should be made to the greatest extent feasible without interference with procurement operations. Such use is especially important in cases where a new contract will take the place of one that has been terminated, so as to integrate the two transactions.

(d) Property disposal organizations. The settlement of terminated contracts and the disposition of property allocable thereto are related but separate functions requiring operating personnel experienced in widely different fields. Whether property disposal specialists are to operate under the control of contracting officers or under separate organizations within the procuring agency is to be determined by the agency concerned and depends largely upon the volume of property involved, the magnitude of the problems presented, and the requirements of good administration.

(e) Decentralization. Many of the operations preliminary to the negotiation of settlement agreements will necessarily be performed by field personnel. In deciding to what extent authority for termination settlements should be decentralized, each procuring agency must consider not only the convenience of contractors and the interests of speedy settlement but the judicious use of its qualified personnel.

PART 8001-REVIEW OF CONTRACT TERMINATION SETTLEMENTS

Sec. 8001.1

General principles.

8001.2 Scope and applicability. 8001.3 Administrative review.

AUTHORITY: §§ 8001.1 to 8001.3, inclusive, issued under E.O. 9347; 3 CFR Cum. Supp.

SOURCE: §§ 8001.1 to 8001.3, inclusive, contained in Directive Order 5, Office of War Mobilization, May 2, 1944, 9 F.R. 5194.

§ 8001.1 General principles. (a) The policy of the Joint Contract Termination Board is to encourage the fullest practicable use of negotiation as the method of settling terminated contracts in the interest of speed in settlement and fairness to both parties. Each procuring agency shall make every reasonable effort to arrive at negotiated settlements and shall endeavor at all times to guard against the failure of negotiations because of arbitrary or erroneous decisions by individuals authorized to represent the agency in settlement negotiations. Settlement agreements once

made should be final and not subject to reopening except for fraud.

(b) A proper degree of control over such settlements must, however, be provided for the protection of the Government's interests. The review procedure set forth below is designed to provide the minimum standards to be observed by all procuring agencies. To the extent that it may be feasible to do so without materially slowing the settlement process, procuring agencies may extend the controls afforded by the review procedure beyond the requirements of these minimum standards. The primary objective of promptness in settlement must not be lost sight of, and review of smaller settlements must not be required at the expense of that objective.

§ 8001.2 Scope and applicability. (a) The terms "procuring agency" and "agency", as used in this statement of policy, refer specifically to the War, Navy and Treasury Departments, the Maritime Commission, Defense Plant Corporation, Defense Supplies Corporation, Metals Reserve Company, Rubber Reserve Company, and Foreign Economic Administration.

(b) The policies and procedures set forth herein shall apply to war contracts terminated other than for default. Any agency, however, may exempt from such policies and procedures contracts in any of the following categories;

(1) Contracts with instrumentalities of the Government or with States, Territories or possessions of the United States or instrumentalities thereof;

(2) Contracts with a foreign government;

(3) Contracts to be substantially performed outside the territorial limits of the continental United States.

§ 8001.3 Administrative review. (a) Each procuring agency shall establish one or more settlement review boards, which shall be decentralized to the maximum practicable extent. No negotiated settlement agreement providing for payment to any prime contractor, or to any subcontractor, of an amount in excess of $50,000, as determined in paragraph (b) below, shall be permitted to become binding upon the Government until the proposed settlement has been reviewed and approved by such a board or, in the event of its disapproval, until approved by the head of the procuring agency or such representative as he may designate for that purpose. More than one such

approval shall not be required generally with respect to any settlement agreement, but this shall not prevent any procuring agency from providing such headquarters review as it may deem desirable in the case of exceptionally large settlements. Contracting officers may be permitted to submit for such review and approval as the procuring agency may specify any proposed settlement agreements which they consider doubtful. Property disposal boards, if established within the agency, may be utilized in lieu of settlement review boards for the review of property disposal transactions involved in settlements.

(b) In determining for review purposes whether any proposed settlement of a prime contract or of a subcontract exceeds $50,000, any amounts credited on account of the disposition of property shall not be deducted from the amount of the settlement, but there shall be excluded (1) amounts payable for completed articles or work at the contract price, and (2) amounts payable for the discharge of all claims of subcontractors or suppliers under such prime contract or subcontract, as the case may be.

(c) In the case of terminated cost plus fixed fee prime contracts and terminated cost plus subcontracts where reimbursement of the costs is made after appropriate audit, the foregoing rules will be inapplicable. Each procuring agency shall, however, prescribe such requirements in respect to the review of adjustments in fixed fees as it deems desirable.

