Terminations for Convenience

The lawyers at Seidman & Associates, P.C. can help your company maximize recovery and receive all costs it is entitled to following a termination for convenience. If your business has questions or concerns regarding the termination for convenience of a government contract, get in touch with a lawyer at our firm today.

Seidman & Associates, P.C. has been assisting firms in maximizing recovery following a termination for convenience for over 30 years. The firm has represented terminated contractors before contracting officers and in litigation.

Paul Seidman is a recognized scholar in the law of termination for convenience. He has lectured widely and published extensively on this topic. His four Briefing Papers and three Nash & Cibinic Report articles are respected source of information concerning terminations for convenience.

David Seidman coauthored with Paul Seidman “Maximizing Termination for Convenience Settlements/ Edition II – Parts I and II,” Briefing Papers No. 08-3 and 08-5 February and April 2008.

The Playing Field

The situation faced by a contractor following a Termination for Convenience is summarized as follows in Paul J. Seidman and David J. Seidman, “Maximizing Termination for Convenience Settlements/ Edition II – Part I,” Briefing Papers No. 08-3: at pp- 1-2, 10, February 2008:

The “Termination for Convenience of the Government” clause in a Government contract conveys broad rights on the Government to terminate the contract when termination is in the Government’s interest. The Government may cancel the contract simply because its needs change regardless of contractor fault. In return for this privilege, the Government agrees to pay the terminated contractor its incurred costs and certain continuing costs in a traditional Government contract. Alternatively, in a contract for commercial items or services under Federal Acquisition Regulation Part 12, the Government agrees to pay the terminated contractor the percentage of contract price reflecting the percentage of completion and charges resulting from termination.

 

All too often, contractors do not know what costs they are entitled to recover following a convenience termination. Contractors may even resort to asking Government personnel for advice. Government personnel, however, are not always knowledgeable, and, more importantly, a contractor request for advice places them in an obvious conflict-of-interest position. Their job is to dispose of termination for convenience claims for as little money as possible rather than to maximize contractor recovery. As a result, contractors often do not claim all their allowable costs in termination settlement proposals and may accept improper disallowances of their claimed costs by Contracting Officers and Government auditors. In addition, contractors may accept less than what they are entitled to receive because of a desire not to offend the customer, or a need for immediate cash.

 

* * *

 

A contractor whose contract has been terminated for convenience should obtain professional help from qualified Government contract attorneys and accountants. Terminations for convenience present arcane legal and accounting problems. The use of qualified professionals can greatly increase recovery.

 

Cost should not be a barrier. Reasonable professional fees related to a termination for convenience are generally recoverable as settlement expenses under the FAR “Termination Costs” cost principle.

General Strategies for Maximizing Recovery

General Strategies this firm has used to maximize recovery following a termination for convenience include the following:

1.Determine if cancellation is a breach of contract entitling a contractor to anticipatory profits rather than a termination for convenience limiting recovery to termination costs;
2.Seek fair compensation as guaranteed by FAR 49.201;
3.Avoid Government second guessing. The Government may not substitute its judgment for a contractor’s reasonable decisions;
4.Claim all allowable costs;
5.Charge indirect costs directly;
6.Avoid loss adjustments;
7.Frontload profit;
8.Request a partial payment;
9.Schedule all inventory;
10.Do not agree to perform terminated work at no cost;
11.Obtain a release from post-termination performance obligations;
12.Request an equitable adjustment for nonterminated work;
13.Submit a timely proposal; and
14.Obtain professional help.

Strategies for maximizing recovery are discussed in detail in Paul J. Seidman and David J. Seidman, “Maximizing Termination for Convenience Settlements/ Edition II – Part I,” Briefing Papers No. 08-3: at pp- 5- 10, February 2008.

Strategies for Recovering Particular Costs

This firm has also developed strategies for recovering particular costs. Such costs include:

1.Costs for contractor caused and concurrent delays;
2.Costs of defective or nonconforming work;
3.Costs continuing after termination such as idle facilities and idle capacity, employee compensation, severance payments, warranties and hardware/software upgrades;
4.Rental costs;
5.Facilities Capital Cost of Money
6.Common Items
7.First article costs
8.G&A expense on subcontractor settlements
9.Settlement expense; and
10.CDA Interest.

Such strategies are discussed in detail in Paul J. Seidman and David J. Seidman, “Maximizing Termination for Convenience Settlements/ Edition II – Part II,” Briefing Papers No. 08-5: at pp- 2-11, April 2008.

Strategies for Particular Contract Types

The firm also has strategies for maximizing recovery for particular contract types including IDIQ contracts, service contracts; cost type contracts and FAR PT 12 contracts for the acquisition of commercial items.

Strategies for maximizing recovery of particular contract types are discussed in detail in Paul J. Seidman and David J. Seidman, “Maximizing Termination for Convenience Settlements/ Edition II – Part II,” Briefing Papers No. 08-5: at pp- -11 – 14, April 2008.

