FAR 49.105 TCO Duties After Termination: Myths vs. Facts
When the federal government issues a notice of termination, contract administration shifts immediately from routine project management to structured settlement procedures. Many trade contractors and prime builders hold mistaken impressions about who controls the process and what authorities govern post-notice activities. Under FAR 49.105, the termination contracting officer (TCO) oversees the settlement process, directs required contractor actions, and establishes ground rules for closeout. Reviewing the common myths against the actual text of the regulation helps contractors know exactly what to anticipate.
Myth 1: The TCO Only Deals with Prime Contractor Proposals
Fact: The TCO has express authority to examine subcontractor settlement proposals when appropriate.
Under FAR 49.105(a)(1) and (a)(2), the TCO directs the action required of the prime contractor and examines the settlement proposal of the prime contractor. However, the officer's oversight does not stop at the prime level. The regulation specifies that the TCO also examines the settlement proposals of subcontractors when appropriate. Furthermore, when the TCO convenes a post-termination conference, principal subcontractors should be requested to attend when deemed appropriate in the judgment of the TCO after consulting with the prime contractor. Subcontractors are not entirely insulated from direct federal scrutiny, especially when substantial settlement amounts or complex inventory items are at stake. For more details on the prime contractor's direct closeout obligations, consult our guide to prime duties after a termination notice.
Myth 2: Termination Settlements Require Full Mutual Agreement to Conclude
Fact: If bilateral negotiations stall, the TCO can issue a unilateral determination.
While the primary objective under FAR 49.105(a)(3) is to promptly negotiate a settlement and enter into a bilateral settlement agreement, the process is not held hostage if the parties disagree on certain costs. FAR 49.105(a)(4) directs the TCO to promptly settle the contractor's settlement proposal by determination for any elements that cannot be agreed upon. If a contractor cannot substantiate a specific cost item or reach common ground during discussions, the TCO does not leave the contract open indefinitely; the officer issues a formal determination to resolve the unsettled elements.
Myth 3: The TCO Handles All Audits and Technical Reviews Alone
Fact: The TCO routinely brings in specialized personnel to evaluate legal issues, accounting records, and inventory.
Contractors often assume they are negotiating solely with a single contracting officer. Under FAR 49.105(b), the TCO may request specially qualified personnel to expedite the settlement. These professionals provide support across several distinct areas:
- Assisting in direct dealings with the contractor;
- Advising on legal and contractual matters;
- Conducting accounting reviews and assisting on accounting matters; and
- Managing termination inventory under subpart 45.6 by verifying its existence, determining qualitative and quantitative allocability, recommending serviceability, undertaking screening and redistribution, and assisting the contractor with disposition.
Myth 4: Settlement Conferences Are Informal, Unstructured Meetings
Fact: FAR 49.105(c) mandates a detailed conference agenda covering fifteen distinct topic areas.
The TCO should promptly hold a conference with the contractor to establish a definite program for effecting the settlement. The regulation specifies that this conference must be documented and address concrete subjects, including:
- General settlement principles and contractor obligations under the contract termination clause;
- The extent of the termination, the exact point where work stops, and the status of undelivered plans, drawings, and project information;
- The status of continuing work and procedures for terminating subcontracts;
- The names of affected subcontractors, the dates notices were issued, contractor personnel handling subcontractor reviews, and the methods used;
- Procedures for transferring title and delivering government-required property;
- Inventory protection, preservation, and preparation of termination inventory schedules;
- Contractor accounting practices, accounting reviews, and the preparation of SF 1439 (Schedule of Accounting Information);
- The form used for submitting settlement proposals and tentative time schedules for negotiations and schedule submissions under 49.206-3 and 49.303-2;
- Any requirement for interim financing through partial payments; and
- Contractor actions taken to minimize adverse impacts upon affected employees.
Myth 5: Cost and Pricing Data Rules Do Not Apply to Terminations
Fact: Certified cost or pricing data requirements apply when settlement thresholds are met.
FAR 49.105(c)(15) specifies that the settlement conference must document the contractor's obligation to furnish accurate, complete, and current cost or pricing data. The contractor must certify to that effect under 15.403-4(a)(1) whenever the amount of a termination settlement agreement—or a partial termination settlement agreement plus the estimate to complete the continued portion of the contract—exceeds the threshold established in 15.403-4. Contractors cannot assume that a convenience termination relaxes statutory pricing scrutiny. Review our breakdown of FAR 15.403-4 certified cost or pricing data to understand how pricing certification rules impact closeout figures.
By understanding the precise boundaries of FAR 49.105, contractors can approach the initial settlement conference prepared with proper accounting schedules, clear inventory documentation, and realistic expectations for government reviews.
Sources
Published November 9, 2026. No affiliate links on this page. Facts come from the sources linked above; check them for updates.