FAR and DFARS › FAR Part 49: Termination of Contracts › Subpart 49.2
FAR 49.203 Adjustment for loss.
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 tells the Termination Contracting Officer (TCO) how to adjust a termination settlement if the contractor would have lost money had the contract been completed. It prevents the contractor from receiving profit in such cases and limits the settlement amount based on whether the settlement is on an inventory or total cost basis.
Applies to: Contractors facing a termination settlement where a loss would have occurred had the contract been completed.
What it requires
- The TCO shall not allow profit if it appears the contractor would have incurred a loss had the entire contract been completed.
- The TCO shall negotiate or determine the amount of loss and adjust the settlement as specified in paragraph (b) or (c).
- In estimating the cost to complete, the TCO shall consider expected production efficiencies and other factors affecting the cost to complete.
Key terms: TCO · settlement · inventory basis · total cost basis · disposal credits
Written by AI from this section's text. A guide, not legal advice: the text below rules.
The text
(a) In the negotiation or determination of any settlement, the TCO shall not allow profit if it appears that the contractor would have incurred a loss had the entire contract been completed. The TCO shall negotiate or determine the amount of loss and make an adjustment in the amount of settlement as specified in paragraph (b) or (c) below. In estimating the cost to complete, the TCO shall consider expected production efficiencies and other factors affecting the cost to complete.
(b) If the settlement is on an inventory basis (see 49.206-2(a)), the contractor shall not be paid more than the total of the amounts in subparagraphs (1), (2), and (3) below, less all disposal credits and all unliquidated advance and progress payments previously made under the contract:
(1) The amount negotiated or determined for settlement expenses.
(2) The contract price, as adjusted, for acceptable completed end items (see 49.205).
(3) The remainder of the settlement amount otherwise agreed upon or determined (including the allocable portion of initial costs (see 31.205-42(c)), 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 shall not be paid more than the total of the amounts in subparagraphs (1) and (2) below, less all disposal and other credits, all advance 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.
Sections it refers to
← 49.202 Profit. · 49.204 Deductions. →
Rule changes for FAR Part 49
- Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 3 and 49 ↗ · proposed 2026-06-23 · comments due 2026-07-23
- Federal Acquisition Regulation; Technical Amendments ↗ · final rule 2024-12-16 · effective 2025-01-03
Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.