What is a settlement proposal under FAR 49.206?

A settlement proposal is the formal document you submit to your Termination Contracting Officer (TCO) requesting payment for costs incurred and profit earned up to the termination effective date. It is the centerpiece of your T4C claim.

What it must include: Under FAR 49.206-2, a total cost basis settlement proposal (SF 1436) must include: (1) direct costs — labor, materials, subcontractor costs — incurred before termination, organized by cost element; (2) indirect costs at your established overhead and G&A rates, with the rate basis explained; (3) settlement expenses — the costs of preparing and negotiating the settlement; (4) profit, calculated under FAR 49.202; (5) credits for any amounts already paid, progress payments, or advances; (6) your total claimed settlement amount.

What makes a proposal defensible: Cost data tied directly to your accounting records. Indirect rates consistent with your prior invoices and pricing agreements. A reasonable profit rate with a brief narrative. Clean subcontractor documentation. FAR citations for any cost items that might face scrutiny.

What happens after submission: The TCO reviews the proposal, may request additional documentation (called a Request for Additional Information, or RAI), and will typically schedule a settlement meeting. You negotiate the final amount. Once agreed, you execute a settlement agreement and the government processes payment.

Timing: Settlement negotiations typically take 90–180 days from proposal submission for straightforward cases. Complex cases with DCAA audits can take 12–24 months.

Certification required: Before submission, you must certify the proposal under FAR 49.207. This is a legal statement that your cost data is accurate and complete.

RELATED GUIDES

• → SF 1435 vs SF 1436
• → Recoverable costs in a T4C settlement
• → What is a TCO?