PGI 249.110 Settlement negotiation

memorandum.

(1) Fixed-price contracts. Use the format in Table 49-1, Settlement Memorandum Fixed-Price

Contracts, for the termination contracting officer's settlement memorandum for fixed-price contracts

terminated for the convenience of the Government. Encourage contractors and subcontractors to

use this format, appropriately modified, for subcontract settlements submitted for review and

approval.

(2) Cost-reimbursement contracts. Use Part I of the format in Table 49-1 and Part II of the format in

Table 49-2, Settlement Memorandum for Cost-Reimbursement Contracts, for the termination

contracting officer's settlement memorandum for cost-reimbursement contracts:

TABLE 49-1, SETTLEMENT MEMORANDUM FIXED-PRICE CONTRACTS

PART I—GENERAL INFORMATION

1. Identification. (Identify memorandum as to its purpose and content.)

a. Name and address of the contractor. Comment on any pertinent affiliation between prime and

subcontractors relative to the overall settlement.

b. Names and titles of both contractor and Government personnel who participated in the

negotiation.

2. Description of terminated contract.

a. Date of contract and contract number.

b. Type of contract (e.g., fixed-price, fixed-price incentive).

c. General description of contract items.

d. Total contract price.

e. Furnish reference to the contract termination clauses (cite FAR/DFARS designation or other

special provisions).

3. Termination notice.

a. Reference termination notice and state effective date of termination.

b. Scope and nature of termination (complete or partial), items terminated, and unit price and total

price of items terminated.

c. State whether termination notice was amended, and explain any amendment.

d. State whether contractor stopped work on effective termination date. If not, furnish details.
e. State whether the contractor promptly terminated subcontracts.

f. Statement as to the diversion of common items and return of goods to suppliers, if any.

g. Furnish information as to contract performance and timeliness of deliveries by the contractor.

4. Contractor's settlement proposal.

a. Date and amount. Indicate date and location where claim was filed. State gross amount of claim.

(If interim settlement proposals were filed, furnished information for each claim.)

b. Basis of claim. State whether claim was filed on inventory, total cost, or other basis. Explain

rationale for approval when claim is filed on other than inventory basis.

c. Examination of proposal. State type of reviews made and by whom (audit, engineering, legal, or

other).

PART II—SUMMARY OF CONTRACTOR'S CLAIM AND NEGOTIATED SETTLEMENT

Prepare a summary substantially as follows:
Item

Claimed

Contractor's

Proposal

Dollars

Accepted

Costs

Questioned

Unresolved

Items

TCO

Negotiated

Amount

1.

Contractor's

costs as set

forth on

settlement

proposal.

Metals, raw

materials,

etc.

Total

2. Profit

3.

Settlement

expenses

4. Total

5.

Settlement

with subs

6.

Acceptable

finished

product

7. Gross

Total

8. Disposal

and other

credits

9. Net

settlement

10. Partial

progress &

advance

payments

11. Net

payments

requested

PART III—DISCUSSION OF SETTLEMENT

1. Contractor's cost.

a. If the settlement was negotiated on the basis of individual items, specify the factors and

consideration for each item.

b. In the case of a lump-sum settlement, comment on the general basis for and major factors

concerning each element of cost and profit included.
c. Comment on any important adjustments made to costs claimed or any significant amounts in

relation to the total claim.

d. If a partial termination is involved, state whether the contractor has requested an equitable

adjustment in the price of the continued portion of the contract.

e. Comment on any unadjusted contractual changes that are included in the settlement.

f. Comment on whether or not a loss would have been incurred and explain adjustment for loss, if

any.

g. Furnish other information believed helpful to any reviewing authority in understanding the

recommended settlement.

2. Profit. Explain the basis and factors considered in arriving at a fair profit.

3. Settlement expenses. Comment on and summarize those expenses not included in the audit

review.

4. Subcontractor's settlements. Include the number of no-cost settlements, settlements concluded by

the contractor under delegation of authority and those approved by the termination contracting

officer, as well as the net amount of each.

5. Partial payments. Furnish the total amount of partial payments, if any.

6. Progress or advance payments. Furnish the total of unliquidated amounts, if any.

7. Claims of the Government against the contractor included in settlement agreement reservations.

List all outstanding claims, if any, that the Government has against the contractor in connection with

the terminated contract or terminated portion of the contract.

8. Assignments. List any assignments, giving name and address of assignee.

9. Disposal credits. Furnish information as to applicable disposal credits and give dollar amounts of

all disposal credits.

10. Plant clearance. State whether plant clearance action has been completed and all inventory sold,

retained, or otherwise properly disposed of in accordance with applicable plant clearance

regulations. Comment on any unusual matters pertaining to plant clearances. Attach consolidated

closing plant clearance report.