Recovery of Termination Costs Under FAR PT 12 Contracts for Commercial Items

Following the termination for convenience of a FAR PT 12 contract for the acquisition of commercial items a contractor is entitled to recover (1) the percentage of contract price reflecting the percentage of completion, plus (2) reasonable charges resulting from the termination. Court and Board of Contract Appeals cases interpreting this formula for recovery are discussed in detail in Paul J. Seidman, “TERMINATION FOR CONVENIENCE OF FAR PART 12 COMMERCIAL ITEM CONTRACTS: Is Fair Compensation Required?”, 24 Nash & Cibinic Report ¶ 37, August 2010.; Professor Ralph C. Nash and Paul J. Seidman, “Postscript: Termination for Convenience of FAR PT 12 Commercial Item Contracts”, 25 Nash & Cibinic Report ¶ 37, August 2011 and Paul J. Seidman, “Postscript II: Termination for Convenience of FAR PT 12 Commercial Item Contracts”, 29 Nash & Cibinic Report ¶ , April, 2015.

How to Prepare a Termination Settlement Proposal

Traditional Government Contracts

Termination for convenience settlement proposals for traditional government contracts are submitted on forms designated by the Government:

SF 1435 – Settlement Proposal (Inventory Basis);
SF 1436 – Settlement Proposal (Total Cost Basis);
SF 1437 – Settlement Proposal for Cost – Reimbursement Type Contracts; and
SF 1438 – Settlement Proposal (Short Form).

For guidance on how to prepare a termination settlement proposal for traditional fixed price contracts see Paul J. Seidman and Robert D. Banfield, “Preparing Termination for Convenience Settlement Proposals for Fixed-Price Contracts”, Briefing Papers 97-11, October 1997.

FAR PT 12 Contracts for Commercial Items

Settlement Proposals of FAR Part 12 Commercial Item contracts are not required to be submitted on any particular form. FAR 12.403(d)(2) states that the Contractor and CO should agree upon the requirements of the termination proposal. A contractor is not required to comply with the cost accounting standards or contract cost principles when demonstrating entitlement to reasonable charges resulting from termination. The Government does not have audit rights.

The Need for Professional Help

“A contractor whose contract has been terminated for convenience should obtain professional help from qualified Government contract attorneys and accountants. Terminations for convenience present arcane legal and accounting problems. The use of qualified professionals can greatly increase recovery.

Cost should not be a barrier. Reasonable professional fees related to a termination for convenience are generally recoverable as settlement expenses under the FAR “Termination costs” cost principle. The costs of professional help have been held to be recoverable even if it is ultimately determined that the contractor has no termination costs it can claim other than the fees for the professional advice. You should therefore not hesitate to seek help from qualified professionals upon receipt of a notice of termination.” Paul J. Seidman and David J. Seidman, “Maximizing Termination for Convenience Settlements/Edition II-Part I, February 2008 at p. 10 (Citations omitted)

For more information on Terminations for Convenience, see the following publications from Seidman & Associates, P.C.:

• Paul J. Seidman, David J. Seidman; “Maximizing Termination for Convenience Settlements/ Edition II – Part I,” Briefing Papers No. 08-3, February 2008.
• Paul J. Seidman, David J. Seidman; “Maximizing Termination for Convenience Settlements/ Edition II – Part II,” Briefing Papers No. 08-5, April 2008.
• Paul J. Seidman and Robert Banfield, “Preparing Termination for Convenience Settlement Proposals for Fixed-Price Contracts,” Briefing Papers No. 97-11, October 1997.
• Paul J. Seidman, “TERMINATION FOR CONVENIENCE OF FAR PART 12 COMMERCIAL ITEM CONTRACTS: Is Fair Compensation Required?”, 24 Nash & Cibinic Report ¶ 37, August 2010.
• Professor Ralph C. Nash and Paul J. Seidman, “Postscript: Termination for Convenience of FAR PT 12 Commercial Item Contracts”, 25 Nash & Cibinic Report ¶ 37, August 2011.
• Paul J. Seidman, “Postscript II: Termination for Convenience of FAR PT 12 Commercial Item Contracts”, 29 Nash & Cibinic Report ¶ , April, 2015.
• Paul J. Seidman, “Postscript III: Termination for Convenience of FAR PT 12 Commercial Item Contracts”, 33 Nash & Cibinic Report ¶ 26, May 2019
• Paul J. Seidman, “PARTIAL TERMINATIONS FOR CONVENIENCE: Recovering Reallocated Overhead and Other Costs by Submitting Timely REA On Continuing Portion ” 34 Nash & Cibinic Report ¶28, May 2020

Seidman & Associates, P.C. can help your company or business seek all of the costs you are entitled to following termination of your government contract for convenience. If your business has inquiries or concerns regarding the termination of a government contract, get in touch with a lawyer at our firm today. A member of the firm can assess your situation and take the steps that are necessary to maximize your recovery for a termination for convenience.

Disclaimer

The aforementioned statement of general principles applicable to terminations for convenience is not intended as legal advice. In order to obtain legal advice applicable to specific facts a consultation is required.