FEDERAL ACQUISITION INSTITUTE | Contracting Professionals Smart Guide | Contract Administration | Termination 1
Contract Administration
Activity 50: Termination
Procedures for terminating a contract for cause, default, or the Government’s convenience.
Related Flow Charts: Flow Chart 50
Related Courses: CLC 006 (Contract Terminations)
Part A: Determine Whether to Terminate a Contract and the Method of Termination
Tasks
FAR Reference(s)
Additional Information
1. Identify indicators of the possible
need to terminate a contract.
N/A
Examples include:
A cure or show cause notice being issued, because the
contractor has failed to show the Government that it will
complete the contract in accordance with its terms.
The requiring activity signaling that:
o The contract requirement no longer exists or has
already been fully satisfied short of the contract
quantity.
o Funds are not available to complete the contract
in accordance with its existing terms.
o There has been a radical change in the needs of
the Government that goes well beyond the
scope of the current contract.
2. With other members of the
Government acquisition team,
identify available alternatives for
action and the associated pros and
cons.
N/A
Available alternatives and the related pros and cons will vary
depending on the contracting situation. For example:
When faced with unacceptable contract performance,
alternatives may include the following:
o
safeguards to protect the Government, such as:
Permitting performance by the
FEDERAL ACQUISITION INSTITUTE | Contracting Professionals Smart Guide | Contract Administration | Termination 2
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FAR Reference(s)
Additional Information
contractor, surety, or guarantor under a
revised delivery schedule.
Permitting the contractor to subcontract
with or establish other business
arrangements with an acceptable third
party.
o Changing delivery or other requirements to
facilitate performance and obtaining
compensation from the contractor in return.
o Terminating part or the entire contract for cause
or default.
o Terminating all or part of the contract for
convenience.
When faced with a significant change in requirements,
alternatives may include:
o Canceling a purchase order not yet accepted by
the contractor.
o Permitting the contractor to complete the
current contract, because that is more cost
effective than terminating for convenience.
o Issuing a no-cost cancellation when:
The supply or service can readily be
obtained elsewhere,
A no-cost settlement is acceptable to
the contractor,
Government property had not been
furnished to the contractor, and
There are no outstanding payments,
debts, or other obligations due the
Government.
Terminating all or part of the contract for convenience
when contract performance is unacceptable, but the
contract cannot be terminated for cause/default (e.g.,
FEDERAL ACQUISITION INSTITUTE | Contracting Professionals Smart Guide | Contract Administration | Termination 3
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FAR Reference(s)
Additional Information
because the Government is partially responsible).
3. Select the appropriate termination
method.
N/A
Select the method that is in the best interest of the Government
under the current contract and future contracts. Consider factors
such as the Government’s needs, timeliness, and overall cost.
Part B: Termination of Contracts for the Government’s Convenience
Tasks
FAR Reference(s)
Additional Information
1. Document the need to terminate a
contract partially or completely for
convenience.
FAR 2.101 Termination for convenience
[definitions].
FAR 12.403(a) General [termination].
FAR 8.406-5 Termination for the
Government’s convenience [ordering
activity responsibilities].
FAR 49.101(a) Authorities and
responsibilities [termination of
contracts].
Reasons include:
No longer a need for the requirement;
Funding for the contract is eliminated or curtailed;
A Board of Contract Appeals (BCA) or court has
overturned a cause/default termination;
Impossibility of performance (e.g., conflicting
specifications); and
Others.
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Tasks
FAR Reference(s)
Additional Information
2. Issue a notice of termination for
convenience.
FAR 12.403(c)(1) Termination.
FAR 49.102(a) General [notice of
termination].
FAR 49.601 Notice of termination for
convenience.
FAR 52.212-4(l) Contract Terms and
Conditions - Commercial Items.
FAR 52.21304(f) Terms and Conditions
– Simplified Acquisitions (Other Than
Commercial Items).
For noncommercial item contracts, prepare and issue the notice
as prescribed in FAR 49.102 and 49.601.
