Overview
FAR 49.502 prescribes the specific contract clauses that Contracting Officers must use to grant the Government the unilateral right to terminate a contract for its own convenience. It differentiates clause selection based on the contract's dollar value relative to the Simplified Acquisition Threshold (SAT), the nature of the work (e.g., services, construction, or R&D), and the type of entity performing the work.
Key Rules
- Threshold-Based Selection:
- Fixed-price contracts at or below the SAT generally use the "Short Form" clause (52.249-1).
- Fixed-price contracts above the SAT generally use the standard clause (52.249-2).
- Service Contract Exception: The Service-specific Short Form (52.249-4) may be used regardless of contract value if the Contracting Officer determines the contractor will not incur substantial startup costs and settlement charges would be limited to services already rendered.
- Specialized Work Types:
- Construction: Requires the use of 52.249-2 with Alternate I.
- Dismantling/Demolition: Contracts exceeding the SAT require clause 52.249-3; those at or below the SAT use 52.249-1 with Alternate I.
- Nonprofit R&D: Research and development contracts with educational or nonprofit institutions on a no-fee basis use clause 52.249-5 for both fixed-price and cost-reimbursement types.
- Subcontracting Flow-Downs: Prime contractors are encouraged to use these clauses in subcontracts but must modify them to reflect the prime-sub relationship and should reduce the timeframes for subcontractors to submit settlement proposals (e.g., reducing the window to 6 months).
Practical Implications
- Administrative Burden: The "Short Form" clauses significantly simplify the termination process for the Government by limiting the complexity of settlement negotiations, especially for low-value or routine service contracts.
- Risk Management for Primes: When flowing down these clauses, prime contractors must be diligent in shortening the subcontractor's filing deadlines to ensure the prime has sufficient time to incorporate those costs into their own final settlement proposal to the Government.