(d) It shall be the function of settlement review boards to determine the over-all reasonableness of proposed settlements from the standpoint of protecting the Government's interests. Such boards may act upon records submitted by contracting officers or may require the submission of additional information.

PART 8002-UNIFORM TERMINATION ARTICLE FOR FIXED PRICE SUPPLY PRIME CONTRACTS

to have the Article included in existing contracts.

UNIFORM TERMINATION ARTICLE FOR FIXED
PRICE SUPPLY CONTRACTS

ARTICLE. Termination at the option of the Government. (a) The performance of work under this contract may be terminated by the Government in accordance with this Article in whole, or from time to time in part, whenever the contracting officer shall determine any such termination is for the best interests of the Government. Termination of work hereunder shall be effected by delivery to the contractor of a Notice of Termination specifying the extent to which performance of work under the contract shall be terminated, and the date upon which such termination shall become effective. If termination of work under this contract is simultaneous with, a part of, or in connection with, a general termination (1) of all or substantially all of a group or class of contracts made by the De

partment for the same product or for closely related products, or (2) of war contracts at, about the time of, or following, the cessation of the present hostilities, or any major part thereof, such termination shall only be made in accordance with the provisions of this Article, unless the contracting officer finds that the contractor is then in gross or wilful default under this contract.

(b) After receipt of a Notice of Termination and except as otherwise directed by the contracting officer, the contractor shall (1) terminate work under the contract on the date and to the extent specified in the Notice of Termination; (2) place no further orders or subcontracts for materials, services or facilities except as may be necessary for completion of such portions of the work under the contract as may not be terminated; (3) terminate all orders and subcontracts to the extent that they relate to the performance of any work terminated by the Notice of Termination; (4) assign to the Government, in the manner and to the extent directed by the contracting officer, all of the right, title and interest of the contractor under the orders or subcontracts so terminated; (5) settle all claims arising out of such termination of orders and subcontracts with the approval or ratification of the contracting officer to the extent that he may require, which approval or ratification shall be final for all the purposes of this Article; (6) transfer title and deliver to the Government in the manner, to the extent and at the times directed by the contracting officer (1) the fabricated or unfabricated parts, work in process, completed work, supplies and other material produced as a part of, or acquired in respect of the performance of, the work terminated in the Notice of Termination, and (ii) the plans, drawings, information and other property which, if the contract had been completed, would be required to be furnished to the Government; (7) use his best efforts to sell in the manner,

to the extent, at the time, and at the price or prices directed or authorized by the contracting officer, any property of the types referred to in subdivision (6) of this paragraph: Provided, however, That the contractor (i) shall not be required to extend credit to any purchaser and (ii) may retain any such property at a price or prices approved by the contracting officer; (8) complete performance of such part of the work as shall not have been terminated by the Notice of Termination; and (9) take such action as may be necessary or as the contracting officer may direct for protection and preservation of the property, which is in the possession of the contractor and in which the Government has or may acquire an interest.

or

(c) The contractor and the contracting officer may agree upon the whole or any part of the amount or amounts to be paid to the contractor by reason of the total or partial termination of work pursuant to this Article, which amount or amounts may include a reasonable allowance for profit, and the Government shall pay the agreed amount amounts. Nothing in paragraph (d) of this Article prescribing the amount to be paid to the contractor in the event of failure of the contractor and the contracting officer to agree upon the whole amount to be paid to the contractor by reason of the termination of work pursuant to this Article shall be deemed to limit, restrict or otherwise determine or affect the amount or amounts which may be agreed upon to be paid to the contractor pursuant to this paragraph (c).

(d) In the event of the failure of the contractor and contracting officer to agree as provided in paragraph (c) upon the whole amount to be paid to the contractor by reason of the termination of work pursuant to this Article, the Government, but without duplication of any amounts agreed upon in accordance with paragraph (c), shall pay to the contractor the following amounts:

(1) For completed articles delivered to and accepted by the Government (or sold or retained as provided in paragraph (b) (7) above) and not theretofore paid for, forthwith a sum equivalent to the aggregate price for such articles computed in accordance with the price or prices specified in the contract;

(2) In respect of the contract work terminated as permitted by this Article, the total (without duplication of any items) of (i) the cost of such work exclusive of any cost attributable to articles paid or to be paid for under paragraph (d) (1) hereof; (ii) the cost of settling and paying claims arising out of the termination of work under subcontracts or orders as provided in paragraph (b) (5) above, exclusive of the amounts paid or payable on account of supplies or materials delivered or services furnished by the subcontractor prior to the effective date of the notice of termination of work under this contract, which amounts shall be included in the cost on account of

which payment is made under subdivision (1) above; and (iii) a sum equal to

to

-----

1

% of the part of the amount determined under subdivision (1) which represents the cost of articles or materials not processed by the contractor, plus a sum equal % of the remainder of such amount, but the aggregate of such sums shall not exceed 6% of the whole of the amount determined under subdivision (i), which for the purpose of this subdivision (iii) shall exclude any charges for interest on borrowings;

(3) The reasonable cost of the preservation and protection of property incurred pursuant to paragraph (b) (9) hereof; and any other reasonable cost incidental to termination of work under this contract, including expense incidental to the determination of the amount due to the contractor as the result of the termination of work under this contract.

