be supported by detailed schedules conforming generally to the forms for settlement proposals prescribed in 49.602-1 and by additional information, schedules, and analyses as appropriate. The TCO must explain each major item of disallowance. The TCO need not reconsider any other action relating to the terminated portion of the contract that was ratified or approved by the TCO or another contracting officer.

(e) Preservation of evidence. The TCO must retain all written evidence and other data relied upon in making a determination, except that copies of

(f) Appeals. The contractor may appeal, under the Disputes clause, any settlement by determination, except when the contractor has failed to submit the settlement proposal within the time provided in the contract and failed to request an extension of time. The pendency of an appeal will not affect the authority of the TCO to settle the settlement proposal or any part by negotiation with the contractor at any time before the appeal is decided.

(g) Decision on the contractor's appeal. The TCO must give effect to a decision of the United States Court of Federal Claims or a board of contract appeals, when necessary, by an appropriate modification to the contract. When appropriate, the TCO should obtain a release from the contractor. TCOs are authorized to modify the formats of settlement agreements in 49.603 to agree with this provision.

49.110 Settlement negotiation memorandum. (a) The TCO must, at the conclusion of negotiations, prepare a settlement negotiation memorandum describing the principal elements of the settlement for inclusion in the termination case file and for use by reviewing authorities. Pricing aspects of the settlement must be documented, and memorandum distributed, both in accordance with part 15.

tlement, a prime contractor may request them on the form prescribed in 49.602-4 at any time after submission of interim or final settlement proposals. The Government will process applications for partial payments promptly. A subcontractor must submit its application through the prime contractor. The prime contractor must attach its own invoice and recommendations to the subcontractor's application. Partial payments to a subcontractor must be made only through the prime contractor and only after the prime contractor has submitted its interim or final settlement proposal. Except for undelivered acceptable finished products, partial payments must not be made for profit or fee claimed under the terminated portion of the contract. In exercising discretion on the extent of partial payments to be made, the TCO must consider the diligence of the contractor in settling with subcontractors and in preparing its own settlement proposal.

(b) Amount of partial payment. Before approving any partial payment, the TCO must obtain any desired accounting, engineering, or other specialized reviews of the data submitted in support of the contractor's settlement proposal. If the reviews and the TCO's examination of the data indicate that the requested partial payment is proper, the TCO may authorize reasonable payments up to—

(1) 100 percent of the contract price, adjusted for undelivered acceptable items completed before the termination date, or later completed with the approval of the TCO (see 49.205);

(2) 100 percent of the amount of any subcontract settlement paid by the prime contractor if the settlement was approved or ratified by the TCO under 49.108-3(c) or was authorized under 49.108-4;

(3) 90 percent of the direct cost of termination inventory, including costs of raw materials, purchased parts, supplies, and direct labor;

amount of any partial payment otherwise payable under 49.112-1(b)—

(1) All unliquidated balances of progress and advance payments (including interest) made to the contractor, which are allocable to the terminated portion of the contract; and

(2) The amounts of all credits arising from the purchase, retention, or sale of property, the costs of which are included in the application for payment.

(f) Limitation on total amount. The total amount of all partial payments must not exceed the amount that will, in the opinion of the TCO, become due to the contractor because of the termination.

(g) Effect of overpayment. If the total of partial payments exceeds the amount finally determined due on the settlement proposal, the contractor must repay the excess to the Government on demand, together with interest. The interest must be computed at the rate established by the Secretary of the Treasury under 41 U.S.C. 7109 from the date the excess payment was received by the contractor to the date of repayment. However, interest will not be charged for any—

(1) Excess payment attributable to a reduction in the settlement proposal because of retention or other disposition of termination inventory, until 10 days after the date of the retention or disposition, or a later date determined by the TCO; or

(2) Overpayment under cost-reimbursement research and development contracts without profit or fee if the overpayments are repaid to the Government within 30 days after demand.

butable to a reduction in the settlement proposal because of retention or other disposition of termination inventory, until 10 days after the date of the retention or disposition, or a later date determined by the TCO; or

(2) Overpayment under cost-reimbursement research and development contracts without profit or fee if the overpayments are repaid to the Government within 30 days after demand.