For commercial item contracts and noncommercial item
simplified acquisitions, use the guidance provided when it is
consistent with the appropriate requirements and procedures in
the Contract Terms and Conditions - Commercial Items clause
(FAR 52.212-4) or Terms and Conditions – Simplified Acquisitions
(Other Than Commercial Items) clause (FAR 52.213-4).
For Federal Supply Schedule (FSS) contracts, follow the
procedures for commercial items.
The notice must state:
That the contract is being terminated for the
convenience of the Government under the contract
clause authorizing the termination;
The effective date of termination;
The extent of termination (e.g., specific items or
complete);
Any special instructions; and
The steps the contractor should take to minimize the
impact on personnel if the termination, together with all
other outstanding terminations, will result in a significant
reduction in the contractor’s work force.
Distribute the notice to:
The contractor:
o When the notice is mailed, send it by certified
mail, return receipt requested.
o When the notice is hand delivered, obtain a
written acknowledgement from the contractor;
The contract administration office; and
Any known assignee, guarantor, or surety of the
contractor.
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Tasks
FAR Reference(s)
Additional Information
3. Conduct a conference with the
prime contractor to develop a
definite program for effecting the
settlement.
FAR 49.105 Duties of termination
contracting officer after issuance of
notice of termination.
When appropriate, principal subcontractors should be requested
to attend. Topics that should be discussed and documented
include:
General principles relating to the settlement of any
settlement proposal, including contractor duties under
the termination clause;
Contractor duties under FAR 49.104;
Extent of the termination, point at which work is stopped,
and status of any plans, drawings, and information that
would have been delivered had the contract been
completed;
Status of any continuing work;
Obligation of the contractor to terminate subcontracts
and general principles to be followed in settling
settlement proposals;
Names of subcontractors involved and the dates
termination notices were issued to them;
Contractor personnel handling review and settlement of
subcontractor settlement proposals and the methods
being used;
Arrangements for transfer of title and delivery of any
material required by the Government;
General principles and procedures to be followed in the
protection, preservation, and disposition of termination
inventories;
Contractor accounting practices and preparation of
related forms;
Form in which to submit settlement proposals;
Accounting review of settlement proposals;
Any requirement for interim financing in the nature of
partial payments;
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FAR Reference(s)
Additional Information
Tentative time schedule for negotiation;
Actions taken by the contractor to minimize the
termination’s impact upon employees; and
Obligation of the contractor to furnish accurate,
complete, and current cost or pricing data, and to certify
to that effect when the amount of a settlement
agreement exceeds the cost or pricing data threshold.
4. Amend or rescind the termination
notice (when appropriate).
FAR 12.403(c)(4) Termination for
cause.
FAR 49.105 Duties of termination
contracting officer after issuance of
notice of termination.
Amend a termination notice to:
Correct nonsubstantive mistakes in the notice;
Add supplemental data or instructions; or
Rescind the notice if it is determined that items
terminated had been completed or shipped before the
contractor’s receipt of the notice.
Upon written consent of the contractor, reinstate the terminated
portion of a contract, in whole or in part, by amending the notice
of termination when the contracting officer determines in writing
that:
Circumstances clearly indicate a requirement for the
terminated items; and
Reinstatement is advantageous to the Government.
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FAR Reference(s)
Additional Information
5. Determine the disposition and
termination treatment of completed
end items.
FAR 49.205 Completed end items.
Promptly after the effective date of termination:
Have all undelivered completed end items inspected and
accepted if they comply with the contract requirements;
and
Determine which accepted end items are to be delivered
under the contract.
For a termination under a fixed-price contract, the contractor
must:
Invoice for accepted and delivered end items at the
contract price in the usual manner and not include them
in the settlement proposal.
Include completed end items that are accepted and not
delivered under the contract in the settlement proposal
at the contract price, adjusted for any saving of freight or
other charges, together with any credits for their
purchase, retention, or sale.
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FAR Reference(s)
Additional Information
6. Ensure the prime contractor’s
termination settlement proposal
and, where appropriate, the
subcontractors’ settlement
proposals are acceptable for
settlement action.
