March 26, 2012
PURPOSE: To provide guidance to all NASA Centers relative to termination liability on NASA contracts.
BACKGROUND: As a result of Government Accountability Office (GAO) Report GAO-11-609R dated 12 July 2011 entitled, “NASA Needs to Better Assess Contract Termination Liability Risks and Ensure Consistency in Its Practices,” the GAO recommended that the Office of Procurement provide additional guidance to all NASA Procurement Offices relative to termination liability.
GUIDANCE: The following guidance is provided to remind all contracting personnel of NASA’s termination liability policies.
Federal procurement policy requires that cost-reimbursable, incrementally-funded contracts contain a “limitation of funds” clause (see Federal Acquisition Regulation (FAR) clause 52.232-22.) For an incrementally-funded, fixed-price contract, the NASA FAR Supplement (NFS) clause 1852.232-77, Limitation of Funds (Fixed-Price Contract), is required. These clauses delineate the amount of funding available on the contract to cover the costs of potential termination liability as well as the costs of performing work on the contract. If the contract is terminated, the clause limits the Government’s liability to the amount of funds obligated on the contract.
NASA relies on the appropriate limitation of funds clause to manage and fund potential contract termination liability. These clauses require contractors to manage their obligations and to include any potential termination liability costs within the allotted contract funding under the limitation of funds clause. Thus, contractors are required to include potential termination liability costs, as well as the costs of performing work on the contract, in their incremental funding estimates submitted in accordance with the limitation of funds clause. When reviewing incremental funding estimates, contracting officers, should ensure contractors understand that the amount in the limitation of funds clause covers potential termination liability.
Further, NASA personnel shall adhere to
the clause language and not commit to or suggest that termination costs will be
covered outside the funds obligated on the contract at the time of
EFFECTIVE DATE: This PIC is effective as dated and shall remain in effect until cancelled or incorporated in the NASA FAR Supplement.
HEADQUARTERS CONTACT: William Roets, Contract Management Division, (202) 358-4483, email: firstname.lastname@example.org.
William P. McNally
Assistant Administrator for Procurement