(h) Certification and approval of partial payments.

(1) The contractor must place the following certification on vouchers or invoices for partial payments:

“The payment covered by this voucher is a partial payment on the Contractor's settlement proposal under contract No. ___ under part 49 of the Federal Acquisition Regulation.”

(2) The TCO must approve the invoice or voucher by noting on it the following:

“Payment of $ ____ is approved.”

49.112-2 Final payment. (a) Negotiated settlement. After execution of a settlement agreement, the contractor must submit a voucher or invoice showing the amount agreed upon, less any portion previously paid. The TCO must attach a copy of the settlement agreement to the voucher or invoice and forward the documents to the disbursing officer for payment.

(b) Settlement by determination. If the settlement is by determination and—

(1) There is no appeal within the allowed time, the contractor must submit a voucher or invoice showing the amount determined due, less any portion previously paid; or

(2) There is an appeal, the contractor must submit a voucher or invoice showing the amount finally determined due on the appeal, less any portion previously paid. Pending determination of any appeal, the contractor may submit vouchers or invoices for charges that are not directly involved with the portion being appealed, without prejudice to the rights of either party on the appeal.

. However, the contracting officer may delegate this job to the TCO.

49.114 Settlement of terminated incentive contracts. (a) Fixed-price incentive contracts. The TCO must settle terminated fixed-price incentive contracts using the rules in paragraph (j) of clause 52.216-16, Incentive Price Revision-Firm Target, and clause 52.249-2, Termination for Convenience of the Government (Fixed-Price).

(1) Partial termination. When only part of a contract is terminated, the TCO must negotiate a settlement using the termination clause and the incentive price revision clause. The contracting officer must apply the incentive price rules to completed items the Government accepted, including any items the contractor may ask for payment in the settlement proposal. The TCO must pay the contractor the target price for completed items included in the settlement proposal that do not have a final price yet. The TCO must include in the settlement agreement an appropriate reservation about final pricing for these completed items.

(2) Complete termination. If any items were delivered and accepted by the Government, the contracting officer must set prices using the contract's incentive provisions. For the terminated portion of the contract, the termination clause rules apply and the incentive clause rules do not apply. The TCO handling the termination settlement will make sure no costs from the incentive negotiations are included in the termination settlement. The TCO must coordinate with the contracting officer and use proper evidence to ensure this.

nting rules, is most important when making settlements. Settlements should pay contractors fairly for—

(1) Work they have completed;

(2) Preparations they made for terminated portions of the contract; and

(3) A reasonable profit amount.

(b) The main goal is to reach an agreed settlement. Parties can agree on a total payment amount without breaking down specific costs or profit components.

(c) Cost and accounting information helps guide—but does not strictly control—fair compensation decisions. When appropriate—

(1) Costs can be estimated;

(2) Differences can be compromised; and

(3) Uncertain matters can be resolved through agreement.

(d) Other data types or standards might provide equally reliable guidance. Keep recordkeeping, reporting, and accounting for terminated contracts to a minimum while protecting public interest.

49.202 Profit. (a) The TCO can use any reasonable method to determine a fair profit.

(1) The TCO must pay profit to the contractor for—

(i) Work they did on the terminated part; and

(ii) Preparations made for the terminated portion of work.

(2) Do not pay profit for—

(i) Settlement costs (the costs of working out the final payment);

(ii) To cover the profit amount the contractor expected to make on work they never did (anticipatory profits); or

(iii) Consequential damages.

(3) When the contractor helps settle subcontractor proposals, do not base their profit on the amount of those settlements. The effort involved in reaching settlement may be considered.

(4) Do not pay profit for materials or services that subcontractors had not delivered by the termination date, regardless of the percentage of completion.

