With many Federal contracts being terminated, federal contractors and subcontractors are on high alert. Unlike standard business contracts, government contracts can be terminated without cause. This means that, should the government decide to end a contract for any reason, it may do so. This is known as “termination for convenience”.
If you’ve been awarded a government contract or are pursuing a contract bid, understanding termination for conveniences is essential. Here’s what to know.
What is a Termination for Convenience Clause?
A termination for convenience clause allows a party to terminate a contract unilaterally partly or fully with no cause required. Unlike a termination for cause clause, no breach needs to have occurred. A notice period is typically required; the terminating party also pays for work performed and reimbursement for reasonable costs and expenses.
A termination for convenience clause is a standard part of government contracts and allows the government to terminate the contract if doing so is deemed to be in the government’s best interest. Even for those government contracts that do not explicitly contain this clause, a termination for convenience clause is generally understood to be in place.
Note that termination for convenience clauses may also apply in other non-government agreements, such as service contracts or consulting agreements.
What Can the Terminated Party Do?
While a termination for convenience clause allows for unilateral termination, the terminated party does have some recourse. The terminated party can negotiate the payment sought, as well as the extent of the reimbursement. They can also explore alternative dispute resolution or even file a claim under the Contract Disputes Act (CDA). An appeal may also be pursued. Guidance from an attorney with experience in contract law, and specifically Government contracts, is highly recommended.
When facing a termination for convenience, notify your attorney and:
- Immediately stop work related to the terminated portion of the contract
- Terminate all subcontracts related to the terminated portion of the contract
- Continue work on any parts of the contract that have not been terminated
- Advise the Contract Officer of any special circumstances
- Document all costs, work, and communications regarding the terminated portion of the product
- Document compliance with FAR requirements
- Submit a settlement proposal in which recovery of certain costs associated with the terminated project may be sought. This proposal may be approached on an inventory basis or a total cost basis. Note that timing requirements may apply.
- Explore your claims and appeal rights with your attorney.
Navigating a termination for convenience can be complex, so retain legal counsel to help you navigate your situation. This is particularly true should you seek to convert your settlement proposal into a CDA claim.
Warner PLLC is Here to Guide You Through Your Termination for Convenience.
A termination for convenience can be complicated. Additionally, given the recent increase in federal terminations and the timing constraints associated with submitting settlement proposals or suing on a claim, backlogs may be an issue. Quickly engaging experienced legal counsel is vital.
If you’re a contractor or subcontractor facing a termination for convenience, engage Warner PLLC to help you navigate your unique situation. With experience in government contracts – from RFP submissions, performance, to claims and appeals- we can guide you towards your goals in a thoughtful, timely manner.
