Overview
FAR 12.403 establishes unique procedures for terminating commercial product and service contracts, explicitly decoupling these actions from the standard requirements of FAR Part 49. It outlines the specific mechanisms for "Termination for Cause" and "Termination for the Government's Convenience" to align with commercial marketplace practices.
Key Rules
- Supremacy over FAR Part 49: The requirements of FAR Part 49 do not apply to commercial contracts; Contracting Officers (COs) must follow FAR 12.403 and the clause at 52.212-4, using Part 49 only as non-conflicting guidance.
- Termination for Cause:
- A cure notice is mandatory for defaults other than late delivery.
- COs must consult with legal counsel prior to initiating a termination for cause.
- The Government may seek commercial remedies, including excess reprocurement costs and incidental or consequential damages.
- Termination for Convenience (T4C):
- Payment (Fixed-Price): The contractor is paid the percentage of the contract price reflecting the work performed plus any charges resulting directly from the termination.
- Payment (T&M/LH): The contractor is paid for direct labor hours expended at the contract rate plus termination charges.
- Reporting: COs must report terminations for cause (and any subsequent withdrawals or conversions) in accordance with FAR 42.1503(h).
- Accounting and Audits: Contractors can use standard record-keeping systems and are not required to comply with FAR Part 31 cost principles or Cost Accounting Standards (CAS) for T4C settlements. The Government has no right to audit records solely due to a T4C.
Practical Implications
- Commercial contractors face less administrative burden during termination settlements because they are exempt from complex government cost accounting audits and may rely on their standard commercial records.
- Contracting Officers gain the ability to seek "marketplace" damages (like consequential damages) in cause-based terminations, which are generally unavailable under non-commercial FAR Part 49 terminations.