Government Contract Terminations Explained

Different types of contract terminations can occur based on different reasons. As a contractor, you need to understand the different types of terminations. It's important to note that terminations are done after the contractor has already started work. If a contractor has NOT incurred cost, then a "No-cost cancellation" should be the appropriate route. No cost cancellations do not cost anything to the government or contractors.

There are three primary types of terminations: Termination for Cause, Termination for Default, and Termination for Convenience.

Terminations can occur for multiple reasons

1. Termination for Cause

Termination for Cause is applicable to contracts for the purchase of commercial items. This type of termination occurs when the contractor fails to meet the terms and conditions of the contract. It is similar to Termination for Default but is specific to commercial contracts.

Circumstances:

• Failure to deliver the product or service as required by the contract.

• Failure to comply with any other contract terms.

• Any act that constitutes a breach of contract, such as not following safety protocols or providing substandard work.

Consequences: The government may pursue remedies similar to those under Termination for Default, including acquiring the goods or services from another contractor and charging the original contractor for any additional costs incurred. The contractor may also be held liable for any damages resulting from the termination.

2. Termination for Default (T4D)

Applicable To: Non-commercial Contracts

Definition: Termination for Default is a more severe action where the government terminates a contract due to the contractor's failure to perform as stipulated in the contract. This type of termination is used primarily for contracts that do not fall under FAR Part 12 (non-commercial items).

Circumstances:

• Failure to deliver goods or services within the time specified.

• Failure to make progress so as to endanger performance of the contract.

• Failure to comply with any other terms and conditions of the contract.

Consequences: The government can demand repayment for any excess costs incurred in re-procuring the goods or services from another contractor. The terminated contractor may also face reputational damage and a possible negative impact on future contract awards. Furthermore, the contractor may be placed on a list of entities that are barred from receiving future government contracts (debarment).

Opportunity for Correction: Before terminating a contract for default, the government usually provides the contractor with an opportunity to cure the deficiencies, typically through a "cure notice" or "show cause notice." If the contractor does not address the issues satisfactorily within the specified period, the government can proceed with the termination.

3. Termination for Convenience (T4C)

Applicable To: All Types of Contracts

Definition: Termination for Convenience allows the government to terminate a contract, in whole or in part, when it is in the government's best interest, even if the contractor has not failed in any way. This type of termination is not a result of the contractor’s actions but rather due to changes in government priorities, funding issues, or other external factors.

Circumstances:

• Change in government requirements or priorities.

• Budget cuts or reallocation of funds.

• Shifts in political, economic, or strategic considerations.

Consequences: Unlike the other types of termination, when a contract is terminated for convenience, the contractor is typically entitled to compensation for work completed up to the point of termination, including costs incurred and a reasonable profit. However, the contractor is not entitled to compensation for anticipated profits on the terminated portion of the contract.

Procedure: The contracting officer will issue a notice of termination, and the contractor must immediately stop work, protect and preserve property related to the contract, and submit a settlement proposal. The contractor and government will then negotiate a fair compensation for the work performed and costs incurred.

tl;dr

Below is a table that breaks down the different types of terminations in government contracts.

Termination Types	Description	Commercial	Non-commercial
Termination For Cause	Contractor failed to deliver	X
Termination For Default	Contractor failed to deliver		X
Termination For Convenience	Terminated for the convenience of the government	X	X

If your contract is in the middle of the termination process, you need to fight for a T4C (Termination for convenience). This termination type will not go on your record.