As part of the Revolutionary FAR Overhaul, the FAR Council has issued a proposed rule to revise FAR Part 49, Termination of Contracts, that would significantly accelerate the timeline for submitting termination settlement proposals following a termination for convenience.  Under the proposed rule, contractors would be required to submit termination settlement proposals to the contracting officer within 90 days after termination—nine months earlier than the current one-year deadline.  According to the FAR Council, the change is intended “to improve the efficiency of the settlement process by addressing delays experienced under the current framework.” 

Notably, the proposed rule does not reduce the information required in a termination settlement proposal.  Within 90 days of termination, contractors would still need to collect and validate cost data, develop profit positions, identify and dispose of inventory, and quantify all subcontractor costs, which requires resolution of all subcontractor claims and subcontractor termination settlement proposals.  For many contracts, particularly large programs involving multiple tiers of subcontractors or substantial inventory, completing these tasks within the 90-day timeline may prove difficult. 

The compressed timeline may also create risks for both contractors and the government.  For example, contractors might find themselves forced to negotiate subcontractor settlements prematurely or submit proposals based on incomplete accounting data.  In some cases, contractors might feel pressure to include estimated or protective amounts to account for unresolved subcontractor disputes or uncertain costs, increasing potential exposure under the False Claims Act.  At the same time, contracting officers may face additional administrative burdens as they decipher evolving or incomplete termination settlement proposals, process repeated extension requests, and resolve disputes arising from competing efforts to preserve rights before the deadline expires.  The proposed rule risks turning a process designed to facilitate negotiated settlements and efficient contract closeout into one that creates additional disputes and litigation.

If the proposed 90-day deadline is implemented in the final rule for FAR Part 49, contractors may want to revisit their termination response procedures and ensure they can quickly assemble cross-functional teams involving contracts, accounting, supply chain, and legal personnel.  Contractors may also consider reviewing subcontract terms to confirm that subcontractors can provide timely cost and settlement information in the event of a termination.

Commercial Products and Services

As a practical matter, the proposed 90-day timeline may also impact termination settlement timelines for contracts for commercial products or services.  Terminations of contracts for commercial products or services are governed by FAR Part 12.403, not FAR Part 49, so the proposed change does not directly affect those contracts.  However, FAR 12.403 does not establish a timeline for submission of termination settlement proposals and provides that contracting officers may look to FAR Part 49 for guidance.  As a result, commercial item contractors typically have sought to submit their termination settlement proposals within the one-year period provided in FAR Part 49.  The RFO model deviation for FAR Part 12 removes the suggestion to look to FAR Part 49 for guidance, but contracting officers retain the discretion to determine termination settlement proposal requirements on a contract-by-contract basis and may be influenced by the 90-day timeline.  It will be important for commercial products and services contractors to obtain an understanding with the contracting officer of when termination settlement proposals must be submitted.

The proposed rule also includes the following related changes to FAR Part 49:

  • Extension requests:  The deadline to request an extension to the termination settlement proposal deadline is shortened from one year to 60 days after termination.
  • Inventory disposal schedules:  The deadline to submit inventory disposal schedules is reduced from 120 days to 60 days after termination.
  • Subcontractor settlement proposals:  The recommended deadline for subcontractors to submit termination settlement proposals is shortened from 6 months to 30 days after termination.
  • Audits:  Termination settlement proposal audits would no longer be mandatory for proposals that exceed the threshold for certified cost and pricing data.  Rather, the contracting officer would first conduct a risk-based assessment to determine whether an audit is needed before referring the proposal to the audit agency.  This change potentially allows for quicker final payment and resolution, but the intended efficiency gains may be offset if the 90-day submission deadline results in a higher volume of incomplete or hastily prepared submissions.

The public comment period for the proposed rule is open through July 23, 2026.

