What costs can I recover in a T4C settlement?

FAR 49.206-2 establishes what a T4C settlement proposal must include. Understanding these categories determines how much you can recover.

Direct costs: Labor, materials, subcontractor costs, and other direct charges incurred before the termination date. These must be supported by your accounting records — timesheets, invoices, purchase orders. Only costs incurred up to the effective termination date are recoverable; costs after that date (other than settlement expenses) are generally not allowable.

Indirect costs: Overhead and G&A expenses applied at your established indirect cost rates. If you have negotiated forward pricing rates, use those. If not, use your actual rates for the period, supported by your accounting records.

Profit: Under FAR 49.202, you can claim profit on work performed and accepted. Profit is negotiated with the TCO based on the risk you assumed, quality of performance, and your investment in the work. A defensible range for most small business T4C settlements is 8–12% on allowable direct and indirect costs.

Settlement expenses: Costs you incur specifically to prepare and negotiate your settlement proposal are recoverable. This includes reasonable accounting costs (CPA fees to compile cost data), legal costs, and clerical costs directly tied to settlement preparation. T4CClaim's $499 fee is a settlement expense you can include in your proposal.

Subcontractor costs: Pass-through amounts representing your subcontractors' own settlement proposals. You must terminate subs in writing and obtain their settlement proposals before including their amounts.

What you cannot recover: Any cost that is unallowable under FAR Part 31 — entertainment, lobbying, advertising unrelated to the contract, penalties and fines, and costs you did not actually incur.

RELATED GUIDES

• → Profit in a T4C settlement
• → Overhead rates in T4C settlements
• → FAR Part 31 allowable costs