INTRODUCTION
All Government contracts are subject to the Termination for Convenience Clause (FAR 49.502). This clause allows the Government to terminate a contract whenever “…it is in the Government’s interest.” (FAR 52.249-1) What this means is that the Government has an exit strategy, in the event that it needs to discontinue a contract because of technological developments that make continued work on the contract outmoded, lack of funding due to budgetary restrictions, or in some instances, because the work is simply no longer needed (i.e. work during war-time that is no longer necessary). This clause effectively avoids liability for a Breach of Contract action against the Government.
WHAT THIS MEANS FOR THE CONTRACTOR
Contractors should be aware that a Termination for Convenience is not the same as a Breach of Contract. As such, recoverable costs are not the same under a Termination for Convenience (FAR 52.249-2(1-3)). When the government terminates a contract for its convenience, a contractor is entitled to recover the following costs associated with the Termination:
- Costs incurred for work completed and accepted at the time of the Termination;
- Costs that are considered allowable, allocable, and reasonable;
- Profit on the above costs incurred; and
- Close-out, demobilization, and settlement proposal costs associated with preparing a final cost proposal for submission to the government are allowable, less profit.
Alternatively, under a Breach of Contract by the government, recoverable costs (also commonly referred to as damages) may include monetary costs such as forecasted profits, overhead, and damages for time lost or otherwise needed to perform the work as required by the contract (Recovery). These types of costs (damages) are not recoverable under a Termination for Convenience.