FAR 12.403(d) Termination.
FAR 49.206 -1 Submission of
settlement proposals (fixed price
contracts).
FAR 49.303-1 Submission of
settlement proposal (cost-
reimbursement contracts).
For a commercial item contract or simplified acquisition of a
noncommercial item, the proposal:
Should reflect a termination settlement based on:
o The percentage of work performed prior to
termination;
o An amount for direct labor hours (as defined in
the Schedule of the contract) determined by
multiplying the number of direct labor hours
expended before the effective date of
termination by the hourly rate(s) in the
Schedule; and
o Any charges the contractor can demonstrate
directly resulted from the termination.
For fixed price contracts, the final settlement proposal must be
submitted within one year from the effective date of the
termination, unless the period is extended by the TCO. The
settlement proposal must cover all cost elements including
settlements with subcontractors and any proposed profit. Use of
the inventory basis for settlement proposals is preferred.
For cost-reimbursement contracts terminated or convenience, the
final settlement proposal covering unvouchered costs and any
proposed fee is to be submitted within one year of the effective
date of the termination, unless the period is extended by the TCO.
The proposal must not include costs that have been:
Finally disallowed by the contracting officer; or
Previously vouchered and formally questioned by the
Government but not yet decided as to allowability.
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Tasks
FAR Reference(s)
Additional Information
7. Execute a no-cost settlement (when
appropriate).
FAR 49.109-4 No-cost settlement.
Execute a no-cost settlement agreement (FAR 49.603-6 or
49.603-7, as applicable) if the contractor:
Has not incurred costs for the terminated portion of the
contract; or
Is willing to waive the costs incurred; and
No amounts are due the Government under the contract.
8. Request any specialized assistance
to analyze the contractor’s
settlement proposal.
FAR 49.105 Duties of termination
contracting officer after issuance of
notice of termination.
To expedite the termination settlement, assistance may be
requested from specially qualified personnel to:
Assist in dealings with the contractor;
Advise on legal and contractual matters;
Conduct accounting reviews and advise and assist on
accounting matters (FAR 49.107); and
Perform the following functions regarding termination
inventory:
o Verify its existence.
o Determine qualitative and quantitative
allocability.
o Make recommendations concerning
serviceability.
o Undertake necessary screening and
redistribution.
o Assist the contractor in accomplishing other
disposition.
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Tasks
FAR Reference(s)
Additional Information
9. If the termination is for either a
commercial item contract or a
simplified acquisition, negotiate a
settlement based on percentage of
price plus any reasonable charges,
and proceed to Task 15.
FAR 12.403(d) Termination.
FAR 49.206-2 Bases for settlement
proposals.
If a no-cost settlement is not practicable, negotiate the
settlement based on:
A percentage of contract price calculated using the
percentage of contract work performed prior to
termination; plus
Any reasonable charges that the contractor
demonstrates resulted from the termination.
In evaluating the settlement proposal and negotiating
the settlement:
Require the contractor to demonstrate the method used
to calculate:
o The percentage of contract work completed; and
o Any additional costs resulting from the
termination using its standard record keeping
system.
10. If the termination is for a non-
commercial item contract,
determine whether to authorize
contractors to settle subcontracts
terminated in whole or in part
without approval or ratification.
FAR 49.108-4 Authorization for
subcontract settlements without
approval or ratification.
Provide such authorization when the amount of settlement is
$100,000 or less and certain conditions set forth in provision
apply.
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Tasks
FAR Reference(s)
Additional Information
11. Upon determining not to authorize
contractors to settle subcontracts
terminated in whole or in part
without approval or ratification,
approve, ratify, or disapprove
subcontract termination
settlements.
FAR 49.108-3(c) Settlement
procedures.
Promptly examine each subcontract settlement received to
determine if the:
Subcontract termination was made necessary by the termination
of the prime contract.
Settlement was arrived at in good faith, is reasonable in amount,
and is allocable to the terminated portion of the contract (or, if
allocable only in part, that the proposed allocation is reasonable).