11. Government property. State whether all Government property has been accounted for.

12. Special tooling. If involved, furnish comment on disposition.

13. Summary of settlement. Summarize the settlement in tabular form substantially as follows:

Amount Amount
Claimed Allowed

Prime

contractors

charges (before

disposal credits)

Plus:

Subcontractor

charges (after

disposal credits)

Gross settlement:

Less: disposal

credits—Prime

Net

settlement—Less:

Prior payment

credits (this

settlement)

Previous partial

settlements

Other credits or

deductions

Net payment:

Total contract

price (complete

termination)

Contract Price of

Items Terminated

(for partial

termination)—Less:

Total payments to

date
Net payment from

this settlement

Fund reserved for

reservations

Reduction in

contract price

14. Exclusions. Describe any proposed reservation of rights to the Government or to the contractor.

15. Include a statement that the settlement is fair and reasonable for the Government and the

contractor. The contracting officer shall sign and date the memorandum.

(End of memorandum)

TABLE 49-2, SETTLEMENT MEMORANDUM FOR COST-REIMBURSEMENT CONTRACTS

PART II—SUMMARY OF SETTLEMENT

1. Summary. Summarize the proposed settlement in tabular form substantially as shown in Tables

49-3 and 49-4. Partial settlements may be summarized on Table 49-4.

2. Comments. Explain tabular summaries.

a. Summary of final settlement (see Table 49-3).

(1) Explain why the auditor's final report was not available for consideration, if applicable.

(2) Explain how the fixed-fee was adjusted. Identify basis used, such as percentage of completion.

Include a description of factors considered and how they were considered. Include any tabular

summaries and breakdowns deemed helpful to an understanding of the process. Factors that may be

given consideration are outlined in FAR 49.305.

(3) Briefly identify matters included in liability for property and other charges against the contractor

arising from the contract.

(4) Identify reservations included in the settlement that are other than standard reservations

required by regulations and that are concerned with pending claims and refunds.
(5) Explain substantial or otherwise important adjustments made in cost figures submitted by the

contractor in arriving at the proposed settlement.

(6) If unreimbursed costs were settled on a lump sum basis, explain the general basis for and the

major factors considered in arriving at this settlement.

(7) Comment on any unusual items of cost included in the claim and on any phase of cost allocation

requiring particular attention and not covered above.

(8) If the auditor's recommendations for nonacceptance were not followed, explain briefly the main

reasons why such recommendations were not followed.

(9) On items recommended for further consideration by the auditor, explain, in general, the basis for

the action taken.

(10) If any cost previously disallowed by a contracting officer is included in the proposed settlement,

identify and explain the reason for inclusion of such costs.

(11) Show number and amounts of settlements with subcontractors.

(12) Use the following summary where settlement includes costs and fixed-fee in a complete

termination:

Gross settlement $_______

Less: Disposal credits _______

Net settlement _______

Less: Prior payments ________

Other credits or deductions ________

Total _______

Net payment $_______

Total contract estimated cost plus fixed fee _______

Less: Net settlement ________

Estimated reserve for exclusions ________

Final contract price
(Consisting of $_______ for reimbursement of costs and $_______ for

adjusted fixed fee) ________ _______

Reduction in contract price (credit) _______

(13) Plant clearance. Indicate dollar value of termination inventory and state whether plant

clearance has been completed. Attach consolidated plant clearance report (SF 1424, Inventory

Disposal Report).

(14) Government property. State whether all Government property has been accounted for.

(15) Include a statement that the settlement is fair and reasonable to the Government and the

contractor. The contracting officer shall sign and date the memorandum.

(End of memorandum)

AMOUNT

CLAIMED

AMOUNT

ALLOWED

1. Previous

reimbursed

costs—Prime

and Subs

$ $

2. Previous

unreimbursed

costs

___________ __________

3. Total cost

settlement $ $

4. Previous

fees

paid—Prime

$ $

5. Previous

fees

unpaid—Prime

___________ __________

6. Total fee

settlement $ $

7. Gross

settlement ___________ __________

$__________ $_________

___________ __________
Less:

Deductions

not reflected

in Items 1-7

a. Disposal

credits $_______

b. Other

charges

against

contractor

arising from

contract $_______

8. Net

settlement $

Less: Prior

payment

credits

__________

9. Net

payment $

10.

Recapitulation

of previous

settlements

(insert

number of

previous

partial

settlements

effected on

account of this

particular

termination):

Aggregate

gross

amount of

previous

settlements

$_________

Aggregate

net amount

of previous

partial

settlements

$_________

Aggregate

net

payment

provided in

previous

partial

settlements

$_________
Aggregate

amount

allowed for

prime

contractor

acquired

property

taken over

by the

Government

in

connection

with

previous

partial

settlements $_________

TABLE 49-4,

UNREIMBURSED

COSTS

SUBMITTED ON

SF 1437*

Amounts

Claimed by

Auditor's

Recommendation

Costs Contractor's Cost Unresolved TCO's

Proposal Questioned Items Computation

1. Direct material

2. Direct labor

3. Indirect factory

expense

4. Dies, jigs,

fixtures and

special tools

5. Other costs

6. General and

administrative

expenses

7. Fee
8. Settlement

expense

9. Settlement

with subs

10. Total costs

(Items 1-9)

*Expand the

format to include

recommendations

of technical

personnel as

required.

Parent topic: PGI 249.1 -GENERAL PRINCIPLES