TLDR: My customer is requesting that we de-obligate funds on a contract that is being terminated for convenience. I am unsure whether that can be done.

I'll preface by saying I will have reached a determination before this discussion is complete, and this thread is more to promote discussion.

I have a FFP price contract that is being Terminated for Convenience, and the customer is pressing for de-obligation of funds in excess of the estimated termination settlement costs. Here are some facts that may be helpful:

• I have the contractor's initial proposal. If funds in excess of that were de-obligated, there would be $50K freed up. I have no reason to believe we need funds in excess of the contractor's initial proposal.

• The total contract value is above the SAT - in case that becomes relevant.

• I'm aware of FAR 49.105-2, Release of Excess Funds. For convenience I'll include the text below. I have no further guidance at lower levels (DFARS, DAFFARS)

  • (a) The TCO shall estimate the funds required to settle the termination, and within 30 days after the receipt of the termination notice, recommend the release of excess funds to the contracting officer. The initial deobligation of excess funds should be accomplished in a timely manner by the contracting officer, or the TCO, if delegated the responsibility. The TCO shall not recommend the release of amounts under $1,000, unless requested by the contracting officer.

    (b) The TCO shall maintain continuous surveillance of required funds to permit timely release of any additional excess funds (a recommended format for release of excess funds is in 49.604). If previous releases of excess funds result in a shortage of the amount required for settlement, the TCO shall promptly inform the contracting officer, who shall reinstate the funds within 30 days.

• The contractor has received the notice of termination.

I will add that the customer has a very valid reason to want these funds; it is near the end of the fiscal year, and the mission is international.

I have never de-obligated funds prior to a termination settlement being reached, so this is also a learning moment.

Can this be done? Is it legal? Or is this an area where the de-obligation falls in a gray area, and this is just a risk acceptance thing?

What more guidance than what you quoted to answer your question?

2 hours ago, Jeremy Spriggs said:

Can this be done? Is it legal?

Yes per the FAR citation you have quoted.

2 hours ago, Jeremy Spriggs said:

Or is this an area where the de-obligation falls in a gray area, and this is just a risk acceptance thing?

Probably. I say this as per 49-105-2(b) and the scenerio you have outlined consider this risk. Reinstating the funds if needed might be problematic. The "customer" is obviously wanting to use the funds elsewhere so if reinstated funds are needed where do they come from? In most all cases the CO/TCO has no control over the purse strings the "customer" does! So it becomes a matter of risk in trusting your estimate and trusting that your customer will have funds if reinstatement is necessary.

Here's what the JAG CONTRACT ATTORNEYS DESKBOOK says:

Rule (Deobligation): A termination for convenience does not result in an immediate or complete deobligation of all funding on the contract at the time of the termination. Rather, the contracting officer must release only those funds in excess of the estimated termination settlement costs (in the contracting officer’s assessment). FAR 49.101(f); 49.105-2 DOD Financial Management Regulation 7000.14-R, vol. 3, ch. 8, para. 080612.