Overview
This section establishes the authority for Contracting Officers to terminate contracts for convenience or default and defines the procedural responsibilities for settlement negotiations, fund management, and the protection of small business interests.
Key Rules
- Government Interest: Terminations must only be executed when they serve the best interest of the Government.
- No-Cost Settlements: These are preferred over formal termination notices if the contractor will accept one, no government property is involved, and there are no outstanding debts or obligations.
- De Minimis Threshold: Contracts with an undelivered balance of less than $5,000 should generally be allowed to run to completion rather than being terminated for convenience.
- Separation of Duties: While a Contracting Officer issues the notice, the Termination Contracting Officer (TCO) is responsible for negotiating the final settlement.
- Small Business Preference: If partial terminations are necessary, the Government must prioritize the continued performance of small business contracts over large business contracts unless determined otherwise by the head of the contracting office.
- Fund Management: The Contracting Officer is responsible for releasing excess funds resulting from a termination unless that duty is explicitly delegated to the TCO.
Practical Implications
- Administrative Efficiency: The $5,000 rule and the preference for no-cost settlements aim to reduce the administrative burden and audit costs associated with complex termination proceedings.
- Strategic Compliance: Agencies must be prepared to justify the termination of a small business contract if a similar large business contract is being retained, ensuring compliance with socio-economic preferences.