In evaluating the reasonableness of any subcontract settlement,
generally consider:
The requirements for the settlement of prime contract
terminations;
The subcontract audit requirements at FAR 49.107; and
Agency review requirements in accordance with FAR
49.111.
Based on the examination results, notify the contractor in writing
of:
Approval or ratification; or
The reasons for disapproval.
FEDERAL ACQUISITION INSTITUTE | Contracting Professionals Smart Guide | Contract Administration | Termination 12
Tasks
FAR Reference(s)
Additional Information
12. If contractors are authorized to
settle subcontracts terminated in
whole or in part without approval or
ratification, and the prime
contractor is unable to reach an
acceptable negotiated settlement
with a subcontractor, resolve the
problem.
FAR 49.108-6 Delay in settling
subcontractor settlement proposals.
FAR 49.108-7 Government assistance
in settling subcontracts.
FAR 49.108-8 Assignment of rights
under subcontract.
FAR 49.108-5 Recognition of
judgments and arbitration awards.
Alternatives include:
Excepting the subcontractor settlement proposal in
whole or part from the remainder of the settlement and
reserving the rights of the Government and the prime
contractor with respect to the subcontract settlement.
When a subcontractor obtains a final judgment against a
prime contractor or wins an arbitration award, treat the
amount of the judgment/award as a cost of settling with
the contractor, to the extent the judgment is properly
allocable to the terminated portion of the prime contract,
if the requirements at FAR 49.108-5 have been met.
If the prime contractor consents and it is in the
Government’s interest to provide assistance to the prime
contractor in the settlement of a particular subcontract,
the Government, the prime contractor, and a
subcontractor may enter into an agreement covering the
settlement of one or more subcontracts. In these
settlements, the subcontractor must be paid through the
prime contractor as part of the overall settlement with
the prime contractor.
The termination for convenience clauses (except the short-form
clauses) also provide the Government the right, at its discretion,
to settle and pay any settlement proposal arising out of the
termination of subcontracts. When it is in the Government’s
interest, the contracting officer can, after notifying the contractor,
settle a subcontractor’s proposal using the procedures for
settlement of prime contracts. Direct settlements with
subcontractors are not encouraged.
13. Establish the Government’s
prenegotiation position on the
settlement and negotiate.
FAR 15.406 Prenegotiation objectives.
FAR 49.105 Duties of termination
contracting officer after issuance of
notice of termination.
In establishing a prenegotiation position:
For any fixed-price contract termination settlement, apply
the principles at FAR 49.2 in determining the settlement
amount (including any deductions under 49.204). For
incentive contracts, the settlement should conform to
FAR 49.115(a).
For any cost-reimbursement termination settlement,
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FAR Reference(s)
Additional Information
apply the procedures and principles in FAR 49.3. For
cost-plus- incentive-fee contracts, the settlement should
conform to FAR 49.115(b).
Consider the results of any audit of the prime
contractor’s settlement proposal that was needed or
required under FAR 49.107 and the results of any other
analysis by Government personnel.
Incorporate judgments or awards as prescribed at FAR
29.108-5.
Cover any setoffs that the Government has against the
contractor that may be applied against the terminated
contract.
Cover all settlement proposals of subcontractors or
identify those, excepted and reserved for separate
settlement.
Cover any reservation following the requirements
prescribed at FAR 49.109-2.
Deduct an appropriate amount from the amount otherwise due
the contractor for Government property for which the contractor
cannot account.
Include any assignment of rights under subcontracts that
are in the Government’s interest.
Consider the use of a partial settlement using the criteria
at FAR 49.109-5.
Consider any request for partial payment using the
criteria at FAR 49.112-1.
Negotiate in good faith to obtain a reasonable
settlement.
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FAR Reference(s)
Additional Information
14. If no negotiated agreement can be
reached, issue a unilateral
settlement by determination.
FAR 49.109-7 Settlement by
determination.
Settle by determination when:
The Government and contractor cannot reach a bilateral
agreement on all elements of outstanding cost; or
The contractor has not submitted a settlement proposal
within the period stipulated in the termination clause.
