Overview
This section prescribes the mandatory formats and procedures for notifying contractors when a contract is terminated for the convenience of the Government. It establishes the requirements for both expedited electronic communications and formal letter notices to ensure a standardized transition into the contract settlement phase.
Key Rules
- Notice Methods: The Contracting Officer (CO) may issue an expedited notice via electronic means, but must obtain confirmation of receipt. If no confirmation is received, the CO must resend the electronic notice and expedite a formal letter notice.
- Immediate Contractor Actions: Upon receipt of a notice, the contractor must:
- Stop all work and shipments immediately (unless specifically authorized for safety or to avoid spoilage).
- Place no further orders and terminate all affected subcontracts.
- Provide similar termination instructions to all subcontractors and suppliers.
- Maintain detailed records of the date of receipt and the status of completion.
- Inventory and Property: Contractors must identify and account for "termination inventory," including subcontractor inventory, and await instructions for delivery or disposal.
- Subcontractor Management: The prime contractor remains liable for settling subcontractor proposals, which must be governed by FAR Part 49 for the purpose of Government reimbursement.
- Labor Requirements: If the termination results in a significant workforce reduction, the contractor is urged to notify the state employment service, local unions, and affected employees to facilitate transition assistance.
- Legal Compliance: Contractors must notify the CO of any pending legal proceedings related to subcontracts or liens against termination inventory.
Practical Implications
- Cost Mitigation: The effective date of the notice is a "cutoff" point; costs incurred after the notice—other than those specifically authorized or related to the settlement—may be unallowable, making immediate cessation of work a financial necessity for the contractor.
- Administrative Rigor: Contractors must use the standardized acknowledgment and record-keeping requirements to protect their right to a fair settlement and to demonstrate compliance with the CO's instructions.