Listen to the Deep Dive of this post
Navigating Government Contract Terminations for Convenience: What Contractors Need to Know
Unexpectedly facing a government contract termination for convenience? You’re not alone. The current climate indicates a potential increase in such terminations, allowing the government to end a contract unilaterally, even if your performance is flawless. This blog post will guide you through the essential steps to protect your interests and recoup costs.
First Steps: Understand Your Notice and Obligations. Upon receiving a termination notice, immediately review it carefully to determine if it’s a full or partial termination and any deadlines for submitting your settlement proposal. Engage legal counsel early if you have any questions. Crucially, stop all internal work and issue stop-work orders to all subcontractors and consultants. Proactive communication with your subcontractors is vital to prevent disputes.
Know Your Contract: The Termination Clause is Key. Your next crucial step is to locate and review the “termination for convenience” clause in your specific government contract. This clause, often referencing the Federal Acquisition Regulation (FAR), outlines your rights and the procedures you must follow. Familiarize yourself with FAR 49.104, which details responsibilities upon receiving a termination notice.
Document Everything: Building Your Settlement Proposal. The burden of proving your costs rests with you. Start collecting thorough documentation of all project-related expenses, deliverables, and progress immediately.Maintain up-to-date records to substantiate your claims. Establish separate internal timekeeping and cost codes for personnel working on the settlement proposal to provide clear proof of these costs. If you previously received a stop-work order, document the reasons for maintaining readiness and cost minimization efforts.
Recoverable Costs: What Can You Claim? Generally, a termination for convenience on a fixed-price contract converts the terminated portion to a cost-reimbursement basis, guided by FAR Part 31. For “commercial” contracts (subject to FAR Part 12), you may be entitled to a percentage of the contract price reflecting completed work plus reasonable termination charges, or an amount for direct labor hours expended plus reasonable termination charges. Importantly, the government generally cannot audit your records in this case. For non-Part 12, non-commercial contracts, you can typically recover:
- Payment for Work Performed up to the termination date.
- Reasonable Profit on the completed work.
- Reasonable Costs of Settlement, including accounting, legal, and clerical expenses for preparing your proposal.
- Wind Down Costs, such as demobilization, severance (excluding settlement amounts), and subcontractor termination costs.
Submitting Your Proposal and Negotiating. Submit your termination settlement proposal within the required timeframe. While the FAR generally allows one year, your termination notice might specify a shorter period. Failing to meet the deadline could allow the contracting officer to unilaterally determine the amount owed. Maintain open communication with the agency contracting officer to clarify procedures and expectations. A well-documented and logical settlement package is crucial for successful negotiations. Remember that reasonable legal costs incurred in this process are also allowable.
Key Takeaways for Success:
- Engage Legal Counsel Early. Their expertise can be invaluable in navigating the process and ensuring you recover entitled costs.
- Promptly Notify Subcontractors. Issue termination notices down the chain without delay.
- Document Thoroughly. A well-supported settlement package is your strongest asset.
- Stay Informed. Keep abreast of any new government actions that could impact termination settlements.
By understanding your rights and taking proactive steps, you can navigate a termination for convenience effectively and work towards a fair settlement.
Tags: government contracts, termination for convenience, contract termination, federal acquisition regulation, FAR, settlement proposal, contractor rights, legal counsel, cost recovery, subcontractor termination