Termination for Convenience Lawyers

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The government can end a federal contract for its own convenience at almost any time, even when the contractor has done nothing wrong. A termination for convenience is not the end of the story, however. Under the termination clauses in FAR Part 49, the contractor is entitled to be paid for the work it performed and for many of the costs the termination causes. Recovering those amounts depends on a well-prepared settlement proposal and on meeting strict deadlines.

A termination for convenience (often called a T4C) allows the contracting officer to stop all or part of the work when it is in the government's interest, for example because requirements have changed, funding has been cut or the agency has decided to take the work in-house. Unlike a termination for default, a T4C carries no finding of fault and should not, by itself, harm the contractor's past performance record. Contractors should still review the notice carefully, because a convenience termination that is really a disguised effort to avoid paying for changes or delays may give rise to additional claims.

• Stop work as directed, and stop work only on the terminated portion if the termination is partial.
• Notify subcontractors and suppliers promptly and terminate their orders where required.
• Protect and inventory government property, materials and work in process.
• Preserve accounting records, timesheets and correspondence that support your costs.
• Calendar the deadline for your termination settlement proposal, generally one year from the effective date of the termination under FAR 52.249-2.

For fixed-price contracts, a contractor can typically recover the contract price for completed and accepted work, the allowable costs of work performed on the terminated portion, a reasonable profit on that work unless the contract would have lost money, settlement expenses such as accounting and legal costs to prepare the proposal, and costs of settling with subcontractors. Unabsorbed overhead, idle facilities and certain post-termination costs may also be recoverable. Anticipatory profit on work that was never performed is not.

For commercial item contracts under FAR 52.212-4, the rules are different and generally simpler. The contractor recovers a percentage of the contract price reflecting work performed before the termination, plus reasonable charges that result from the termination, and the contractor must be able to support those charges using its standard record-keeping system.

Settlement proposals can be prepared on an inventory basis or a total cost basis, and choosing the wrong method can significantly reduce recovery. The proposal must be supported by records the government can audit, and DCAA often reviews larger proposals. We help contractors select the right approach, assemble support, negotiate with the termination contracting officer and, if negotiations fail, convert the dispute into a certified claim under the Contract Disputes Act and appeal to the Board of Contract Appeals or the Court of Federal Claims.

When the government terminates for default but cannot prove the contractor was actually in default, or the government itself caused the delay, the termination can be converted to one for convenience. That conversion often changes the outcome from owing the government excess reprocurement costs to recovering the contractor's costs. See our page on termination for default for more on challenging a default.

The decisions made in the first weeks after a termination notice often determine how much a contractor ultimately recovers. If your contract has been terminated, contact us to discuss your rights. You can also read more about our Contract Disputes Act claims practice at bctwlaw.com.