Partial Terminations: Adjusting Prices Under FAR 49.207 and 49.208
When the government cuts back contract scope on a federal construction project, trade contractors and general builders face two distinct financial tasks. They must calculate the settlement for the deleted scope while simultaneously adjusting the contract price for remaining work. The Federal Acquisition Regulation addresses these challenges directly. Estimators and project managers need to understand how the settlement ceiling operates and how to seek price relief for continuing field work without double counting costs.
Settlement Limits Under FAR 49.207
Under 49.207 Limitation on settlements. | Acquisition.GOV, federal procurement rules impose a strict ceiling on termination payouts. The total amount payable to the contractor for a settlement cannot exceed the contract price minus payments otherwise made or to be made under the contract. This calculation applies before deducting disposal credits or other credits. In addition, the rule specifies that settlement costs are excluded when measuring against this ceiling.
For interior framing and drywall contractors, this cap ensures that the government does not pay more than the original contract value when work ends early. If progress billings have already occurred, those amounts reduce the remaining room available under the settlement cap. Estimators must track what payments were already received or remain payable to verify that a proposed settlement fits under the statutory limit.
Equitable Adjustments for Continued Work Under FAR 49.208
A partial termination fundamentally alters project economics. Under the contract termination clause, when a partial termination occurs on a fixed-price contract, the contractor may request an equitable adjustment in the price or prices of the continued portion. This right, outlined in 49.208 Equitable adjustment after partial termination. | Acquisition.GOV, recognizes that trimming scope often increases the unit cost of work that continues.
When a general contractor or trade partner prepares this submission, knowing how contract mechanisms interact is vital for protecting margins. Estimators navigating changes should review standard approaches for Pricing Change Orders, as well as the commercial balance between Lump Sum vs. Unit Price vs. Cost-Plus agreements. When fixed overhead must be spread over fewer square feet of drywall or ceiling framing, re-pricing the continued portion preserves contractor solvency.
Submitting Proposals in Table 15-2 Format
FAR 49.208 outlines clear procedural standards for how price adjustments must be structured and routed:
- The contractor shall submit the equitable adjustment proposal in the format of Table 15-2 of 15.408.
- The termination contracting officer (TCO) forwards the proposal directly to the contracting officer, except in circumstances where negotiation authority has been specifically delegated to the TCO.
Following the structured format in Table 15-2 ensures that labor rates, material allowances, and equipment expenses are transparently displayed, allowing federal officials to review cost breakdowns without administrative delays.
Dual Safeguards Against Overlapping Costs
Federal regulations strictly prohibit recovering the same dollar twice. FAR 49.208 establishes complementary obligations for government officials to keep termination settlements and price adjustments isolated:
- Contracting officer oversight: When the contracting officer retains responsibility for negotiating the equitable adjustment and executing a supplemental agreement, that contracting officer shall ensure that no portion of an increase in price is included in a termination settlement that is already made or currently in process.
- Termination contracting officer oversight: The TCO shall also ensure that no portion of the costs included in the equitable adjustment are included in the termination settlement.
This dual-check framework requires contractors to maintain clear boundaries in their accounting records between termination claims and ongoing project budgets.
Practical Bidding Steps for Continuing Interiors Work
For subcontractors managing wall assemblies, acoustic tile, or light-gauge steel framing, a partial termination creates immediate pricing pressure. Material suppliers may eliminate volume price discounts when purchase quantities drop, while site mobilization costs remain fixed.
Because 49.207 Limitation on settlements. | Acquisition.GOV sets a definite ceiling on the termination side, contractors cannot rely on the settlement alone to absorb overhead losses on ongoing tasks. Instead, estimators must immediately quantify cost shifts and file the equitable adjustment for continued work under FAR 49.208. Keeping settlement proposal files separated from the Table 15-2 proposal for ongoing work ensures that the TCO and contracting officer can approve adjustments without cost-duplication objections.
Sources
49.207 Limitation on settlements. | Acquisition.GOV
49.208 Equitable adjustment after partial termination. | Acquisition.GOV
Published November 9, 2026. No affiliate links on this page. Facts come from the sources linked above; check them for updates.