Overview
FAR Subpart 49.5 prescribes the specific clauses that must be inserted into solicitations and contracts to govern "Termination for Convenience" (T4C) and "Termination for Default" (T4D). It establishes a regulatory framework for ending a contract early, ensuring that the government's right to terminate is clearly defined and that the contractor's compensation or liability is determined based on the contract type and dollar value.
Key Rules
- Threshold Matters: Most standard termination clauses are mandatory for contracts exceeding the Simplified Acquisition Threshold (SAT). For contracts at or below the SAT, "Short Form" clauses are typically used to reduce administrative burdens.
- Contract Type Specificity: Different clauses are required depending on whether the contract is Fixed-Price, Cost-Reimbursement, Time-and-Materials (T&M), or Labor-Hour.
- Sector-Specific Clauses: Specialized termination language is prescribed for specific industries, including Construction, Research and Development (R&D) with non-profits, Architect-Engineer (A&E) services, and Dismantling/Demolition.
- The "Short Form" for Services: The clause at 52.249-4 is used for service contracts (regardless of value) where the contractor is unlikely to incur substantial "wind-down" costs (e.g., dry cleaning or parking).
- Excusable Delays: For cost-reimbursement and T&M contracts, the "Excusable Delays" clause (52.249-14) must be included to protect contractors from default when performance is hindered by circumstances beyond their control (e.g., acts of God, strikes).
- Exclusion of Simplified Commercial Acquisitions: This subpart generally does not apply to simplified acquisitions for commercial products or services that use the terms found in FAR 52.213-4.
Responsibilities
- Contracting Officers (COs):
- Responsible for selecting and inserting the correct termination clause and appropriate "Alternates" based on the contract’s nature and value.
- Exercising discretion to include default clauses in contracts below the SAT if the history of quality or personnel risks justifies it.
- Determining whether to omit interest requirements on excess partial payments for government or foreign entities.
- Prime Contractors:
- Responsible for "flowing down" appropriate termination clauses to subcontractors.
- Modifying flow-down clauses to reflect the prime-subcontractor relationship (e.g., shortening the timeframes for a subcontractor to submit a settlement proposal).
- Agencies:
- Prescribe specific clauses for communication service contracts (common carriers) which are not covered by the standard FAR clauses in this subpart.
Practical Implications
- Risk Allocation: For contractors, the difference between a "Standard" and "Short Form" convenience clause is significant; the Standard form allows for a more complex settlement proposal to recover costs, whereas the Short Form limits recovery primarily to services rendered before termination.
- Subcontractor Management: Prime contractors must be diligent in modifying termination clauses for their subs. Simply copying the FAR clause verbatim without adjusting "Government" to "Prime Contractor" or shortening notice periods can lead to legal disputes and financial gaps where the Prime is liable to the Sub but cannot recover from the Government.
- Default Hazards: Under Fixed-Price contracts, the Default clause (52.249-8) provides the government with a powerful hammer. Unlike Convenience terminations, a Default termination can lead to the contractor being liable for the "excess costs" of the government re-procuring the supplies or services from another source.
- National Emergencies: In construction, the use of Alternates during national emergencies allows for specialized termination rights that reflect the volatile nature of the economy or labor force during such periods.