Termination for Convenience

April 13, 2006

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A termination for convenience (T for C) allows the federal government to terminate all or part of a contract for its convenience. This type of termination protects the government's interests by allowing cancellation of contracts for products that become obsolete or unneeded. The termination does not arise from any fault on the part of the contractor.

If the federal government terminates your contract for its convenience, it must notify you in writing. The notice of termination must contain the effective date of the termination, the extent of the termination, and any special instructions.

The contract termination notice and clause generally require a contractor to stop work immediately on the terminated portion, to terminate all affected subcontracts, to perform any specified unterminated portions of the contract, and to proceed promptly to settle termination claims, both its own and those of its subcontractors.

If you receive a termination notice and fail to follow these directions, you do so at your own risk and expense. You should also receive detailed instructions as to the protection and preservation of all property that is, or may become, government-owned.

After termination, the government is required to make a fair and prompt settlement with you. Generally speaking, settlement takes the form of a negotiated agreement between the parties. The idea is to agree on an amount that will compensate you fully and fairly for the work you have done and for any preparation you have made for the terminated portion of the contract. A reasonable allowance for profit is also included. Settlement of cost-reimbursement contracts is somewhat simpler than that of fixed-price contracts, since you will have been reimbursed on a cost basis from the beginning of the contract.

You are entitled to recover all allowable costs incurred in settling a termination for convenience. Those costs may include the following:

Preparation and presentation of claims
Termination and settlement of subcontracts
Storage, transportation, protection and disposition of property acquired or produced for the contract
Other termination activities

The federal government retains the right to approve or ratify any settlements made with subcontractors. When you and the government agree to all or part of your claim for compensation as a result of the termination, a written amendment (known as a settlement agreement) is made to the contract.

Generally, termination halts regular payments to you under the contract. However, since you may have money tied up in finished and unfinished products, materials and labor, most termination clauses provide you with interim financing through partial payments.