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  • Question

    Does a contract close out have to be put on hold until refund is received from CNA and Rutherford DBA insurer and broker?


    Answer

    From the guidance found at Federal Acquisition Regulation (FAR) 52.249-2 -- Termination for Convenience of the Government (Fixed-Price):

    "…(e) After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but no later than 1 year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 1-year period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after 1 year or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined."

    (f) Subject to paragraph (e) of this clause, the Contractor and the Contracting Officer may agree upon the whole or any part of the amount to be paid or remaining to be paid because of the termination. The amount may include a reasonable allowance for profit on work done. However, the agreed amount, whether under this paragraph (f) or paragraph (g) of this clause, exclusive of costs shown in subparagraph (g)(3) of this clause, may not exceed the total contract price as reduced by

    (1) the amount of payments previously made and

    (2) the contract price of work not terminated.

    The contract shall be modified, and the Contractor paid the agreed amount. Paragraph (g) of this clause shall not limit, restrict, or affect the amount that may be agreed upon to be paid under this paragraph.

    (g) If the Contractor and the Contracting Officer fail to agree on the whole amount to be paid because of the termination of work, the Contracting Officer shall pay the Contractor the amounts determined by the Contracting Officer as follows, but without duplication of any amounts agreed on under paragraph (f) of this clause:

    (1) The contract price for completed supplies or services accepted by the Government (or sold or acquired under subparagraph (b)(9) of this clause) not previously paid for, adjusted for any saving of freight and other charges.

    (2) The total of --

    (i) The costs incurred in the performance of the work terminated, including initial costs and preparatory expense allocable thereto, but excluding any costs attributable to supplies or services paid or to be paid under subparagraph (g)(1) of this clause;

    (ii) The cost of settling and paying termination settlement proposals under terminated subcontracts that are properly chargeable to the terminated portion of the contract if not included in subdivision (g)(2)(i) of this clause; and

    (iii) A sum, as profit on subdivision (g)(2)(i) of this clause, determined by the Contracting Officer under 49.202 of the Federal Acquisition Regulation, in effect on the date of this contract, to be fair and reasonable; however, if it appears that the Contractor would have sustained a loss on the entire contract had it been completed, the Contracting Officer shall allow no profit under this subdivision (g)(2)(iii) and shall reduce the settlement to reflect the indicated rate of loss.

    Based on the information you provided, the parts that are bolded above appear to apply to your situation. The amount of refund due the Government for the cost of DBA insurance should be discussed during the negotiations of the termination settlement. The Contracting Officer should attempt to reach agreement on the amount to be paid the contractor because of the termination. If the parties agree on the amount of the reduction for the unused portion of the insurance coverage this can be applied to the final payment made to the contractor in the termination modification. If the parties are unable to agree, the Contracting Officer shall make payment for the termination cost he or she determines are fair and reasonable. Key points are the Contracting Officer should try to reach agreement with the contractor on the amount of the refund due the government and handle it as an adjustment against the payment due the contractor for the termination settlement. If agreement can’t be reached, the Contracting Officer can make this reduction unilaterally in accordance with the termination for convenience clause. Once the termination modification is complete and the contractor paid his termination costs on the contract, the contract is ready for close out.

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