FAR 49.206-1 Settlement Proposals: Cost-Basis Bid Checklist
Preparing a settlement proposal after a contract termination requires the same methodical discipline as putting together a tender package on bid day. Estimators and project teams must gather every cost element, organize subcontractor figures, and present verified data to the government. Under FAR 49.206-1, federal regulations establish strict rules on how contractors claim termination amounts on a cost basis.
Item 1: Schedule the Submission Deadline and Consolidate Units
Your first checklist item after receiving a termination notice is tracking the regulatory calendar. Federal rules dictate that the contractor should promptly provide a proposal for the amount claimed to the termination contracting officer (TCO). The final proposal must arrive within one year from the effective date of the termination, unless the TCO grants an extension.
If your construction business operates through multiple internal branches, coordination is critical. Under FAR 49.206-1, termination charges arising under a single prime contract that involve two or more divisions or units of the prime contractor may be consolidated and submitted within a single settlement package rather than split into disparate claims.
Item 2: Capture Every Cost Element, Subcontract, and Profit Claim
A cost-basis proposal cannot leave loose ends. The completed submission must account for all cost elements, which includes settling with your lower-tier trades and presenting any proposed profit. For interior and trade contractors navigating a convenience termination, this means gathering subcontractor statements and auditing their completed scope.
You do not always have to deliver the entire figure at once if details remain pending. With the consent of the TCO, contractors may submit proposals in successive steps that cover distinct parts of their total expenses. When utilizing these interim proposals, each filing shall incorporate all costs belonging to that particular type, unless the TCO authorizes a different arrangement.
Item 3: Audit Accounting Records and Justify Cost Methods
Federal procurement standards require proposals to feature reasonable detail backed up by adequate accounting data. When establishing numbers, your team can rely on actual, standard (provided they are appropriately adjusted), or average costs. However, these figures are only permissible if calculated under generally recognized accounting principles that your business consistently follows.
On jobs where actual, standard, or average figures cannot reasonably be retrieved, estimators may employ estimated costs instead. To do this, the TCO must approve the specific method used to generate those estimates. Crucially, the regulation protects businesses from excessive administrative burdens by stating that contractors shall not be forced to maintain unduly elaborate cost accounting systems merely because their federal agreements might later be terminated.
Item 4: Apply the $10,000 Threshold for Short Form SF 1438
Standard filings must be executed using the forms designated in 49.602 unless those specific documents prove inadequate for the contract. However, smaller claims qualify for a streamlined approach:
- Short form availability: Contractors may utilize the Settlement Proposal (Short Form), SF 1438, whenever the total proposal is less than $10,000, unless the TCO directs otherwise.
- Consolidation requirement: Claims that would normally form a single proposal—such as those generated from a series of separate orders for an identical item under one contract—should be merged whenever possible. Teams are explicitly barred from splitting proposals simply to pull them below the $10,000 ceiling.
Item 5: File Schedule SF 1439 for Accounting Disclosures
Unless your claim meets the criteria to use the short form SF 1438, you must execute Standard Form 1439, the Schedule of Accounting Information. This schedule must accompany each contract termination for which a proposal is delivered.
When an estimator submits several interim proposals across a phased settlement, the SF 1439 does not need to be refiled every time. The schedule needs to be submitted only once throughout the process, unless major revisions occur in the underlying information that was previously reported.
Settlement Proposal Bid-Day Sign-Off Checklist
- Confirm the final submission date sits comfortably within one year from the effective date of termination.
- Consolidate all operational units and internal divisions under the prime contract into one filing.
- Verify all lower-tier subcontractor settlement figures and calculate any proposed profit under FAR 49.202 settlement profit guidelines.
- Confirm whether the total amount claimed is less than $10,000 to determine if SF 1438 applies.
- Attach supporting accounting data using actual, standard, average, or TCO-approved estimated costs.
- Include SF 1439 if using standard forms and verify that all accounting disclosures reflect current records.
Sources
Acquisition.GOV: FAR 49.206-1 Submission of settlement proposals
Published October 31, 2026. No affiliate links on this page. Facts come from the sources linked above; check them for updates.