Give the contractor at least 15 days advance notice by
certified mail (return receipt requested) to submit written
proof substantiating its settlement proposal.
Consider any proof provided by the contractor concerning
its proposal, including vouchers, verified transcripts of
books of account, affidavits, audit reports, and other
documents.
Request the contractor to submit any additional
documents and data (e.g., appropriate accountings,
investigations, and audits) necessary to support its
proposal.
Accept copies of documents and records without
requiring original documents unless there is a question
of authenticity.
Hold any conferences considered appropriate:
To confer with the contractor; To obtain additional
information from Government personnel or from
independent experts; or
To consult persons who have submitted affidavits or
reports.
Prepare the determination following the requirements at FAR
49.109-7(d).
Retain all written evidence and other data relied upon in
making a determination, except that copies of original
books of account need not be made. Return books of
account, together with other original papers and
documents, to the contractor within a reasonable time.
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FAR Reference(s)
Additional Information
15. Prepare a settlement negotiation
memorandum.
FAR 49.111 Settlement negotiation
memorandum.
At the conclusion of negotiations, prepare a settlement
negotiation memorandum describing the principal elements of
the settlement for inclusion in the termination case file and for
use by reviewing authorities.
Document the pricing aspects of the settlement following
the requirements of FAR 15.406-3.
If the settlement was negotiated on the basis of
individual items, specify the factors considered for each
item.
If the settlement was negotiated on an overall lump-sum
basis, it is not necessary to evaluate each item or group
of items individually, but the memorandum must support
the total amount of the recommended settlement in
reasonable detail.
Include explanations of matters involving differences and
doubtful questions settled by agreement, and the factors
considered.
Include any other matters that will assist reviewing
authorities in understanding the basis for the settlement.
Distribute the memorandum in accordance with the requirements
of FAR 15.406-3.
16. Obtain reviews and clearances of
the proposed settlements.
FAR 49.111 Review of proposed
settlements.
Each agency must establish procedures, when necessary, for the
administrative review of proposed termination settlements. When
one agency provides termination settlement services for another
agency, the agency providing the services must also perform the
settlement review function.
17. Make final payment or, where the
partial payment was in excess of
the final amount of the settlement,
demand repayment.
FAR 49.12-1 Partial payments.
FAR 49.112-2 Final payment.
Accomplish final payment or repayment in compliance with FAR
49.112-1(g) and 49.112-2.
18. Calculate and release excess
funds.
FAR 49.604 Release of excess funds
under terminated contracts.
Follow agency procedures for releasing excess funds.
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FAR Reference(s)
Additional Information
19. Given a contractor’s request for an
equitable adjustment on the
remainder of a fixed-price contract
partially terminated for
convenience, make an equitable
adjustment (when appropriate).
FAR 15.404-1 Proposal analysis
techniques.
After partial termination, a contractor may request an equitable
adjustment in the price or prices of the continued portion of a
fixed-price contract.
The TCO must forward the proposal to the contracting
officer except when negotiation authority is delegated to
the TCO.
The contractor must submit the proposal in the format of
Table 15-2 of FAR 15.408.
When the contracting officer retains responsibility for
negotiating the equitable adjustment and executing a
supplemental agreement, the contracting officer must
ensure that no portion of an increase in price is included
in a termination settlement made or in process.
The TCO must also ensure that no portion of the costs
included in the equitable adjustment are included in the
termination settlement.
FEDERAL ACQUISITION INSTITUTE | Contracting Professionals Smart Guide | Contract Administration | Termination 17
Part C: Termination of Contracts for Cause or Default
Tasks
FAR Reference(s)
Additional Information
1. Document the case for terminating
a contract partially or completely
for cause or default.
FAR 2.101 Termination for default
[definitions].
FAR 8.406-4 Termination for cause
[ordering activity responsibility].
FAR 12.403(b) Policy [termination].
FAR 22.1023 Termination for default
[service contract labor standards].
FAR 49.401 General [termination for
default].