The total sum to be paid to the contractor under subdivisions (1) and (2) of this paragraph (d) shall not exceed the total contract price reduced by the amount of payments otherwise made and by the Contract price or work not terminated. Except for normal spoilage, and to the extent that the Government shall have otherwise expressly assumed the risk of loss, there shall be excluded from the amounts payable to the contractor as provided in paragraph (d) (1) and paragraph (d) (2) (1), all amounts allocable to or payable in respect of property, which is destroyed, lost, stolen or damaged so as to become undeliverable prior to the transfer of title to the Government or to a buyer pursuant to paragraph (b) (7) or prior to the 60th day after delivery to the Government of an inventory covering such property, whichever shall first occur.

(e) The obligation of the Government to make any payments under this article: (1) shall be subject to deductions in respect of (i) all unliquidated partial or progress payments, payments on account theretofore made to the contractor and unliquidated advance payments, (ii) any claim which the Government may have against the contractor in connection with this contract, and (iii) the price agreed upon or the proceeds of sale of any materials, supplies or other things retained by the contractor or sold, and not otherwise recovered by or credited to the Government, and .(2) in the discretion of the contracting officer shall be subject to deduction in respect of the amount of any claim of any subcontractor or supplier whose subcontract or order shall have been terminated as provided in paragraph (b) (3) except to the extent that such claim covers (1) property or materials delivered to the contractor or (ii) services furnished to the contractor in connection with the

1 Not to exceed 2%.

2 To be established at a figure which is fair and reasonable under the circumstances.

production of completed articles under this contract.

(f) In the event that, prior to the determination of the final amount to be paid to the contractor as in this article provided, the contractor shall file with the contracting officer a request in writing that an equitable adjustment should be made in the price or prices specified in the contract for the work not terminated by the Notice of Termination, the appropriate fair and reasonable adjustment shall be made in such price or prices. (g) The Government shall make partial payments and payments on account, from time to time, of the amounts to which the contractor shall be entitled under this Article, whether determined by agreement or otherwise, whenever in the opinion of the contracting officer the aggregate of such payments shall be within the amount to which the contractor will be entitled hereunder.

(h) For the purposes of paragraphs (d) (2) and (d) (3) hereof, the amounts of the payments to be made by the Government to the contractor shall be determined in accordance with the Statement of Principles for Determination of Costs upon Termination of Government Fixed Price Supply Contracts approved by the Joint Contract Termination Board, December 31, 1943 (see Part 8003). The contractor for a period of three years after final settlement under the contract shall make available to the Government at all reasonable times at the office of the contractor all of its books, records, documents, and other evidence bearing on the costs and expenses of the contractor under the contract and in respect of the termination of work thereunder.

[D.O.

(E.O. 9347; 3 CFR Cum. Supp.) 1, Office of War Mobilization, Jan. 8, 1944, 9 F.R. 478]

§ 8002.2 Exceptions to use. (a) The Uniform Termination Article for Fixed Price Supply Contracts, providing for termination at the option of the Government, will be used, from the dates fixed as provided in paragraph (b) of this section, by the War, Navy and Treasury Departments, the Maritime Commission, Defense Plant Corporation, Defense Supplies Corporation, Metals Reserve Company, Rubber Reserve Company and Foreign Economic Administration, in all fixed price contracts made by them for the manufacture in continental United States of war supplies and equipment, unless exempted by the Office of War Mobilization prior to the execution of the contract: Provided, That any such department or agency may elect not to use the article in any of the following classes of contracts:

(1) Contracts for an amount of less than $50,000 regardless of the date of delivery;

(2) Contracts for an amount of less than $500,000 providing for delivery within six months;

(3) Letters of intent and other preliminary contractual arrangements which contemplate the subsequent execution of formal contracts;

(4) Contracts of Governmental departments, agencies and instrumentalities with instrumentalities of the Government or with States or subdivisions or instrumentalities thereof;

(5) Contracts for the purchase of a material which is manufactured either as a by-product or a co-product in an integrated operation from a common raw material source in such manner that the cost of its manufacture is not susceptible of separate determination;

(6) Contacts or purchase orders made in the name of and on behalf of the Government, by a contractor under a cost or cost plus contract with the Government, for the purchase of materials, supplies and equipment required for or in connection with the construction of Government owned plants and facilities;

(7) Contracts, including so-called pool orders and commitment contracts, for the production of materials, supplies and equipment which provide that completed items produced under the contract and furnished to the Government shall be paid for at a price intended to exclude profit;

(8) Requirement or open end contracts.

