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FAR and DFARS › FAR Part 49: Termination of Contracts › Subpart 49.1

FAR 49.108-5 Recognition of judgments and arbitration awards.

The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.

In plain English

This section explains how a Termination Contracting Officer (TCO) treats a judgment or arbitration award that a subcontractor obtains against a prime contractor when settling a terminated prime contract. The TCO will generally recognize the amount as a cost of settling the prime contract if the prime contractor met certain conditions, such as including a proper termination clause in the subcontract and giving the Government notice and control of the defense. If not all conditions are met, the TCO may still allow a fair portion of the judgment.

Applies to: Prime contractors with subcontracts under a terminated prime contract

What it requires

  • Make reasonable efforts to include a termination clause in the subcontract that excludes anticipatory profits or consequential damages
  • Ensure subcontract termination provisions are fair and reasonable and do not unreasonably increase the subcontractor's common law rights
  • Make reasonable efforts to settle the subcontractor's settlement proposal
  • Give prompt notice to the contracting officer of the initiation of proceedings and not refuse to give the Government control of the defense

Key terms: TCO · final judgment · arbitration award · termination clause · anticipatory profits

Written by AI from this section's text. A guide, not legal advice: the text below rules.

The text

(a) When a subcontractor obtains a final judgment against a prime contractor, the TCO shall, for the purposes of settling the prime contract, treat the amount of the judgment as a cost of settling with the contractor, to the extent the judgment is properly allocable to the terminated portion of the prime contract, if—

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

(2) The provisions of the subcontract relating to the rights of the parties upon its termination are fair and reasonable and do not unreasonably increase the common law rights of the subcontractor;

(3) The contractor made reasonable efforts to settle the settlement proposal of the subcontractor;

(4) The contractor gave prompt notice to the contracting officer of the initiation of the proceedings in which the judgment was rendered and did not refuse to give the Government control of the defense of the proceedings; and

(5) The contractor diligently defended the suit or, if the Government assumed control of the defense of the proceedings, rendered reasonable assistance requested by the Government.

(b) If the conditions in subparagraphs (a)(1) through (5) above are not all met, the TCO may allow the contractor the part of the judgment considered fair for settling the subcontract settlement proposal, giving due regard to the policies in this part for settlement of proposals.

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

Sections it refers to

  • 49.502 Termination for convenience of the Government.
  • 49.503 Termination for convenience of the Government and default.

Sections that refer to it

← 49.108-4 Authorization for subcontract settlements without approval or ratification. · 49.108-6 Delay in settling subcontractor settlement proposals. →

Rule changes for FAR Part 49

Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.

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