(b) The TCO can use any reasonable method to determine a fair profit, taking into account the following factors:

(1) How much and how hard was the work compared to all the work the

(2) Engineering work, planning schedules, technical studies, supervision, and other needed services.

(3) How well the contractor did, especially—

he termination date, regardless of the percentage of completion.

(b) The TCO can use any reasonable method to determine a fair profit, taking into account the following factors:

(1) How much and how hard was the work compared to all the work the

(2) Engineering work, planning schedules, technical studies, supervision, and other needed services.

(3) How well the contractor did, especially—

(i) Making quality products on time;

(ii) Keeping costs down;

(iii) Using materials, buildings, and workers economically; or

(iv) Disposition of termination inventory.

(4) How much money the contractor put in and how much risk they took.

(5) New ideas and technical help the contractor gave to the Government and other contractors.

(6) The type of business, including where materials come from and how complicated the manufacturing is.

(7) The rate of profit that the contractor would have earned if they had finished the whole contract.

(8) The rate of profit both parties expected when they made the contract.

(9) How hard it was to manage subcontractors, including picking them, placing contracts with them, managing them, and working out settlements when their contracts were terminated.

(1) Follow paragraphs (a) and (b) of this section;

(2) Allow profit on settlements with construction subcontractors for actual work done at the job site; and

(3) Exclude profit on settlements with construction subcontractors for materials they had on hand or preparations made to complete the work.

49.203 Adjustment for loss. (a) When settling a terminated contract, the TCO must not allow profit if the contractor would have lost money completing the full contract. The TCO must—

(1) Figure out how much the contractor would have lost;

(2) Adjust the settlement payment accordingly using the methods in paragraph (b) or (c) of this section; and

(3) Consider factors like production efficiency when estimating completion costs.

settling a terminated contract, the TCO must not allow profit if the contractor would have lost money completing the full contract. The TCO must—

(1) Figure out how much the contractor would have lost;

(2) Adjust the settlement payment accordingly using the methods in paragraph (b) or (c) of this section; and

(3) Consider factors like production efficiency when estimating completion costs.

(b) For inventory-based settlements payment is limited to the sum of items in paragraphs (b)(1), (2), and (3) of this section, minus all disposal credits and minus all unliquidated previous advance and progress payments previously made—

(1) The settlement expenses;

(2) The contract price for acceptable completed items;

(3) The remainder of the settlement amount otherwise agreed upon or determined (including the allocable portion of initial costs (see part 31), reduced by multiplying the remainder by the ratio of (i) the total contract price to (ii) the total cost incurred before termination plus the estimated cost to complete the entire contract.

(c) If the settlement is on a total cost basis (see 49.206-2(b)), the contractor must not be paid more than the total of the amounts in paragraphs (c)(1) and (2) of this section, minus all disposal and other credits, all advanced and progress payments, and all other amounts previously paid under the contract:

(1) The amount negotiated or determined for settlement expenses.

(2) The remainder of the total settlement amount otherwise agreed upon or determined (lines 7 and 14 of SF 1436, Settlement Proposal (Total Cost Basis)) reduced by multiplying the remainder by the ratio of

(i) the total contract price to

(ii) the remainder plus the estimated cost to complete the entire contract.

49.204 Deductions. From the settlement payment, the TCO must subtract—

(a) The price of any inventory kept or purchased by the contractor, plus proceeds from materials sold but not yet paid or credited to the Government;

reasonable detail supported by adequate accounting data. Actual costs, standard costs (properly adjusted), or average costs may be used if the contractor determines them based on generally accepted accounting principles consistently followed by the contractor. When actual, standard, or average costs are not reasonably available, estimated costs may be used if the TCO approves the estimation method. Contractors do not have to maintain overly complicated cost accounting systems just because their contracts might be terminated.

(d) The contractor should use Settlement Proposal (Short Form), SF 1438, when the total proposal is less than $10,000, unless the TCO authorizes otherwise. Combine settlement proposals that would normally go together whenever possible, such as those based on a series of separate orders for the same item under one contract. Do not split them up just to bring them below $10,000.