The Government may terminate a commercial item contract or
noncommercial item simplified acquisition, or any part thereof,
for cause:
In the event of any default by the contractor; or
If the contractor fails to:
o Comply with any contract terms and conditions;
or
o Provide the Government, upon request, with
adequate assurances of future performance.
The Government may terminate a noncommercial item contract,
or any part thereof, for default if the contractor fails to:
Deliver the supplies or to perform the services within the
time specified in the contract or any extension;
Make progress or prosecute the work, so as to endanger
performance of the contract; or
Perform any of the other provisions of the contract of this
clause).
Assure that all applicable procedural requirements for
default at FAR 49.402-3(a) to (f) have been met.
2. Discuss the propriety of terminating
a contract for cause/default with
technical personnel and legal
counsel.
FAR 8.406-4 Termination for cause
[ordering activity responsibility].
FAR 12.403(b) Policy [termination].
FAR 49.401 General [termination for
default].
FAR 49.402-3(a) Procedure for default
[termination of fixed-price contracts for
default].
Do not terminate for cause/default unless:
Such action is in the Government’s best interest; and
The facts support a termination for default.
If there is a question about either point above, identify additional
facts necessary to support a decision.
3. Issue notice of termination for
cause/ default.
FAR 12.403(c)(1) & (3) Termination for
cause.
If terminating a commercial item contract or a noncommercial
item simplified acquisition for cause, at a minimum the notice
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FAR Reference(s)
Additional Information
FAR 49.607 Show cause notice
[delinquency notices].
must:
Indicate the contract is terminated for cause;
Specify the reasons for the termination;
Indicate which remedies the Government intends to seek
or provide a date by which the Government will inform
the contractor of the remedy; and
State that the notice constitutes a final decision of the
contracting officer and that the contractor has the right
to appeal under the Disputes clause.
For other noncommercial item contracts, prepare and distribute
the notice as prescribed in FAR 49.102, 49.402-3(g), 49.402-
3(h) and 49.601. The notice must state:
The contract number and date;
The acts or omissions constituting the default;
That the contractor’s right to proceed further under the
contract (or a specified portion of the contract) is
terminated;
That the supplies or services terminated may be
purchased against the contractor’s account, and that the
contractor will be held liable for any excess costs (fixed-
price only, however see FAR 52.246-3(g) with respect to
failure to replace or correct defective supplies);
If the contracting officer has determined that the failure
to perform is not excusable, that the notice of
termination constitutes such decision, and that the
contractor has the right to appeal such decision under
the Disputes clause;
That the Government reserves all rights and remedies
provided by law or under the contract, in addition to
charging excess costs; and
That the notice constitutes a decision that the contractor
is in default as specified and that the contractor has the
right to appeal under the Disputes clause.
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FAR Reference(s)
Additional Information
4. Inform parties who may be involved
in or affected by the termination.
FAR 12.403(c)(4) Termination for
cause.
FAR 49.402-3 Procedure for default.
When issuing the notice of termination:
Make the same distribution of the termination notice as
was made of the contract.
Furnish a copy to the contractor’s surety (if any) when
the notice is furnished to the contractor. Request the
surety to advise if it desires to arrange for completion of
the work.
Notify the disbursing officer to withhold further payments
under the terminated contract, pending further advice,
which should be furnished at the earliest practicable
time.
Also notify other organizations of the termination when
appropriate (e.g., the program office or inspector general).
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FAR Reference(s)
Additional Information
5. Conduct a conference with the
prime contractor to review the
termination process (when
appropriate).
FAR 49.402-3 Procedure for default.
