Can I include profit in my T4C settlement claim?

Yes. You can claim profit in a T4C settlement proposal, within limits established by FAR 49.202.

Profit in a T4C settlement is not the same as the margin in your original contract. It is a negotiated amount based on work actually performed before termination, calculated separately from your original contract profit rate.

What FAR 49.202 says: The TCO must allow profit when it is appropriate to recognize contractor risk and effort. Relevant factors include: difficulty and complexity of the work, the degree of risk the contractor assumed, quality of performance, and the contractor's investment in labor, facilities, and expertise.

What to expect: Most TCOs reference the weighted guidelines methodology in FAR 15.404-4 as a starting point. For small business service contracts, a profit rate of 8–12% on allowable direct and indirect costs is typical and defensible. Higher rates require additional justification.

What profit does not apply to: Settlement expenses (accounting, legal, clerical costs incurred to prepare the proposal) do not carry profit. Unallowable costs under FAR Part 31 also do not carry profit.

How to present it: On SF 1436, profit appears as a separate line item after total allowable costs and before settlement expenses. Include a brief narrative explaining why your rate is appropriate given the nature and complexity of the work.

A common mistake: not claiming profit because it feels uncomfortable to do so. If you did the work, you earned the profit. The government expects you to claim it.

RELATED GUIDES

• → Recoverable costs in a T4C settlement
• → Overhead rates in T4C settlements
• → What is a FAR 49.206 settlement proposal?