What You Really Need to Know About Navigating Through Contract Terminations

It may be an understatement to say defense contractors are currently living in changing times. Change has happened in our government administration resulting in some changes in priorities in federal government programs. This can translate into federal government contracts being changed, suspended, stopped, or even terminated. Although contract terminations seem complex, you can navigate through the complexities by reading and understanding your contract clauses, the acquisition rules, working with your contracting officer, and knowing your cost reporting system and how it can comply with contracting regulations.

Not all terminations are the same. Your situation will be individualized to your contract and its situation. This blog will provide some basic information to get you started and hopefully get you a termination settlement that is fair and reasonable not only for the Government but for you as well.

Background Information

Do You Know Your Contract, What Key Clauses are Included, and Whether Those Same Clauses are Also in Your Subcontracts?

• FAR 52.249, Termination for the Convenience of the Government Clauses – this allows the Government to effectively end its negotiated contract with you upon what is in the best interest for the government. It will also implement specific FAR Part 49, Termination of Contracts sections which are contracting rules you need to know.
• FAR 52.212-4, Contract Terms and Conditions—Commercial Products and Commercial Services, paragraph (l), Termination for the Government’s convenience, provides the government the right to terminate a commercial contract for goods or services. Contracts with this clause are not subject to FAR Part 49 but follow the termination requirements in FAR 52-212-4.
• FAR 52.242-14, Suspension of Work – this allows the government to suspend work on your contract. It also allows a potential for a request for equitable adjustment (REA) for increased costs due to the suspension period.
• FAR 52.242-15, Stop-Work Order – This allows the government to have you stop work on your contract and it is usually for a period of 90 days. A decision to continue or terminate the contract shall then be made.
• FAR 52.243, Changes Clauses, this allows the contracting officer (CO) to make changes to your contract such as drawings, designs, specifications, shipment, and design. This also allows the contractor to be compensated for government changes through a REA submission.

Do You Know the Players?

Communication is important with the CO as well as the termination contracting officer (TCO) and their representatives. Sometimes there is not a TCO assigned, and the Contracting Officer assumes the responsibilities for negotiating the termination. Do you have their current email addresses and phone numbers? Do you have this current information of your subcontractors? This is important to have so you are ready to respond in a timely fashion upon contract termination.

Do You Know the Rules and Regulations?

You should not only be familiar with the contract clauses above but be familiar with additional requirements in the submission of your termination settlement proposal (TSP). For example, FAR 49.113, Cost principles, requires that your TSP be submitted in compliance with FAR Part 31, Contract Cost Principles and Procedures, and this may have not been part of your original contract. For example, your contract may have been awarded a construction contract for a building and not subject to FAR Part 31 cost principles. After that construction contact was terminated, your TSP is subject to FAR Part 31.

There are also two types of terminations:

1. Termination for Convenience (T4C) – FAR 49.502 and provides the government the right to terminate a contract in whole or part. A TSP is negotiated among the government and contractor for a fair and reasonable settlement.
2. Termination for Default (T4D) – FAR 49.504(a) where the government exercises this right when the contractor has an actual or anticipated failure to perform its contract obligations. This is more of a legal matter, and you should consult your attorney with this matter.

Do You Know the Deadlines and Due Dates?

For example, your TSP is due to the government within one year. I recommend keeping your CO/TCO informed of your status as you go along and especially with any problems.

Lastly, be prepared and be proactive with the end documentation in mind: subcontract invoices, materials invoices, labor timesheets and finally, we highly recommend setting up separate charge numbers to accumulate costs for contract execution through any work stoppages (suspension and/or stop work orders) up to contract termination as well as after termination, even if you have all fixed price contracts and are not required to maintain an approved accounting system. It is easier to be prepared through planning and maintaining contemporaneous documentation then to try and accumulate or try and recreate documentation afterwards which may lack details. Your preparation is your strength in confronting change and navigating successfully through a conclusive settlement.

Expert Support for Terminations and Equitable Adjustments

Redstone GCI provides the guidance and expertise contractors need when facing challenging contract scenarios, including terminations and requests for equitable adjustment (REAs). Our team offers customized staff training to help your employees understand the rules and requirements of government contracting, including the often-complex termination process. We review termination settlement proposals to ensure they are well-prepared, compliant, and positioned for favorable outcomes. Additionally, we assist in the preparation and review of REAs, helping contractors develop clear, well-supported submissions that effectively communicate the need for adjustments due to scope changes, delays, or other unforeseen impacts. With years of experience supporting contractors through these processes, Redstone GCI helps reduce risk and maximize recovery in difficult contract situations.