The authors emphasized the importance of the fair compensation principle found at FAR 49.201 in their earlier article which we have frequently alluded to in our negotiations with government representatives. The hallmark of a termination of a fixed price contract is that exact evidence of costs incurred are usually not present because fixed price contracts do not require contractors to follow contract cost accumulation practices normally required under cost type contracts. Even if strong contract cost accounting is followed, costs are rarely accumulated by allowable components provided in a termination. In recognition of this, the fair compensation principle states that costs cannot be measured exactly and prescribes business judgment be substituted for “strict accounting principles” in arriving at fair compensation.
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