Overview
FAR 52.249 contains the primary clauses that grant the Government the unilateral right to terminate a contract, in whole or in part, when it is in the Government’s best interest. These sections define the mandatory procedures for stopping work, disposing of inventory, and determining fair compensation for contractors after a termination notice is issued.
Key Rules
- Unilateral Authority: The Contracting Officer (CO) may terminate the contract at any time for "convenience" provided they deliver a written Notice of Termination.
- Contractor Obligations: Upon receipt of notice, the contractor must immediately stop work, terminate subcontracts related to the terminated portion, and take action to protect and preserve Government property.
- Settlement Proposals: Under the standard fixed-price clause (52.249-2), the contractor has one year from the effective date of termination to submit a final settlement proposal.
- Inventory Management: Contractors must submit termination inventory schedules within 120 days of the termination notice.
- Compensation and Profit: Contractors are generally entitled to the contract price for completed items, costs incurred for work in progress, and a reasonable profit on work performed—unless it is demonstrated the contractor would have sustained a loss on the entire contract.
- Equitable Adjustment: If a termination is only partial, the contractor has 90 days to request an equitable adjustment for the price of the remaining, non-terminated work.
Practical Implications
- Record Keeping: Contractors must maintain meticulous accounting and cost records for three years post-settlement, as these are essential for justifying a settlement proposal and surviving a potential audit.
- Subcontract Management: Prime contractors must ensure their subcontracts contain similar termination-for-convenience language to avoid being held liable for full contract values to subcontractors when the Government terminates the prime.
- Strict Timelines: Failure to submit a settlement proposal within the one-year window can result in the Contracting Officer unilaterally determining the amount due, effectively stripping the contractor of their right to negotiate or appeal.