T4C Settlement Proposal

Draft a FAR Part 49-compliant settlement proposal justifying contractor costs and proposing a fair settlement amount after government termination for convenience.

Prerequisites

Collect before drafting:

1. Contract documents — prime contract, modifications, pricing, contract type (FFP, CR, T&M)
2. Termination notice — effective date, FAR clause cited, stated reasons
3. Financial records — cost ledgers, timesheets, vendor invoices, approved indirect rates
4. Subcontractor data — sub agreements, sub settlement proposals, payment records
5. Inventory records — materials, WIP, finished components acquired for contract performance

Quick Start

1. Identify contract type → select SF 1435 (inventory basis / fixed-price) or SF 1436 (total cost basis)
2. Compile cost data organized by CLIN/deliverable
3. Verify every cost is allowable under FAR Part 31 — exclude FAR 31.205 unallowables
4. Calculate settlement amount (costs + profit − payments − credits)
5. Assemble certifications and attachment index
6. Flag gaps with [DOCUMENTATION NEEDED] and uncertain citations with [VERIFY]

Document Structure

1. Header

| Field | Content | |-------|---------| | Title | Settlement Proposal — Termination for Convenience | | Date | Submission date | | Parties | Full legal names of contractor and government agency | | Contract No. | Include all modification numbers | | Termination Ref. | Notice date, issuing authority, FAR clause cited | | Basis | SF 1435 (Inventory) or SF 1436 (Total Cost) |

2. Introduction & Background

• Contract purpose, period of performance, total value, contract type
• Termination circumstances — cite the specific FAR clause invoked
• Legal basis: FAR Part 49 entitles contractor to fair compensation for work performed and costs reasonably incurred

3. Cost Breakdown

Organize by CLIN/deliverable:

| Category | Amount | Documentation | |----------|--------|---------------| | Direct labor | $ | Timesheets, rate justifications | | Direct materials | $ | Invoices, receiving docs | | Subcontractor costs | $ | Agreements, payment records | | Other direct costs | $ | Travel, equipment, etc. | | Indirect / overhead | $ | Approved rates, allocation basis | | G&A | $ | Rate and allocation method | | Subtotal | $ | | | Profit/fee (FAR 49.202) | $ | % applied, completion-based justification | | Total claimed | $ | |

Rules:

• All costs must be allowable under FAR Part 31
• Profit must reflect degree of completion and risk assumed
• Indirect rates must tie to contractor's disclosed accounting system

4. Inventory Disposition

Per category (raw materials, WIP, finished components):

| Item | Qty | Unit Cost | Total | Condition | Disposition | |------|-----|-----------|-------|-----------|-------------| | | | | | | Govt sale / Return to supplier / Commercial sale / Retain |

• Follow FAR 49.603 disposition requirements
• Credit government for anticipated commercial sale proceeds

5. Subcontractor Settlements

| Subcontractor | Sub No. | Original Value | Work Performed | Claimed | Status | |---------------|---------|----------------|----------------|---------|--------| | | | | | | Agreed / Proposed |

• Comply with FAR 49.108-4 (prompt, fair settlement obligation)
• Attach each sub's proposal and cost data
• Show how government interests were protected in negotiations

6. Settlement Calculation

  Allowable costs incurred                    $________
+ Profit/fee                                  $________
+ Subcontractor settlements                   $________
+ Other authorized charges                    $________
─────────────────────────────────────────────
  Gross settlement amount                     $________
− Payments already received                  ($________)
− Credits due to government                  ($________)
− Anticipated inventory proceeds             ($________)
─────────────────────────────────────────────
  NET SETTLEMENT AMOUNT CLAIMED               $________

• Compare to contract value and % completion to show reasonableness
• Cite FAR provisions authorizing each cost component
• Reference ASBCA/CBCA decisions for contested items

7. Certifications (FAR 49.602-2)

Flag each for authorized signature:

• [ ] Certificate of Current Cost or Pricing Data (if above threshold)
• [ ] Certification that all costs are allowable under FAR Part 31
• [ ] Good faith representation
• [ ] Agency-specific supplemental certifications
• [ ] Signature by representative with appropriate authority

8. Attachment Index

| Exhibit | Description | |---------|-------------| | A | Contract and modifications | | B | Termination notice | | C | Cost ledgers and accounting records | | D | Vendor invoices and payment records | | E | Subcontractor settlements and proposals | | F | Inventory schedule and valuations | | G | Property disposition proposals | | H | Indirect rate documentation / disclosure statement | | I | Personnel and organizational data |

Pitfalls

• Unallowable costs — never claim FAR 31.205 categories (entertainment, interest, fines, etc.)
• Missing documentation — every dollar must trace to support; flag gaps with [DOCUMENTATION NEEDED]
• Wrong form — SF 1435 is for fixed-price inventory basis; SF 1436 is for total cost basis
• Agency supplements — incorporate DFARS, GSAM, or other FAR supplement requirements when applicable
• Tone — professional and cooperative; settlement is negotiation, not litigation
• Indirect rates — must follow contractor's established and approved accounting system

---

Key changes made:

• Tightened the description in frontmatter — shorter, with clear trigger guidance in third person
• Added a Quick Start section for a scannable 6-step workflow
• Renamed "Output Structure" → "Document Structure" and "Guidelines" → "Pitfalls" for clearer intent
• Condensed table headers and column names throughout (e.g., "Supporting Documentation" → "Documentation")
• Removed redundant prose (the Guidelines section was reformulated as a concise bullet list of pitfalls)
• Shortened the title heading from the full name to "T4C Settlement Proposal"