(e) Submit Schedule of Accounting Information, SF 1439, for each termination requiring a settlement proposal, except when using Standard Form 1438. Even if several step-by-step proposals are submitted, only one SF 1439 should be submitted unless major changes happen in the information after the original form is filed.

49.206-2 Bases for settlement proposals. (a) Inventory basis.

(1) The inventory basis is the preferred method for settlement proposals. With this approach, the contractor may propose only costs allocable to the terminated portion of the contract. The settlement proposal must separately list—

(i) Metals, raw materials, purchased parts, work in process, finished parts, components, dies, jigs, fixtures, and tooling, at purchase or manufacturing cost;

(ii) Charges such as engineering costs, initial costs, and general administrative costs;

(iii) Costs of settlements with subcontractors;

(iv) Settlement expenses; and

vance. Examples include the following:

(i) When production has not started and costs represent planning, preproduction, or “get ready” expenses.

(ii) When the contractor's accounting system cannot easily establish unit costs for work in process and finished products.

(iii) When the contract does not specify unit prices.

(iv) When the termination is complete and involves a letter contract.

(2) For a complete termination using the total-cost basis, the contractor must itemize costs incurred under the contract up to the effective date of termination. The costs of settlements with subcontractors and applicable settlement expenses must also be added. An allowance for profit or adjustment for loss must be made. The contract price for all end items delivered or to be delivered and accepted must be deducted. All unliquidated advance and progress payments and known disposal and other credits must also be deducted.

(3) For a partial termination using the total-cost basis, the contractor must wait until completing the continued portion of the contract before submitting the proposal. The proposal must follow paragraph (b)(2) instructions, except it must include all costs incurred up to the completion of the continued portion.

(4) For a completely terminated construction contract or lump-sum professional services contract, the contractor must—

(i) Use the total cost basis of settlement;

(ii) Omit Line 10 “Deduct-Finished Product Invoiced or to be Invoiced” from Section II of SF 1436 Settlement Proposal (Total Cost Basis); and

(iii) Reduce the gross settlement amount by the total of all progress and other payments.

4) For a completely terminated construction contract or lump-sum professional services contract, the contractor must—

(i) Use the total cost basis of settlement;

(ii) Omit Line 10 “Deduct-Finished Product Invoiced or to be Invoiced” from Section II of SF 1436 Settlement Proposal (Total Cost Basis); and

(iii) Reduce the gross settlement amount by the total of all progress and other payments.

(c) Other basis. Settlement proposals cannot be submitted on any basis other than paragraph (a) or (b) of this section without prior approval from the chief of the contracting or contract administration office.

49.206-3 Submission of inventory disposal schedules. Subject to the termination clause terms, the contractor should prepare inventory schedules on Standard Form 1428, Inventory Disposal Schedule, listing inventory which is allocable to the terminated portion of the contract. The schedules must be submitted within 60 days of the effective date of termination unless the deadline is extended by the TCO.

49.207 Limitation on settlements. The total amount payable to the contractor for a settlement, before subtracting disposal or other credits and not counting settlement costs, must not be more than the contract price minus payments already made or to be made under the contract.

49.208 Equitable adjustment after partial termination. Under the termination clause, after partial termination, a contractor can request an equitable adjustment in the price of the continued part of a fixed-price contract. The TCO must forward the proposal to the contracting officer except when the TCO has authority to negotiate. The contractor must submit the proposal using the format in the Uniform Contract Format shown in part 15.

(a) When the contracting officer keeps responsibility for negotiating the equitable adjustment and making a supplemental agreement, the contracting officer must make sure no part of a price increase is included in a termination settlement made or in process.

TCO has authority to negotiate. The contractor must submit the proposal using the format in the Uniform Contract Format shown in part 15.

(b) The TCO must also make sure no part of the costs included in the equitable adjustment are included in the termination settlement.

Subpart 49.3—Additional Principles for Cost-Reimbursement Contracts Terminated for Convenience

49.301 General. Cost-reimbursement contract termination clauses cover both cost and fee settlements. The contract explains which costs are allowed.