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Photo of Frederic Levy Frederic Levy

Fred Levy is senior counsel in the firm’s Government Contracts and White Collar Defense and Investigations Practice Groups. He is a leading suspension and debarment lawyer, focusing his practice on the resolution of complex compliance and ethics issues. He has successfully represented numerous…

Fred Levy is senior counsel in the firm’s Government Contracts and White Collar Defense and Investigations Practice Groups. He is a leading suspension and debarment lawyer, focusing his practice on the resolution of complex compliance and ethics issues. He has successfully represented numerous high-profile corporations and individuals under investigation by the government in civil and criminal matters, including False Claims Act cases, and in suspension and debarment proceedings to ensure their continued eligibility to participate in federal programs. He has also conducted numerous internal investigations on behalf of corporate clients and advises corporations on voluntary or mandatory disclosures to federal agencies. Fred regularly counsels clients on government contract performance issues, claims and terminations, and litigates matters before the boards of contract appeals and in the Federal Circuit.

Related to his work involving program fraud, Fred counsels clients in the area of contractor “responsibility.” He is involved in the development and implementation of contractor ethics and compliance programs that meet the standards of the Federal Acquisition Regulation, Federal Sentencing Guidelines, and Sarbanes-Oxley, and he regularly conducts ethics and compliance training.

Fred is a principal editor of Guide to the Mandatory Disclosure Rule, and of The Practitioner’s Guide to Suspension and Debarment, 4th Edition. He is a vice-chair of the Debarment and Suspension Committee of the ABA Public Contract Law Section, and a former co-chair of that committee and of the Procurement Fraud Committee. He is a graduate of Columbia College and Columbia Law School.

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Photo of Elizabeth Witwer Elizabeth Witwer

Elizabeth Witwer represents government contractors litigating contract claims and performance disputes against the U.S. government and other contractors, such as claims under the Contract Disputes Act (CDA), defective pricing claims, cost-allowability disputes, prime-sub disputes, and matters involving termination for convenience and breach of…

Elizabeth Witwer represents government contractors litigating contract claims and performance disputes against the U.S. government and other contractors, such as claims under the Contract Disputes Act (CDA), defective pricing claims, cost-allowability disputes, prime-sub disputes, and matters involving termination for convenience and breach of contract. She litigates cases in a variety of venues, including the Boards of Contract Appeals and the U.S. Court of Federal Claims (COFC).

Elizabeth joined the firm after serving as an Administrative Judge on the Armed Services Board of Contract Appeals (ASBCA), where she was responsible for adjudicating disputes arising under the CDA between contractors and federal agencies, including the Department of Defense, NASA, and the CIA.

Prior to serving at the ASBCA, Elizabeth held overlapping positions at the U.S. Government Accountability Office (GAO) as a Senior Attorney in the Procurement Law Division and as a member of GAO’s Contract Appeals Board. In these roles, she dual-hatted as adjudicator of bid protests challenging federal procurements and presided over contract disputes between contractors and legislative branch agencies.

Earlier in her career, Elizabeth served as a Trial Attorney in the Civil Division of the Department of Justice, where she defended the United States and federal agencies in contract, employment, and constitutional disputes before the U.S. Court of Appeals for the Federal Circuit and the COFC. She also served on active duty in the U.S. Army as counsel to the Army’s Legal Services Agency and the 4th Infantry Division on procurement matters and contract litigation, including while deployed to Iraq.

In addition to her legal practice, Elizabeth is a Colonel in the U.S. Army Reserve. 

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Photo of Evan Matsuda Evan Matsuda

Evan Matsuda is an associate in the firm’s Washington, DC office and a member of the firm’s Government Contracts Practice Group. He assists clients on a broad range of issues, with a focus on bid protest litigation, contractor tort defenses, and regulatory compliance…

Evan Matsuda is an associate in the firm’s Washington, DC office and a member of the firm’s Government Contracts Practice Group. He assists clients on a broad range of issues, with a focus on bid protest litigation, contractor tort defenses, and regulatory compliance matters.

Evan represents clients in bid protest litigation at the Government Accountability Office and the U.S. Court of Federal Claims, both as protester and defendant-intervenor. He has experience with bid protest procedures for negotiated procurements, task and delivery orders, and other transactions authority (OTA) awards. Evan also defends government contractors against tort claims in federal court, including based on the government contractor defense, federal preemption, and derivative sovereign immunity.

In addition to his litigation practice, Evan has experience counseling clients on labor law compliance, ethics regulations, and risks associated with supplier diversity programs. He also assists clients responding to public records requests under state and federal public records laws. Evan also maintains an active pro bono practice focused on international law and security.

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