A termination for convenience means the government stopped your contract for its own reasons. You did nothing wrong. You still get paid for the work you finished, plus a fair profit on that work and the cost of closing the job down.
One deadline decides the money. You have one year from the stop date to send in your claim. Miss that year and you lose the payment.
Why Does the Government Cancel a Federal Contract for Convenience?
The government can cancel because every federal contract includes a clause that gives the agency this right. You agree to it when you sign. The contracting officer can stop all of the work or part of it whenever stopping is better for the government. You do not have to do anything wrong.
Agencies use this power for three main reasons. Congress cuts the money. The agency changes its plans. Or the project no longer helps the public. A budget cut in the middle of the year is the most common reason, and good performance will not save the contract.
Agencies also cancel a bid request before they pick a winner. When that happens, you pay for your own proposal work. There is one exception. If you file a protest and win, the Government Accountability Office can tell the agency to pay back what you spent writing the proposal.
Which FAR Clause Confirms a Termination for Convenience?
Look at the clause number printed on your notice. A convenience termination will cite FAR 52.249-2 for fixed-price contracts, FAR 52.249-6 for cost-reimbursement contracts, or FAR 52.212-4(l) for commercial products and services. Any of those three means the government takes the blame and owes you a settlement.
A notice that cites FAR 52.249-8 or FAR 52.212-4(m) is something else. Those are default terminations. They blame you, they give you far less time to reply, and they pay nothing until you fight them and win. Our guide to responding to a default termination explains that process.
What Should a Federal Contractor Do in the First 24 Hours After a Termination Notice?
Do these six things on the day the notice arrives. Each one protects money you are allowed to get back.
- Write down the stop date. The notice calls this the effective date of termination. Your one-year filing deadline starts on that day.
- Stop only the work the notice names. The government often cancels just part of a job. Keep doing everything else, or you can be blamed for quitting. Ask the contracting officer to raise the price on the work that continues, because smaller orders usually cost more per unit.
- Tell your subcontractors and suppliers the same day, in writing. Ask them to stop the cancelled work and cancel open material orders. If they keep working, those extra costs come out of your pocket.
- Save your paperwork. Gather timesheets, payroll records, purchase orders, subcontractor bills, and delivery receipts up to the stop date. Auditors only pay for costs you can prove.
- Set up a separate job code for the shutdown costs. Keeping these costs apart from your normal expenses makes your claim much easier to defend.
- Start counting government property and leftover materials. You must send in these lists within 120 days of the stop date under FAR 52.249-2(c).
How Do You File a Termination Settlement Proposal to Get Paid?
You get paid by sending a claim, called a settlement proposal, to the contracting officer who handles terminations. FAR Part 49 explains the steps, and FAR 49.206-1 gives you one year from the stop date to file. Use the official forms, not your own spreadsheet. SF 1435 is for claims based on your inventory. SF 1436 is for claims based on your total costs. On large claims, the government may also ask you to sign a statement proving your cost figures are true.
Which costs can you recover after a federal contract is cancelled?
You can claim four kinds of cost.
| What You Can Claim | What It Means in Plain Words |
|---|---|
| Direct costs | The hours your team worked and the materials you delivered before the stop date |
| Indirect costs | Your share of office costs, using the overhead rate the government already approved |
| Profit | A fair profit on the work you finished, set by the contracting officer under FAR 49.202 |
| Closeout costs | What you spend to close the job, such as accounting help, legal help, and counting materials |
Two limits apply to profit. You get no profit on work you never did. You also get no profit at all if the whole contract was going to lose money. Auditors cut two other things most often. They lower overhead if you charge more than your approved rate, and they remove closeout costs that have no receipts.
Good records decide how much you keep. If your payroll, supplier bills, and delivery receipts do not match the numbers in your claim, the auditor removes the difference. Contractors who track shutdown costs in a separate code from day one get paid faster and lose less.
Common Questions About Convenience Terminations on Federal Contracts
How do subcontractors get paid after a government contract is terminated?
Your subcontractors send their claims to you, not to the government. You check each claim, agree on an amount, then add those amounts to your own claim. The government can settle with a subcontractor directly, but it never has to. So the job stays with you as the prime contractor.
How long does a federal contract termination settlement take?
Most take several months. Hard ones take more than a year. The contracting officer reads your claim, sends it to an auditor, then negotiates with you. You can ask for part of the money while you wait, which helps your cash flow.
Can a contractor refuse a government contract termination for convenience?
No. The right belongs to the government, and arguing does not stop it. You can only argue about the amount you get paid. If you and the contracting officer cannot agree on that amount, you can file a formal claim under the Contract Disputes Act.
