Purchase Tom Reid's Books here:

I just received a “Termination for Convenience” letter from
my Contracting Officer. Can she do that? What should I do?

CCS offers the following from our Chief Problem Solver, Tom Reid:

The shortest answer is – “CALL US – RIGHT AWAY!” But seriously, a T4C (as it is often called) is a dramatic, but not terribly unusual event. It reflects the public policy that when the government’s needs change, it should not have to continue with purchasing a good or service that it no longer needs. Unlike commercial contracts where a T4C would be considered a breach of the contract, the T4C clause is built into government contracts.

Once you have “sold” a program to the government, there is no guarantee that you get to keep it. There are many reasons why a program, project, or specific contract might be stopped. The government’s needs might have changed, the funding may have been cut by Congress or as a result of reprogramming, or the agency may need to take a corrective action due to a flaw in the initial procurement. Bottom line, the “Termination for Convenience” clause permits the government to end the contract and limit the damages a contractor can claim. As an interesting side note, even if the clause is omitted from your contract, public policy dictates that the clause be “read into” your contract anyway under the “Christian Doctrine,” named after the case GL Christian & Associates. So yes, the contracting officer can terminate your contract.

As to what to do, the short answer is to do what the letter says to do. In summary, you should immediately stop all work, notify your subs and suppliers to stop work, assess the status of work in progress, do whatever is necessary to preserve the material, work-in-progress, and finished product, and (if applicable) begin the Worker Adjustment and Retraining Notification (WARN) process to lay off the affected employees. If any portion of the work has NOT been terminated, work should continue on those tasks.

Unlike a commercial contract, your damages will be limited. You will get paid for product you have completed and for work performed on product that is not yet complete. You will also (usually) get paid for what you have to pay your subcontractors and suppliers for terminating their contracts. Very importantly, you also get paid your costs in preparing and negotiating the termination claim proposal. This is another good reason not to try to go it alone. Call in an expert. Their costs, if reasonable, are recoverable in the process.

If you were unfortunate enough to be in a loss position on the underlying contract, the contracting officer is required to “preserve the loss.” This is an area of negotiation where CCS can help as well.

Once you have taken the initial actions to mitigate the costs to the government, you then must prepare a proposal or, more accurately, a “termination claim,” that includes all of the costs you are entitled to. This is submitted to the government and following a review, a settlement is negotiated and documented in a “Termination Settlement Mod.” Typically, you can’t invoice until this modification is issued, but there are some circumstances where interim payments can be made. Again, professional advice can be very useful here.

Terminations are not pleasant events, but they do not have to be a total disaster unless you mismanage the process. Understand your rights, do your homework and, if possible, call in some experts to guide you.

NOTE: CCS is not authorized to practice law or accounting. This information should not be relied on in any particular facts you may have without checking with a properly licensed professional.