41 U.S.C. § 106 : US Code - Section 106: Basis for settlement of termination claims

Search 41 U.S.C. § 106 : US Code - Section 106: Basis for settlement of termination claims

(a) Priority to private contractors
It is the policy of the Government, and it shall be the
responsibility of the contracting agencies and the Administrator of
General Services to provide war contractors with speedy and fair
compensation for the termination of any war contract, in accordance
with and subject to the provisions of this chapter, giving priority
to contractors whose facilities are privately owned or privately
operated. Such fair compensation for the termination of
subcontracts shall be based on the same principles as compensation
for the termination of prime contracts.
(b) Establishment of methods and standards
Each contracting agency shall establish methods and standards,
suitable to the conditions of various war contractors, for
determining fair compensation for the termination of war contracts
on the basis of actual, standard, average, or estimated costs, or
of a percentage of the contract price based on the estimated
percentage of completion of work under the terminated contract, or
on any other equitable basis, as it deems appropriate. To the
extent that such methods and standards require accounting, they
shall be adapted, so far as practicable, to the accounting systems
used by war contractors, if consistent with recognized commercial
accounting practice.
(c) Conclusiveness of settlement
Any contracting agency may settle all or any part of any
termination claim under any war contract by agreement with the war
contractor, or by determination of the amount due on the claim or
part thereof without such agreement, or by any combination of these
methods. Where any such settlement is made by agreement, the
settlement shall be final and conclusive, except (1) to the extent
otherwise agreed in the settlement; (2) for fraud; (3) upon
renegotiation to eliminate excessive profits under section 1191 of
Appendix to title 50, unless exempt or exempted under such section;
or (4) by mutual agreement before or after payment. Where any such
settlement is made by determination without agreement, it shall
likewise be final and conclusive, subject to the same exceptions as
if made by agreement, unless the war contractor appeals or brings
suit in accordance with section 113 of this title: Provided, That
no settlement agreement hereunder involving payment to a war
contractor of an amount in excess of $50,000 (or such lesser amount
as the Administrator of General Services may from time to time
determine) shall become binding upon the Government until the
agreement has been reviewed and approved by a settlement review
board of three or more members established by the contracting
agency in the bureau, division, regional or district office, or
other unit of the contracting agency authorized to make such
settlement, or in the event of disapproval by the settlement review
board, unless approved by the head of such bureau, division,
regional or district office, or other unit. Failure of the
settlement review board to act upon any settlement within thirty
days after its submission to the board shall operate as approval by
the board. The sole function of settlement review boards shall be
to determine the over-all reasonableness of proposed settlement
agreements from the point of view of protecting the interests of
the Government. In determining, for purposes of this subsection,
whether review of any settlement agreement is required because of
the amounts involved, no deduction shall be made on account of
credits for property chargeable to the Government or for advance or
partial payments, but amounts payable under such settlement
agreement for completed articles or work at the contract price and
for the discharge of the termination claims of subcontractors shall
be deducted.
(d) Allowable costs
Except as hereinafter provided, the methods and standards
established under subsection (b) of this section for determining
fair compensation for termination claims which are not settled by
agreement shall be designed to compensate the war contractor fairly
for the termination of the war contract, taking into account -
(1) the direct and indirect manufacturing, selling and
distribution, administrative and other costs and expenses
incurred by the war contractor which are reasonably necessary for
the performance of the war contract and properly allocable to the
terminated portion thereof under recognized commercial accounting
practices; and
(2) reasonable costs and expenses of settling termination
claims of subcontractors related to the terminated portion of the
war contract; and
(3) reasonable accounting, legal, clerical, and other costs and
expenses incident to termination and settlement of the terminated
war contract; and
(4) reasonable costs and expenses of removing, preserving,
storing and disposing of termination inventories; and
(5) such allowance for profit on the preparations made and work
done for the terminated portion of the war contract as is
reasonable under the circumstances; and
(6) interest on the termination claim in accordance with
subsection (f) of this section; and
(7) the contract price and all amounts otherwise paid or
payable under the contract.
The following shall not be included as elements of cost:
(i) Losses on other contracts, or from sales or exchanges of
capital assets, fees and other expenses in connection with
reorganization or recapitalization, antitrust or Federal income-
tax litigation, or prosecution of Federal income-tax claims or
other claims against the Government (except as provided in
paragraph (3) of this subsection); losses on investments;
provisions for contingencies; and premiums on life insurance
where the contractor is the beneficiary.
(ii) The expense of conversion of the contractor's facilities
to uses other than the performance of the contract.
(iii) Expenses due to the negligence or willful failure of the
contractor to discontinue with reasonable promptness the
incurring of expenses after the effective date of the termination
notice.
(iv) Costs incurred in respect to facilities, materials, or
services purchased or work done in excess of the reasonable
quantitative requirements of the entire contract.
The failure specifically to mention in this subsection any item
of cost is not intended to imply that it should be allowed or
disallowed. The Administrator of General Services may interpret the
provisions of this subsection and may provide for the inclusion or
exclusion of other costs in accordance with recognized commercial
accounting practice.
Where the small size of claims or the nature of production or
performance or other factors make it impracticable to apply the
principles stated in this subsection to any class of settlements
which are subject to this subsection, the contracting agencies may
establish alternative methods and standards for determining fair
compensation for that class of termination claims. The aggregate
amount of compensation allowed in accordance with this subsection
(excluding amounts allowed under paragraphs (3) and (4) of this
subsection) shall not exceed the total contract price reduced by
the amount of payments otherwise made or to be made under the
contract.
(e) Settlement by agreement
In order to carry out the objectives of this chapter, termination
claims shall be settled by agreement to the maximum extent feasible
and the methods and standards established under subsection (b) of
this section shall be designed to facilitate such settlements. To
the extent that he deems it practicable to do so without impeding
expeditious settlements, the Administrator of General Services
shall require the contracting agencies to take into account the
factors enumerated in subsection (d) of this section in
establishing methods and standards for determining fair
compensation in the settlement of termination claims by agreement.
(f) Interest
Each contracting agency shall allow and pay interest on the
amount due and unpaid from time to time on any termination claim
under a prime contract at the rate of 2 1/2 per centum per annum
for the period beginning thirty days after the date fixed for
termination and ending with the date of final payment, except that
(1) if the prime contractor unreasonably delays the settlement of
his claim, interest shall not accrue for the period of such delay,
(2) if interest for the period after termination on any advance
payment or loan, made or guaranteed by the Government, has been
waived for the benefit of the contractor, the amount of the
interest so waived allocable to the terminated contract or the
terminated part of the contract shall be deducted from the interest
otherwise payable hereunder, and (3) if after delivery of findings
by a contracting agency, the contractor appeals or sues as provided
in section 113 of this title, interest shall not accrue after the
thirtieth day following the delivery of the findings on any amount
allowed by such findings, unless such amount is increased upon such
appeal or suit. In approving, ratifying, authorizing, or making
termination settlements with subcontractors, each contracting
agency shall allow interest on the termination claim of the
subcontractor on the same basis and subject to the same conditions
as are applicable to a prime contractor.
(g) Amendment of contracts
Where any war contract does not provide for or provides against
such fair compensation for its termination, the contracting agency,
either before or after its termination, shall amend such war
contract by agreement with the war contractor, or shall authorize,
approve, or ratify an amendment of such war contract by the parties
thereto, to provide for such fair compensation.