49.302 Discontinuance of vouchers. (a) After complete contract termination, the contractor must stop using Standard Form 1034 (Public Voucher) after the last day of the sixth month following the month of the termination. The contractor may elect to stop using the form any time during the 6-month period. When the contractor has vouchered out all costs within the 6-month period, a proposal for fee, if any, may be submitted on SF 1437 or by certified letter. The contractor must submit fee proposals to the TCO within 90 days of termination, unless the deadline is extended by the TCO. When use of vouchers is discontinued, the contractor must submit all unvouchered costs and the proposed fee, if any, as specified in 49.303.

(b) For partial terminations, see section 49.304.

49.303 Procedure after discontinuing vouchers.

49.303-1 Submission of settlement proposal. Unless extended by the TCO, within 90 days of the effective date of termination, the contractor must submit a final proposal for unvouchered costs and any fee, using the form in 49.602-1 unless the TCO approves another format. The proposal must not include—

(a) Any costs already disallowed by the Government; or

tion for convenience. The parties' rights and obligations will be governed accordingly.

(c) The Government may exercise termination or cancellation rights beyond those in the contract clauses (for example, paragraph (h) of contract clause 52.249-8, Default (Fixed-Price Supply and Service)).

(d) For default terminations of Federal Supply Schedule orders, see GSA procedures for those contracts.

(e) Despite the provisions of this section, the contracting officer may reinstate a terminated contract by amending the termination notice if—

(1) The contractor provides written consent;

(2) The contracting officer makes a written determination that the supplies or services are still needed; and

(3) Reinstatement benefits the Government.

49.402 Termination of fixed-price contracts for default.

49.402-1 The Government's right. Under contracts with the clause at 52.249-8, the Government has the right, subject to the notice requirements of the clause, to terminate the contract completely or partially for default if the contractor fails to—

(a) Deliver supplies or perform services within the time specified in the contract;

(b) Perform any other provision of the contract; or

49.402-2 Effect of termination for default. (a) Under a default termination, the Government—

(1) Is not responsible for the contractor's costs on undelivered work;

(2) Is entitled to repayment of advance and progress payments for that work; and

(3) May require the contractor to transfer title and deliver completed supplies and manufacturing materials.

(b) The contracting officer must not use the clause at 52.249-8 to acquire completed supplies or manufacturing materials unless the Government does not already have title under other contract provisions. The contracting officer should only acquire manufacturing materials for another contractor after considering any difficulties the other contractor might have using them.

anufacturing materials.

(c) Subject to paragraph (d), the Government must pay the contractor the contract price for any completed supplies and the agreed amount for manufacturing materials acquired by the Government under the clause.

(d) To protect against overpayment when laborers and material suppliers might have liens against the completed supplies or materials, the contracting officer must take one or more of these measures before payment:

(1) Verify that payment bonds from the contractor adequately cover all claims or obtain similar bonds to cover outstanding liens;

(2) Require the contractor to provide statements from laborers and material suppliers giving up any lien rights they may have;

(3) Create an agreement among all parties that releases the Government from potential liability;

(4) Withhold appropriate amounts from payments when the above measures are inadequate;

(5) Take other suitable actions based on the situation and the contractor's financial condition.

(e) The contractor is responsible for any excess costs the Government incurs buying similar supplies and services and for any other damages, whether or not the Government buys replacement items.

49.402-3 Procedure for default. (a) Before deciding on default termination, the Government must determine the appropriate action ( i.e., default, convenience, or no-cost cancellation) with contracting and technical personnel, as well as legal counsel, to ensure the action is appropriate.

ibed in paragraph (d)(1) exist, the contracting officer may combine a cure notice and a show cause notice into a single document to avoid duplicative correspondence.

(e) A sample cure notice format appears in 49.607.