Only conduct a conference when it will facilitate the termination
process. When appropriate, principal subcontractors should be
requested to attend. Consider discussing the following topics
when applicable:
Contractor duties under FAR 49.104;
Extent of the termination, point at which work is stopped,
and status of any plans, drawings, and information that
would have been delivered had the contract been
completed;
Status of any continuing work;
Arrangements for transfer of title and delivery of any
material required by the Government;
General principles and procedures to be followed in the
protection, preservation, and disposition of termination
inventories, including the preparation of termination
inventory schedules;
Contractor accounting practices and preparation of
related forms;
Form in which to submit settlement proposals;
Accounting review of settlement proposals;
Any requirement for interim financing in the nature of
partial payments;
Tentative time schedule for negotiation;
Actions taken by the contractor to minimize the
termination’s impact upon employees; and
Obligation of the contractor to furnish accurate,
complete, and current cost or pricing data, and to certify
to that effect when the amount of a settlement
agreement exceeds the cost or pricing data threshold.
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Tasks
FAR Reference(s)
Additional Information
6. Amend or rescind the termination
notice (when appropriate).
FAR 12.403(c)(4) Termination for
cause.
FAR 49.401 General.
Amend a termination notice to:
Correct nonsubstantive mistakes in the notice;
Add supplemental data or instructions; or
Rescind the notice if it is determined that items
terminated had been completed or shipped before the
contractor’s receipt of the notice.
Upon written consent of the contractor, reinstate the terminated
portion of a contract, in whole or in part, by amending the notice
of termination when the contracting officer determines in writing
that:
Circumstances clearly indicate a requirement for the
terminated items; and
Reinstatement is advantageous to the Government.
7. Settle a cost-reimbursement
contract termination for default,
and proceed to Task 16.
FAR 12.403(c)(2) Termination for
cause.
FAR 49-403 Termination of cost-
reimbursement contracts for default.
When terminating a cost-reimbursement contract for default,
follow the procedures for settling a cost-reimbursement contract
termination for convenience. Comply with FAR 49.403.
In general, follow the steps in terminating for convenience,
except:
Do not allow the costs of preparing the contractor’s
settlement proposal.
Reduce the total fee as provided in the Termination
(Cost-Reimbursement) clause at (FAR 52.249-6(h)(4)(ii)).
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FAR Reference(s)
Additional Information
8. If the contract in question is a fixed-
price contract, determine whether
to accept completed supplies
and/or manufacturing materials.
FAR 49.402-1 The Government’s right.
When it is in the Government’s interest to do so:
Accept completed supplies; and/or
Require the contractor to transfer the title for and deliver
manufacturing materials that the contractor specifically
produced or acquired for the terminated portion of this
contract. Manufacturing materials include partially
completed supplies and materials, parts, tools, dies, jigs,
fixtures, plans, drawings, information, and contract
rights.
The Government must pay the contract price for completed
supplies delivered and accepted. The price for manufacturing
materials is negotiable.
9. Review the contractor’s proposal on
the amount of payment for
manufacturing materials delivered
and accepted, and for the
protection and preservation of the
property in possession.
FAR 49.402-2 Effect of termination for
default.
Request assistance from other members of the Government
acquisition team as necessary.
10. Negotiate an agreement on the
amount of payment for
manufacturing materials delivered
and accepted, and for the
protection and preservation of the
property.
FAR 49.402-2 Effect of termination for
default.
The Government position for negotiation should be based on the
contractor’s proposal, Government analysis of the proposal, and
any other available information.
Negotiate in good faith to obtain a reasonable agreement.
11. Issue a final decision, if no
agreement is reached on the
payment amount for any
manufacturing materials delivered
and accepted, and for any
protection and preservation of the
property.
FAR 12.403(c)((3)(iv) Termination for
cause.
FAR 49.402-3 Procedure for default.
Failure to agree will be a dispute under the Disputes clause.
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FAR Reference(s)
Additional Information
12. Determine the amount owed the
contractor (if any).
FAR 49.402-3 Procedure for default.
In calculating the total amount owed the contractor in a fixed-
price termination for default, consider the following:
The contract price for completed supplies that have been
delivered and accepted.
The price negotiated or set by the contracting officer’s
final decision for manufacturing materials that have
been delivered and accepted by the Government, and for
any protection and preservation of the property.
Any deductions necessary to protect the Government
against loss because of outstanding liens or claims of
former lien holders.
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FAR Reference(s)
Additional Information
13. Select and apply one or more
available remedies.
