§ 106. — Basis for settlement of termination claims.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 41USC106]
TITLE 41--PUBLIC CONTRACTS
CHAPTER 2--TERMINATION OF WAR CONTRACTS
Sec. 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.
(July 1, 1944, ch. 358, Sec. 6, 58 Stat. 652; Ex. Ord. No. 9809, Sec. 8,
eff. Dec. 12, 1946, 11 F.R. 14281; 1947 Reorg. Plan No. 1, Sec. 201,
eff. July 1, 1947, 12 F.R. 4534, 61 Stat. 951; June 30, 1949, ch. 288,
title I, Sec. 102(b), 63 Stat. 380.)
References in Text
Section 1191 of the Appendix to title 50, referred to in subsec.
(c), was omitted from the Code. See note set out under section 1191 of
Title 50, Appendix, War and National Defense.
Transfer of Functions
Functions of Secretary of the Treasury transferred to Administrator
of General Services by section 102(b) of act June 30, 1949, ch. 288, 63
Stat. 380, which was classified to section 752(b) of former Title 40,
Public Buildings, Property, and Works, and was repealed by Pub. L. 107-
217, Sec. 6(b), Aug. 21, 2002, 116 Stat. 1304.
``Secretary'' substituted for ``Director'' by section 8 of Ex. Ord.
No. 9809 and section 201 of Reorg. Plan No. 1 of 1947. Reorg. Plan No. 1
of 1947 is set out in the Appendix to Title 5, Government Organization
and Employees.
Effective Date of Transfer of Functions
Transfer of functions by act June 30, 1949, effective July 1, 1949,
see section 605, formerly section 505, of act June 30, 1949, ch. 288, 63
Stat. 403; renumbered by act Sept. 5, 1950, ch. 849, Sec. 6(a), (b), 64
Stat. 583.
Application to Terminated War Contracts
For application of this section to war contracts terminated at or
before July 21, 1944, see section 124 of this title.
Settlement of Claims for War Contract Losses Incurred Between September
16, 1940, and August 14, 1945
Act Aug. 7, 1946, ch. 864, 60 Stat. 902, as amended by June 25,
1948, ch. 646, Sec. 37, 62 Stat. 992; Aug. 30, 1954, ch. 1076,
Sec. 1(2), 68 Stat. 966, provided that if work, supplies, or services
were provided for any department or agency of the Government, under a
contract or subcontract, between Sept. 16, 1940, and Aug. 14, 1945, and
a loss was incurred by the contractors or subcontractors without fault
or negligence on their part, then those departments or agencies were
authorized to adjust and settle these losses on a fair and equitable
basis, if claims were filed within six months after Aug. 7, 1946, and
granted claimants dissatisfied with the settlement the right of judicial
review.
Section Referred to in Other Sections
This section is referred to in sections 107, 113, 124 of this title.
