Will Contractors Really Have Only 90 Days to File Termination Settlement Proposals in 2026?

According to GSA guidelines in FAR Part 49, termination for convenience is designed to compensate a contractor for work performed, reasonable costs, and a fair settlement of the terminated portion. The 2026 proposal matters because it compresses the document-gathering window that many contractors currently use to reconcile labor, materials, subcontractor invoices, and settlement expenses. Under existing FAR Part 49 procedures, the default filing period is measured in months, not weeks, so a 90-day clock would force much earlier internal closeout. That change would hit the contractors least prepared for it: small businesses, first-time federal awardees, and firms with long supply chains. The SBA does not set the deadline, but it will feel the impact because smaller contractors often rely on fewer accounting staff and slower subcontractor response times. DoD contractors and vendors in CMMC-covered environments should also expect stricter record retention, because termination packages often depend on source documentation that overlaps with cybersecurity and audit controls. In practice, the proposal rewards contractors that already treat closeout as a live compliance process, not a post-termination scramble.

Per FAR Part 49 and GAO’s explanation of termination, a termination settlement proposal is not a simple invoice; it is a supported request for compensation tied to allowable costs and contract-specific facts. GAO explains that when the government terminates a contract, the contractor still needs to show what was purchased, what work was completed, and what commitments remain to be reconciled. That is why the deadline is so consequential. A contractor that waits until day 75 to start collecting inventory records, subcontractor releases, and indirect cost data may discover that the settlement package is incomplete before the 90-day window closes. OMB’s broader emphasis on documentation discipline, reflected in Circular A-123 internal controls expectations, reinforces the same lesson: if the record is not built as you go, the post-award cure is expensive and uncertain. The proposed rule would not eliminate settlement rights, but it would make them much easier to lose, delay, or compress into a less favorable government-determined outcome under FAR 49.109-7.

According to the June 23, 2026 Federal Register proposal, the FAR Council is trying to accelerate contract closeout and reduce stale termination files that sit open for months or years. That policy goal is consistent with acquisition reform trends across GSA, DoD, and OMB: faster closeout, cleaner records, and fewer opportunities for cost growth after a termination decision has already been made. The government’s view is straightforward. A contractor that can assemble a credible settlement in 90 days should not wait a year to do it. The problem is that the rule treats well-organized primes and thinly staffed small businesses the same on paper, even though their access to accounting systems, project records, and legal support differs dramatically. That is why SBA contractors should care now, not later. If the proposal becomes final, the practical question will not be whether settlement rights exist, but whether the contractor can prove its numbers fast enough to keep those rights valuable.

Per FAR Part 49, the existing process already requires disciplined coordination between the contractor and the contracting officer, including negotiations, proof of costs, and settlement documentation that supports the final amount. The proposed 90-day deadline changes the bargaining dynamic because it gives the government a stronger argument that delay equals waiver or weak support. That matters most in termination for convenience cases, where the contractor’s recovery depends on properly segregated direct costs, overhead, profit on work done, and allowable settlement expenses. For small businesses in 8(a), HUBZone, WOSB, VOSB, and SDVOSB programs, a shortened timeline can also affect cash flow. A contractor that cannot document what it is owed may need to absorb labor, storage, and subcontractor costs longer than planned. OMB’s focus on internal controls under Circular A-123 is relevant here: a well-run company should already be able to trace the money, but the proposal would punish anyone whose records are incomplete at the moment the termination notice arrives.

According to GSA guidelines, the best move is to treat every terminated contract as if the 90-day rule already exists. Build a settlement-ready file on day one of performance by storing labor distribution reports, purchase orders, receiving documents, subcontractor correspondence, and indirect rate support in a single repository. If the contractor uses a DCAA-adjacent accounting process or is audited under DoD terms, those records should already exist in a format suitable for review. The biggest mistake is assuming the proposal can be assembled later from memory. It cannot. Contractors should also identify which contracts contain termination clauses that may be affected if the proposal is finalized, especially under standard fixed-price terms. That is a job for the compliance team, the contracts manager, and counsel working together, not in silos. A strong document trail can turn a stressful termination into a routine closeout. A weak one can turn a recoverable event into a write-off.

Per FAR Part 49 and the acquisition policy published by GSA, the internal playbook should include three layers: immediate notice response, 30-day evidence collection, and 60-day draft settlement review. That timeline gives the contractor a cushion before any 90-day deadline closes. For SBA small businesses, especially those with fewer than 50 employees, this is where outside support may be worth the cost. A seasoned government contracts consultant, a CPA familiar with termination settlements, or a lawyer who knows FAR 49.109 can save weeks of back-and-forth. DoD contractors should also examine whether CMMC-related documentation controls are helping or hurting settlement readiness, because weak file discipline in one area often shows up in another. OMB’s internal control standards point in the same direction: if you cannot tie the dollar amount to a source record, you will lose credibility. The proposed deadline is less about speed alone and more about whether the contractor can prove discipline under pressure.