FAR 12.403(c)(2) Termination for
cause.
FAR 49.402-3 Procedure for default.
The Default (Fixed-Price Supply and Service) clause (FAR 52.249-
8):
Gives the Government the right to acquire the contract
items under the terms and in the manner that the
contracting officer considers appropriate;
Makes the contractor responsible for any excess costs of
reprocurement; and
Reserves any other Government rights under law or the
contract.
The default guidelines for commercial item contracts and
noncommercial item simplified acquisitions state that the
Government is not liable to the contractor for any amount and the
contractor is liable to the Government for any and all rights and
remedies provided by law. The UCC provides a variety of
remedies. For example, the buyer may:
“Cover” by making in good faith and without delay any
reasonable purchase or contract to purchase goods in
substitution of those due from the seller (UCC 2-712);
Recover as damages for any nonconformity or tender the
loss resulting in the ordinary course of events from the
seller’s breach as determined by any manner which is
reasonable (UCC 2-714); or
Recover incidental or consequential damages related to
the seller’s failure to perform (UCC 2-715).
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FAR Reference(s)
Additional Information
14. Reprocure the remaining
requirement (when appropriate).
FAR 8.406-4(c)(1) Termination for
cause [ordering activity responsibilities].
FAR 12.403(c)(2) Termination for
cause.
FAR 49.402-6 Repurchase against
contractor’s account [termination of
fixed-price contracts for default].
For noncommercial item contracts, comply with the requirements
of FAR 49.402-6 when reprocuring.
When terminating a commercial item contract or a
noncommercial item simplified acquisition for cause:
Consider the requirements of both FAR 49.402-6 and
the UCC;
Mitigate or reduce damages to the Government (e.g., by
promptly reprocuring at a fair and reasonable price); and
Compute excess reprocurement costs and incidental or
consequential damages incurred because of the
termination.
Under FSS, when excess costs are anticipated, the ordering
activity may withhold funds due the contractor as offset security.
Ordering activities must minimize excess costs to be charged
against the contractor and collect or set-off any excess costs
owed.
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FAR Reference(s)
Additional Information
15. Demand payment by the contractor
for any amount owed the
Government for reprocurement
costs.
FAR 12.403(c)(2) Termination for
cause.
FAR 49.402-7 Other damages
[termination of fixed-price contracts for
default].
Calculate the amount due the Government considering the
following:
Add:
o The reprocurement costs described in FAR
49.402-6; and
o Any other damages (including administrative
costs) per FAR 49.402-7 after considering any
legal advice on the propriety of adding such
costs.
Subtract any amount owed the contractor, such as:
o The contract price for completed supplies that
have been delivered and accepted;
o The negotiated price or price set by contracting
officer’s final decision for manufacturing
materials that have been delivered and
accepted by the Government and for any
protection and preservation of the property; and
o The amount necessary to protect the
Government against loss because of
outstanding liens or claims of former lien
holders.
The difference is the amount due the Government.
16. Prepare a memorandum for the
contract file explaining the reasons
for the actions taken.
FAR 8.406-4 Termination for cause.
FAR 49.402-5 Memorandum by the
contracting officer [termination of fixed-
price contracts for default].
Document the case for terminating a contract partially or
completely for cause or default. To clarify the actions taken,
consider attaching or specifically referencing:
A copy of the termination notice;
Any agreements negotiated with the contractor;
The reprocurement file; and
Calculation of the amount due the Government as a
result of the termination.
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FAR Reference(s)
Additional Information
17. Ensure that information related to
termination notices and any
amendments are reported in the
Federal Awardee Performance and
Integrity Information System
(FAPIIS).
FAR 8.406-4(e) Reporting [termination
for cause].
FAR 12.403(c)(4) Termination for
cause.
FAR 49.402-8 Reporting information
[termination of fixed-price contracts for
default].
Report information relating to the termination for default notice in
accordance with agency procedures. Report information relating
to a withdrawal or a conversion to a termination for convenience
in accordance with FAR 42.1503(h).
