RFO Rulemaking Proposes Shorter Deadlines for Contractors to Submit Termination Settlement Proposals

Background

On April 15, 2025, President Donald Trump issued Executive Order (E.O.) 14275, Restoring Common Sense to Federal Procurement, “to create the most agile, effective, and efficient procurement system possible.” E.O. 14275 explained that the Federal Acquisition Regulation (FAR) “has swelled to more than 2,000 pages of regulations, evolving into an excessive and overcomplicated regulatory framework and resulting in an onerous bureaucracy.” The policy focus is “[r]emoving undue barriers, such as unnecessary regulations, while simultaneously allowing for the expansion of the national and defense industrial bases is paramount.” E.O. 14275 directed the FAR Council and Office of Management and Budget (OMB) to create an efficient set of procurement regulations that contains only provisions required by statute or essential to sound acquisition strategies.

On June 23, 2026, as part of the Revolutionary FAR Overhaul (RFO) process, the FAR Council issued four separate proposed rules to amend various parts of the FAR to implement E.O. 14275. One of the proposed rules is titled Federal Acquisition Regulation: Revolutionary Federal Acquisition Regulation Overhaul Parts 3 and 49, FAR Case 2026-007.

In our first GT Alert concerning the RFO Rulemaking, we discussed the proposed FAR CUI Rule, contained in RFO Part 40.

In this second GT Alert concerning the RFO Rulemaking, we discuss the proposed changes to FAR Part 49. Comments on the proposed rule are due by July 23, 2026.

Key Proposed Changes to FAR Part 49

• FAR Part 49 prescribes policies and procedures for terminating contracts, whether for convenience or for default. Related procedures include the settlement of terminated work, submission of settlement proposals, disposition of inventory, and the role of the termination contracting officer. The proposed RFO rule frames the Part 49 revisions as part of a broader effort to streamline the FAR and reduce unnecessary regulatory burdens, while preserving the core termination framework.

Compressed Deadlines for Termination Settlement Proposals and Inventory Schedules

The most significant substantive change in the proposed RFO rule for Part 49 is the proposal to significantly shorten certain termination-related submission deadlines. This will generally require contractors that are terminated for convenience to mobilize accounting, subcontractor, inventory, and legal resources much more expeditiously than under the current FAR provision.

Critically, contractors must keep these potentially new deadlines in mind because the failure to timely submit a termination settlement proposal or extension request will result in the contracting officer issuing a unilateral determination and the contractor losing the right to appeal that determination.

In the following chart, we summarize key deadlines affected under the proposed RFO rule:

Risk-Based Audits of Settlement Proposals

A second significant change is the RFO’s proposed revision to FAR 49.107. Currently, FAR 49.107 requires the Termination Contracting Officer (TCO) to refer each prime contractor settlement proposal valued at or above the certified cost or pricing data threshold in FAR 15.403-4(a)(1) to the appropriate audit agency for review and recommendations, while leaving proposals under the certified cost and pricing data threshold to the TCO’s discretion. The proposed revision would remove the mandatory audit trigger and instead require the TCO to assess whether an audit is needed based on risk.

FAR Part 52 Conforming Changes Tied to Part 49

The proposed rule would revise the termination clauses at FAR 52.249-2 (Termination for Convenience of the Government (Fixed-Price)), 52.249-3 (Termination for Convenience of the Government (Dismantling, Demolition, or Removal of Improvements)), 52.249-5 (Termination for Convenience of the Government (Educational and Other Nonprofit Institutions)), and 52.249-6 (Termination (Cost-Reimbursement)) to conform to the shorter timeframes for submitting termination settlement proposals and inventory schedules. These proposed conforming clause changes are important because the tighter deadlines would operate through the contract clauses actually incorporated into contracts.

Takeaways

• The proposed FAR termination deadline revisions are the primary operational risk for contractors; a one-year process could become a 90-day sprint if no extension is granted.
• Risk-based audits may accelerate some settlements, but contractors should not assume audit reviews will disappear in complex, high-dollar, or poorly documented terminations. Contractors should be prepared to support why a proposal is low-risk, well-documented, and suitable for resolution without an audit. Conversely, where an audit is likely, contractors should assume that the proposed compressed deadlines would make early documentation and cost segregation even more important.
• If the rule becomes final, contractors should consider:

1. Updating termination playbooks, so that accounting, program, supply chain, contract, and legal teams know the proposed 90-day, 60-day, and 30-day milestones.
2. Reviewing and updating subcontract templates to align with the new deadlines.
3. Developing an extension-request template that can be submitted quickly if a termination is complex, involves many subcontractors, or requires extended inventory reconciliation.
4. Coordinating with subcontractors early to ensure timely and complete submissions.
5. Beginning inventory identification and disposition planning immediately.
6. Preserving contemporaneous cost records and segregating termination-related costs at the outset of a termination because the compressed deadlines can reduce the contractor’s ability for later cost reconstruction efforts.

• Comments are due by July 23, 2026, and contractors should consider whether the proposed timing is workable in complex supply-chain or subcontract environments.