(b) The article will be used by the agencies and departments mentioned in paragraph (a) of this section in all contracts executed more than thirty days after the publication of the article and statement by the particular department or agency, which publication shall take place as soon as practicable. The earlier use of the article is optional with the department or agency.

(c) Each of the above mentioned departments or agencies will give to holders of existing contracts (exclusive of those within any classes excepted under paragraph (a) of this section) the earliest practicable opportunity, by regulation or otherwise, to amend their contracts to include the article, in substitution for any existing provision for termination thereof without regard to default and for the convenience or at the option of the Government.

(d) Any other department or agency of the Government contracting for the manufacturer of war supplies and equipment in continental United States under fixed price contracts will use the article in such contracts wherever it deems such use to be feasible.

(e) Any department or agency of the Government may embody in any contract a special agreement to pay the contractor, as fair compensation for the termination of the contract, amounts specified in the contract or to be readily computed according to specific methods, standards or bases appropriate to the particular contract and set out therein, in lieu of any other compensation therefor, whenever the department or agency determines (1) that the available data permits a reasonable forecast, consistent with sound commercial standards, of the factors involved in determining what will be fair compensation for termination in the case or class of cases and (2) that such agreement will substantially facilitate settlements, plant clearance, reconversion from war to civilian production or the efficient use of materials, manpower and facilities or will otherwise promote the objectives of the Contract Settlement Act of 1944. Such special agreements may be included in original contracts or may be inserted in contracts by amendment made before their termination; and, when so included or inserted, are hereby determined to provide a method for determining fair compensation for the termination of such contracts. (Secs. 4(b), 8(c), 20(d), 58 Stat. 651, 655, 668; 41 U.S.C., Sup., 104 (b), 108 (c), 120 (d). E.O. 9347; 3 CFR Cum. Supp.) [D.O. 2, Office of War Mobilization, Feb. 24, 1944, 9 F.R. 2251, as amended by Gen. Reg. 3, Office of Contract Settlement, Sept. 27, 1944, 9 F.R. 11854]

§ 8002.3 Policy determinations. To the end of securing uniformity and certainty in the interpretation and operation of the Article, the following general policy determinations are made effective:

(a) Paragraph (b) (4) of the Article provides that the prime contractor shall assign to the Government, in the manner and to the extent directed by the contracting officer, all of the right, title and interest of the prime contractor under the orders or subcontracts terminated by reason of their relationship to the work terminated by the termination notice. This provision was designed to assure

the Government's right to require the transfer to it of the property and rights under the subcontract or order acquired by the prime contractor from his subcontractors through payments for which the prime contractor is reimbursed by the Government. Accordingly, paragraph (b) (4) is not to be construed as requiring transfer to the Government of other rights of the prime contractor against the subcontractor (such as setoffs or counterclaims) for which no Government reimbursement is made to the prime contractor. In this connection, it was recognized in the preparation of the Article that uniform provisions could not be drawn which would provide adequately in all cases for the disposition of patent rights involved in prime contracts or subcontracts, and the Article is not intended to forbid the inclusion in contracts of separate provisions covering the disposition of such rights on termination.

(b) Paragraph (d) (1) of the Article provides that, in the case of a formula settlement, the contractor will be paid in accordance with the price or prices specified in the contract for completed articles delivered to and accepted by the Government (or sold or retained by the contractor under the provisions of the contract). Paragraph (b) (6) requires the contractor to transfer title and deliver to the Government, in the manner, to the extent and at the times directed by the contracting officer, completed work and other property; and paragraph (b) (7) requires the contractor to use his best efforts to sell any such property in the manner, to the extent, at the time and at the price or prices directed or authorized by the contracting officer.

It was the intent of these provisions, considered together, to require the Government, at times determined by the contracting officer in accordance with applicable regulations, to accept delivery of all articles (which do not represent unreasonable anticipation of production schedules) completed in accordance with the provisions of the contract which the contractor had not previously sold or agreed to retain. In the case of a formula settlement, therefore, all such completed articles will be paid for at the contract price in accordance with the provisions of paragraph (d) (1), rather than at their cost in accordance with the provisions of paragraph (d) (2).