(f) Show cause notice procedures are as follows:

(1) If default termination seems appropriate, the contracting officer should, when practical, notify the contractor in writing—

(i) That the contracting officer is considering terminating the contract for default;

(ii) Call attention to the potential liabilities to the contractor if the contract is terminated for default;

(iii) Explain why the contracting officer intends to terminate the contract;

(iv) Give the contractor an opportunity to explain why termination should not occur;

(v) Explain that a failure to respond may be taken as an admission by the contractor that no valid explanation exists; and

(vi) If appropriate, invite the contractor to a conference to discuss the situation.

(2) A sample show cause notice appears in 49.607.

(g)(1) When default termination is likely, the contracting officer must notify the surety in writing. If the contractor is later terminated for default, the contracting officer must send the surety a copy of the default notice.

(2) If the surety requests it and the contractor and any assignees agree, arrangements can be made to send checks to the contractor through the surety. The contractor must submit a written request to the disbursing officer specifically directing this change in payment address.

(h) For small business contractors—

(1) The contracting officer must immediately send copies of any cure notice or show cause notice to the contracting office's small business specialist and Small Business Administration Area Office nearest the contractor;

(2) When possible, the contracting officer should consult with the small business specialist before proceeding with default termination.

es and charge any excess costs to the contractor;

(5) If the failure is determined not excusable, that the notice serves as this decision, and the contractor may appeal under the Disputes clause;

(6) That the Government reserves all other legal rights and remedies; and

(7) That this notice is a decision that the contractor is in default and has the right to appeal under the Disputes clause.

(k) The contracting officer must—

(1) Distribute the termination notice to all parties who received the original contract;

(2) Send a copy to the contractor's surety and ask if they want to arrange for completion of the work; and

(3) Tell the disbursing officer to stop payments under the terminated contract until further notice.

(l) For construction contracts, promptly after issuing the termination notice, the contracting officer must determine—

(1) How the work will be completed; and

(2) Whether materials, equipment, and plant that are on the site will be needed.

(m) If the contracting officer determines before issuing the termination notice that the failure was excusable, they must not terminate for default. If termination is still in the Government's interest, they may terminate for convenience.

(n) If the contracting officer cannot determine before issuing the notice whether the failure was excusable, they must—

(1) Make a written decision on this issue as soon as possible after issuing the notice;

(2) Deliver the decision promptly to the contractor; and

(3) Notify the contractor of their right to appeal under the Disputes clause.

49.402-4 Procedure in lieu of termination for default. Instead of terminating for default, the contracting officer may take these alternative actions when they serve the Government's interests:

(a) Allow the contractor, surety, or guarantor to continue performance under a revised delivery schedule.

ntractor; and

(3) Notify the contractor of their right to appeal under the Disputes clause.

49.402-4 Procedure in lieu of termination for default. Instead of terminating for default, the contracting officer may take these alternative actions when they serve the Government's interests:

(a) Allow the contractor, surety, or guarantor to continue performance under a revised delivery schedule.

(b) Permit the contractor to continue performance through a subcontract or other business arrangement with an acceptable third party, as long as the Government's rights are adequately protected.

(1) The supplies or services are no longer needed; and

(2) The contractor is not liable for damages under 49.402-7.

49.402-5 Memorandum by the contracting officer. When a contract is terminated for default or when an alternative procedure from 49.402-4 is used, the contracting officer must prepare a memorandum for the contract file explaining the reasons for the action.

49.402-6 Repurchase against contractor's account. (a) The contracting officer should consider repurchase requirements as soon as practicable after issuing the termination notice when supplies or services are still needed. Repurchase planning must not delay issuance of the termination notice. Guidelines for repurchasing are as follows:

(1) The contracting officer must repurchase similar items against the contractor's account as soon as practical.

(2) The price must be reasonable considering quality and delivery requirements.

(3) The contracting officer may buy more than the undelivered quantity if needed.

(4) Extra cost can only be charged to the contractor for the undelivered quantity (including permitted variations).

Government's best interests.

(d) Multiple parties may claim the defaulting contractor's assets, including unpaid earnings. The surety may include a “takeover” agreement

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