Government Contract Termination for Convenience: What to Expect

One thing to keep in mind if you’re thinking about working with the government or you have a contract already is that the government has the power since it’s a sovereign entity. That means that the government can decide to change how many items are shipped or how they are packed – your contract can even be terminated. If you are facing a contract termination, here are a few things you should know:

Termination Contracting Officer (TCO): This is the person you will be in contact with if the government decides to terminate a contract for its convenience.

Most federal contracts contain a clause that allows contract termination for convenience on the government’s part. Contracts that are in excess of $25,000, for example, contain a clause that covers a contract termination due to default. The default comes into play if the government feels that the contractor failed to meet the obligations that were specified in the contract.

Contract Termination for Convenience

A termination for convenience (T for C) permits the federal government to cancel part or all of a contract to accommodate current needs. This protects the government’s interest when a product becomes obsolete or there is no longer a need for a service – so the contract isn’t terminated by fault of the contractor.

If the federal government decides to terminate your contract, you will receive something in writing that indicates your contract termination date, the length of the termination and any special procedures to follow. The contract termination notice typically instructs you to (immediately) stop working on the portion of the contract being terminated and dissolve any subcontracts affected. If some portions of the contract are not terminated, you will receive instructions on how to proceed. If you fail to follow the instructions in the Termination for Convenience notice, beware that it’s at your own expense and risk.

After the contract termination, the government is required to provide a prompt and fair settlement. This agreement is usually negotiated between both parties; the goal is to compensate you fully for any work you have done for the contract or in preparation for the portion of the terminated contract. A reasonable amount of money for profit will also be allowed.

While settling a Termination for Convenience, you are able to recover all allowable costs that you incurred. Here’s an idea of what costs may be included:

• Claims preparation and presentation
• Subcontracts settlement and termination
• Storage, protection, transportation, and disposition of property that was produced or acquired for the contract